LIDL’s Operating Model within the UK
LIDL’s Business systems and operation within the United Kingdom seem to improve due to conducive and enabling business environment. The operating profits of LIDL business have increased over the past years. As shown by Ackley and Steeneken’s business model for supermarket LIDL’s Business is a retail supermarket (Ackley and Steeneken, 2011). Just as B&M, Aldi and Wilko, LIDL Provides services to clients but does not produce its products. Their business model is designed by a functional system which focuses on bringing the product closer to local customers from the suppliers. Supermarket companies define themselves as discount retailers who are close to customers and lie between general merchandise discounters and specialist retailers. The primary operating strategy for LIDL Company is too fast-moving stock products where 30% of the products are purchased directly from Far East suppliers.
In contrast, the rest product is bought from the manufacturers as stock clearance sales when their clients had over-ordered (Butler, 2016). The main focus of this business is a wide variety and volume and also offering excellent value to clients. LIDL secret is to work with manufacturers to keep operating cost low and be able to plan for products delivery, control of purchases, controlling value for the customer while keeping prices low.
The LIDL annual report of 2015 specifies a model to allow the organization to follow Slack et al.’s. Operation performance objectives. Slack’s model has seven spokes, and each part supports the next section to create a distinguished business model. The LIDL business philosophy takes into consideration of the seven pieces, thus making it able to work with other business partners effectively. The use of seven business elements enables LIDL to reduce cost, increase the quality of goods and be flexible in its operations.
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LIDL philosophy is to ensure all things operate in a simple process while offering a quick and precise discussion making process. LIDL focus on big brands at low prices and emphasize the high quality of the products they purchase. LIDL concentrates on leading brands for fast-moving consumer products rather than fast goods from unbranded products (Retail BM Limited, 2016).
According to Slack 2010, retail companies become successful if they systematically use their resources and competence. Utilizing third part of Slack’s seven spokes, ‘disruptive sourcing processing’, LIDL was able to outsource partnership with manufacturers and therefore control cost and quality of the products. This made the company gain the power to control their purchases and sales by deciding on the best method to deliver products.
The Efficient Consumer Response (ECR) accentuates that supply management is an essential aspect of controlling customer modes of consumption through the supply chain and demand management creating consumer value and enhancing promotions (Småros and Kämäräinen, 2014). LIDL distinguishes different customer behaviours and market trends to make sure all retail shops are topped-up. This information is vital since it will not allow the creation of shortages of product.
Facilities Location
LIDL retail supermarket is viable because of its strategic position of their stores. Location contributes mostly to the viability of any business. LIDL locates itself in an area surrounded by private’s homes and retail parks. A LIDL store identifies itself as a top-up store for its customers and does not deal with fresh foods. They have excellent customer relation online services where clients are prompted to enter their mail before any purchase. This helps the company do follow-ups and updates weekly about new products, and the latest promotion offers and encourage customers to shop at LIDL for lower prices. LIDL also, reassures customer to post theirs till of postcode which helps the company to know the social class they can categories clients and give an insight of how far the customer has travelled to research and analysis. LIDL saves on advertising because they mostly rely on word of mouth instead of advertising. LIDL have high visibility since their sales are increasing every year even without advertising.
According to Checkland (2006) if the problem is messy and complicated, it is advisable to use Soft Systems Methodology (SSM) approach to evaluate and analyses different sensitivities that might be involved in a business situation. Soft Systems Methodology will be used to studies essential challenges LIDL is facing due to the introduction of an online platform that will allow customers to order products online and have they delivered at their doorstep. This method has seven parts; some addresses conceptual world while others addresses real world situations. According to Checkland (1999) the first step is “Problem Solution” definition to be able to acknowledge and explore the situation in some way.
The Problem Situation
LIDL major competitors are Wilko and Aldi, however the UK online grocery market is controlled by Tesco, Asda, Sainsbury’s and Waitrose. Following the British Retail Consortium (BRC) research 20% increase in online purchases in 2016, an analysis which is considered the fastest increase in previous years. Contrary to this, BBC article stated that the BRC’s survey found there had been approximately 0.8% decrease in online sales in the past years as sales had experienced increase in competition. Online marketers’ failure to put proper strategy has led to decrease in sales and also suffered stiff competition from the competing companies. LIDL UK company is argued to be late in introducing online goods delivery services and website. They launch their website in early 2015, however despite introduction of online website, sales had dropped by a big margin in the two consecutive years,2016 and 2017.
“The consumer research and training charity IGD” have outlined that online have predicted that online trade is likely to doubles in value and improve by a greater percentage compared to present situation. It furthermore forecasted that the subsequent fastest growth will be experienced in food sector as they are set to almost double by 90%, compared to the current rating of 45%. Chief executive of IGD said that close to 30% of the buyers respond to their survey and revealed that they will majorly use food discounted in the coming year compared to the current year where only 20% used food discounters.
Buyers shopping behavior has heavily impacted on the growth of online food shopping with appropriate and time factor being a considered factor. Online customers want stress free shopping without spending much of their time on visiting shops especially in an era where home delivery is common and convenient compared to past years. Some LIDI UK main competitors are yet to launch the online website while others have recently launched their online websites in 2019, however they don’t sell all the products but only special items like wine cases and kitchenware. Some competitors responded to customers’ wants as well. This strategy was however to the disadvantage to LIDL UK as some competitors like Wilko have taken the early lead and familiarized itself with shoppers.
This paper has outlined the importance of LIDL UK giving an online shopping option to its customers. LIDL UK therefore requires the availability of competitors as they are conversant with shoppers’ needs, initially its too late for online move. In addition, this paper, clearly explains the information that is customer based accepted to shop at a relatively cheap price and therefore LIDL UK need to use this to their advantage, not only to grow its retail capability but also online sales is predicted to doubles.
By LIDL UK adopting online operation, challenges are not exceptional, online operations needs a good system management, this can a major setback, however they need to consider all the required components that facilitates online operations to run smoothly and effectively.
Online Grocery Sector Models
LIDL UK can either consider adopting a “decentralized or centralized approach “when entering online operations as this will helps in managing inventory, considering the online delivery process, customer value process and all the cost incurred in the whole operation remains competitive. To explain a result to the problem, varied models need to be considered and evaluated.
A method where employees simply pick orders online form the existing stores for home delivery. Many companies have adopted this method and utilizing decentralized approach has been proven reliable, convenient and customer satisfying. On the contrary, to maintain the demand of online orders, some companies using this approach has opted to double the online website space to accommodate the demand and supply to different centers This approach make use of dark stores, where orders are taken in a warehouse and supplied direct to customer, Using this approach it facilitates easy availability of goods and make online shopping more convenient method for a lot of shoppers compared to when goods are taken from stores.
All this supermarket respectively makes home delivery with varied range from as low as 1 Euro, where a representative offer free home delivery. Nonetheless, they provide collective services, most of LIDL UK competitors provided this service with the minimum spend possible, however some has a minimum of 40 Euros for this service to provided freely. In 201, WILKO major LIDL UK competitor realized that more than 50% of its customers use click and collect services, therefore LIDL UK should adopt collect services as one of the methods facilitating online sales.
Operation Strategy Priorities Model
Retailers and customers can experience online retail operations very complex with several factors. This factor can be considered as setbacks for major online operations for LIDL UK, some of these are costs, quality, speed and dependability.
LIDL main focus should therefore to provide low cost goods and services to its customers. Coming up with online services could cut the cost for delivery vehicles as well the cost of storing the inventory in the warehouses. LIDL UK .should as well be able to maintain partnership with all the manufacturers to manage affordable goods and services.
. standards of high quality are important to LIDL UK and cost implications may impact the quality of goods if control measures are compromised
quickness in terms of delivery to the customer, time and cost need to be considered so as to avoid inconvenience which is the key. LIDL UK are required to keep up with current online retailers and be able to offer the same lead time. LIDL UK needs to be dependent it needs to ensure they can deliver what they promise to their customers. There is a necessity for LIDL UK to deliver on time and to be able to provide the customer with products they chose and not a substitution.
LIDL UK will need to be flexible and have the ability to change operations. They need the ability to improve the value and volume of production and the time taken to produce their quality products.
Proposed Solution
Due to the factors above LIDL UK have to take into consideration the possible solution for LIDL UK online shopping service has been outlines below.
LIDL UK should implement a dispersed approach using the picking in store model to introduce their online shopping services. In 2017, LIDL UK were able to open two new distribution centers within UK, the role of this centers is to ensure stores are fully stocked as sales increase. In the past few years these centers could be used as dark rooms if LIDL UK online sales are successful and they need to integrate their approach. It is in appropriate for LIDL UK to use a centralized approach, as it would raise costs and make a complex structure for LIDL UK to manage its suppliers. A decentralized approach was used successfully by most UK people when they first introduced themselves online and LIDL UK are still finding this method successful.
Before customers start shopping online, they will be encouraged to access their postcode which will direct them to the relevant website which would be connected to their local store. The employee will process this order and picking the items from the shop floor as directed from the store. This can be appropriate method to use in the current operations of the store and staff resources would encourage the process to be effectively managed.
This method allows LIDL UK to take into contemplation the trends in the market and behavior of customer when choosing their products from manufacturers, ensuring LIDL UK keep their partnership with the manufactures so that they can provide low priced products.
LIDL UK will need to give specific time for delivery to compete with other online retailers, and delivering their products at low charge, according to shopper trends where convenience is the main issues. To ensure LIDL UK cover the implications cost of this service they should allocate a minimum- spend of for customers to qualify for home delivery.
Parcel Conundrum
LIDL UK will be required to put into consideration the chain of delivery for its online operations. The parcel conundrum is a continuing challenge that companies need to overcome to ensure good customer service and customer satisfaction. In the UK 10% of deliveries fail during the first time, costing the company an estimated £3bn in redeliveries. It was also discovered that many online shoppers had problems with their delivery.
LIDL UK should use the external delivery company so as to provide high quality order fulfilment services to online shoppers. They should update the Customers throughout the process of their order, through notifications via email or text customers want a accurate way of tracking their deliveries, this will assist in doing away with second delivery attempt as buyers will be able to ensure that they are home for delivery. This will reduce the need of a second delivery attempt as customers will be able to make sure they are home for the delivery. Consequently, this move will reduce poisonous emissions that harm the environment as reported in some other cases.
