Economics · The Secret Of Systems

How Can Lidl Be So Cheap?

The Secrets Of Systems, Part 1

Strip out the quality and make it cheaper. That's the supermarket
If you can’t taste the difference, what’s to choose?

There’s an old marketing adage, and it goes something like this: “Consumers don’t want choice, they want what they want.” Put the other way, someone coming into a shop wants to buy something, and doesn’t want any hassle when it comes to buying it.

Discount supermarkets Aldi and Lidl have been named the world’s top brands for giving customers a simple, clear and hassle-free shopping experience.

Daily Telegraph

The problem for the shop-owner is that they can’t read the mind of the consumer, and so provide them with a range of options that the consumer might want. The problem here, of course, is that the consumer only wants one of them… in my post about Ritter Sport several years ago, I described their problem: half of all their sales are for the whole hazelnut variety. I have my own favourite, but this isn’t available here in Holland. Now you know why I visit Germany so frequently!

Bars of Ritter Sport chocolate spread on the floor of a supermarket in Lüneburg, Germany.
Bars of Ritter Sport chocolate spread on the floor of a supermarket in Lüneburg, Germany.
Hazelnut is right at the bottom.

Which is the point: I want Expresso where most want Hazelnut. Obviously no supermarket worthy of their name will stock a poor seller like Expresso, irrespective of the Dutch addiction to coffee – and my friend Hendrik’s delight in that chocolate when it arrives in his home after one of my chocolate-hunting forays into neighbouring Germany.

The supermarket knows what sells.

What we have here is a disconnect between the way the supermarket sells things and the way people buy from a supermarket. Well, we do, just as long as they’re making choices that aren’t based on price alone. This is, by the way, the single and only key to knowing what a business needs to do in order to improve their profits, the so-called ‘turnaround’. It does take customers making choices, it does take studying the accounts for their behaviour, and it does take some courage in implementing what appear to be counter-intuitive policies. Never mind that, do it and you will see an immediate and permanent improvement in profits.

The System As Perceived Profit Improver.

The great thing about a system is that you have absolute control over it. There is no interference, no problems and just as long as you employ people who agree with you, no dissent. There are a few of you who will read this and understand who I am talking about; no matter, it is the reality of a supermarket.

A view of a super-supermarket. Can you tell where it is by looking at it from the inside?
A view of a super-supermarket.
Can you tell where it is by looking at it from the inside?

Everything the supermarket does looks at the world from the point of view of the system, and justifiably so: the supermarket belongs to someone, and in it being their property, they have the right to say what goes. Knowing this means the profits belong to the owners too. This important point is the key to understanding why people bother with systems at all.

The most important thing to realize about a supermarket is that the owners are extremely good businessmen who know their business inside out and back to front. They know what sells, they know how to hammer suppliers and, as mentioned, there is no dissent from this point of view.

Competition.

You see, the real – but unspoken – problem for the supermarket owner is that it really doesn’t take much imagination to think of a supermarket. Other people had the same idea too. What is so galling is that they just won’t give in, won’t yield to your obvious superiority. You can advertise that you are the biggest and best, but all they do is to advertise that they are better than you.

Which obviously can’t be true. Can it?

After all, you head-hunted their chief sales manager last year, and he agrees with everything that is said. Not that it took much imagination to say any of it, but that’s why he’s a chief sales manager and not just stacking shelves.

The Supermarket As A System.

Supermarkets had displays because it was attractive. It cost money, and was abolished.
A supermarket display on Third Avenue, Manhattan, in the 1930s.
This kind of display cost a lot of money, and is long since discontinued.

As you can imagine, the supermarket owner wishes to improve his profit margins. There is one sensible route to this, and this is to remove any frills or unnecessary costs. Gone are the staffed counters where the customer would ask to be served, and the staff would serve them. Gone are the manual tills that took so much expertise to operate. Gone is the ordering department in the store, keeping a tab on stock levels. Gone, indeed, is the warehouse out the back where things were kept. Gone, too, are all the skilled jobs that performed those necessary tasks.

Arrived are the computers: equipment that belongs to the owners. No money wasted there, then! That money has bought something tangible and real. It wasn’t wasted on paying someone to provide a service that nobody wants. Those who are doing jobs are now on minimum wage because there is no real skill needed any more. It is the ultimate in the de-skilling of the labour force, and means the supermarket can install workers with the minimum of effort.

A well appointed supermarket in Holland.
My local supermarket. Just behind the chap walking to the right is a coffee machine. It serves real, freshly ground coffee – and is free.
There are times I really like living in Holland 🙂

What’s more, customers are happy enough to supply themselves and thus save the supermarket a lot of money. They are more than happy to drive ten miles to the nearest super-supermarket to do their weekly shop. They’re more than happy to weigh the groceries and scan the barcodes themselves and thus save themselves having to wait at the checkout. De-skilling has real advantages in that customers needs few skills to do the work that was once done for them.

It also means that the supermarket owners can retain their profit margins and, what with the fierce competition, cut prices. Well, it’s what customers want, isn’t it? This is the process that Rudolf Steiner terms ‘Purchase Money’.

Arrived are the computers: the barcode scanner that leaves only the tedious job of counting money and handing out change. The logistics system that takes the information of stock sold and applies this to the inventory. Gone too, is the warehouse and all its staff, to be replaced by forty foot lorries and their twice-daily deliveries of all that is needed from a central, computer-operated warehouse. The computers of which are, naturally enough, connected to those in my local supermarket.

Now all fo this sounds a little depressing, all those jobs replaced with tedious and mind-numbing jobs, or a machine. But the owner had to save money somehow, didn’t he? And they are usually a ‘he’ because ‘he’s’ are more likely to agree with a ‘he’. Anybody who disagrees is either dutifully cooking his dinner or isn’t employed by a supermarket.

Well, that’s why I’m writing this, and not Ton van Aardbol, the owner of my local supermarket. To him it’s second nature to see his margins eaten away, isn’t it? It’s been like this for his entire life, and there’s nothing he can do about it.

And then came Lidl.

Remember this?

Discount supermarkets Aldi and Lidl have been named the world’s top brands for giving customers a simple, clear and hassle-free shopping experience.

So what are the discounters actually doing? They are giving their customers exactly what they want: cheap food. What do the customers care about flavour? In a world stripped of quality, the only thing left is the price. What do the customers care about choice? In a world where everything tastes the same, there is only one choice of brand: that which costs the least. What do the customers care about the experience of shopping? They’ll as happily go down a side-street between a bus depot and a carpet discounter to find a warehouse with a sign saying “Lidl” on the side of it.

Which is why the established supermarkets are having a hard time: they can’t compete with discounters who have stripped the skeleton bare of any innecessary bones – like the skull and backbone. Who needs brains and who needs courage when all one needs is to get things done? They have stripped out all the different brands and sell only their own: reducing the range from (say) 40,000 items to a more reasonable 10,000 has obvious advantages.

When it comes to the costs of supplying them, that is.

Are people really clever because they can tell if one price is higher than another? The Dutch seem to think so.
Are people really clever because they can tell if one price is higher than another?
The Dutch seem to think so.

The warehouses can be smaller, the computer systems less complex, the shelves themselves stacked with opened boxes that have arrived direct from the lorry. It all saves money, it all means fewer people that need paying – and the consequent feelings of loss that a businessman feels when his money does not buy him something tangible and real.

For the customer who only needs that which is tangible and real, the cheapest food is the best. It’s not as if they need service that just interferes with their weekly round of the supermarket, it’s not as if they need flavour or choice. They get exactly what they want. Tasteless food in a tasteless environment to take home on tasteless streets to a tasteless flat on the tenth floor of a tasteless tower block.

 

The Secret Of Systems, Links To Other Parts In This Series:

Part 1: How Can Lidl Be So Cheap?

Part 2: All Hard Drives Look Alike.

Part 3: A Different View Of Karma. (Published Privately).

Part 4: The Value Of Money.

Part 5: Google’s Panda Algorithm. (Technical)

Part 6: Thomas Hardy And Friedrich Nietzsche. (Published Privately).

Part 7: That’s Not Fair Play!

Part 8: Confessions Of A Lapsed Adwords Jockey.

Part 9: When The System Bites Back.

Part 10: I Admit It: I Made A Mistake.

Please note that privately published posts are available to trusted friends without cost. The content is not intended for the general public and is restricted to those who can demonstrate that they understand the nature – and implications of – Rudolf Steiner’s scientific thinking. It is not for the unready.

In certain circumstances, pdfs of these posts are available on request; you may do so by leaving a comment. This will tell me if you can grasp the nature of the post you are enquiring about. The comment itself can be left unmoderated or deleted if requested.

 

 

 

 

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2 thoughts on “How Can Lidl Be So Cheap?

  1. Lidl like Aldi are relative newcomers to the UK market. Their business model appears to include property development. For example, a couple of Lidls close to where I live involved acquisition of 1) an old C20th pub and 2) struggling retail units. In both cases Lidl sought and got planning permission for residential units above the proposed new supermarkets. I don’t know for sure but I suspect that the chosen builder probably covered the cost of the supermarket build (and possibly even the cost of the land purchase). In the most recent development approximately 60 residential units have been built on top of or adjacent to the supermarket with the one bedroom studios being sold at the £400,000 mark. In short if you don’t have capital costs or historic land acquisition costs you can afford to offer lower prices than established supermarkets that have legacy costs…

    S

    Like

    1. Aldis and Lidls in Europe tend to be the standard shape of supermarkets in Europe: metal boxes that have a low pitched roof and an entrance that has something resembling a portico.

      The better class of supermarket – Edeka and Rewe – often have a bakery attached. But they’re still just grey boxes that have been planted on ex industrial areas or derelict railway yards. Everything else in a city is too expensive.

      Perhaps the kind of planning regulations Britain has allows them to exploit the loophole you mention, which does sound extremely clever.

      Gem xx

      Like

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