April 26, 2012

Lidl's moral dilemma

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Under Greek fire: Local politicians accuse Lidl of overcharging for own label products
In ancient Greek tragedy the hero's moral dilemma often consisted in being damned if he did and damned if he didn't. Worse still: his primary virtue contained the seed of his nemesis.

2,500-odd years later, Lidl, who has opened 230 stores since entering Greece in 1999, faces a similar situation as the bankrupt nation teeters on the verge of a financial and economic precipice.

The hard discount subsidiary of secretive holding company Schwarz Group has become a victim of its own success. Lidl, with estimated 2011 revenues of around €1.6bn, is now the sole discounter on a grim stage; Aldi having (wisely?) quit the troubled country (cf. separate blogs: 12, 3).

The Neckarsulm-based company is currently under attack from Greek authorities who claim that it is selling own label products at excessive prices. In the wake of a growing wave of anti-German sentiment, local media have indicated that the authorities are preparing to take legal action.

Various local internet platforms portray Lidl as a greedy carpet bagger eager to enrich itself at the expense of Greek consumers bleeding in the national debt crisis.

The Greek Vice-Minister for Business & Competition, Xanidis Sokrates, has given official credence to these claims by comparing the prices of 70 Lidl own label lines in France, Italy, Bulgaria and Germany.

The minister has found that Lidl sells considerably more than half of these products at higher prices in Greece. Sokrates now intends to extend his investigation although no legal measures have been taken to date. Meanwhile, some observers have interpreted this international bookkeeping exercise as a mere PR ploy in advance of Greek elections.

That own label and many brands are more expensive in Greece cannot come as a surprise to local retail experts. After all, general price levels in this delightful country have been higher than in many other European nations for a number of years despite low local consumer spending power.

Seen from the point of view of a foreign investor, Lidl hasn't tried to push up prices and has merely adapted to local price levels. "The Germans are definitely cheaper than local retailers," admits one Greek expert who asked to remain anonymous.

Despite offering prices below the local market average, it clearly suits the mood of the times to make Lidl a scapegoat. The company itself refuses to comment beyond the following: "Customer research regularly shows that Lidl offers the cheapest prices in Greek food retailing."

No one would dispute that Lidl earns more per store in Greece than on its cut-throat home market. In the past, net margins on the Hellenic peninsula are said to have hit 10 to 12 per cent!

It is also claimed that Lidl CEO Klaus Gehrig has forbidden local management in Greece from copying special offer prices in Germany. His motto would seem to be: "We don't have to be cheaper than cheap."

Many international retail experts consider it unrealistic and essentially futile to compare consumer end prices between countries. They point, for instance, to different wage, rent and transport costs. Logistics costs alone are generally recognised as being 10 to 15 per cent higher in Greece than in Germany.

This, however, doesn't free Lidl from a moral dilemma. If it sells own label products for less than current market price levels in Greece, it risks looking more like an international aid agency or charity than a company trying to make a profit within a capitalist free-market system.

Clearly, investors also need to make a profit more urgently in Greece than in most other European nations in order to compensate themselves for higher country risk.

Yet, however unfair and tasteless some of the recent anti-German propaganda in the Greek media has appeared even to neutral observers, the fact remains that Lidl comes from a country which, within living memory, invaded Greece in contravention of international law and committed atrocities against the civilian population.

Therefore, not to be seen to make a particularly active contribution to the country in a time of existential crisis, leaves any German company open to endless attack.

Perhaps a fundamental issue is raised here. Is it enough for a systems-driven retailer to export a successful concept abroad as efficiently as possible?

Or does the very desire to cross borders inevitably demand from that same retailer the development of very fine antennae regarding foreign sensibilities? Above all, can such a supremely rational force as German hard discount adapt to the often irrational emotions of very different local consumer cultures?

What will the canny Swabians now do, given that there has not yet been talk of following rival Aldi out of the country? Will Lidl sit the situation out, knowing that it already offers competitive prices compared with the local market place? Or will the Schwarz Group holding make a strategic decision to subsidise its Greek business?

Given this dilemma, one can only be thankful that one is not an international retailer.

 

Based on an article by Hans-Jürgen Schulz in: Lebensmittel Zeitung, no. 15, 13.04.2012

 

 

 


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