Mission and Vision
In order to successfully create a connection with our customers and employees and to build a solid foundation of brand promoters, we stay true to our core values from the successful story in Germany as well as adjust to the Chinese market. Therefore, our mission is to change the way people do grocery shopping from retail to service industry. As we can conclude from our research in previous chapters, the Chinese are curious about and willing to try new technology. So our mission is to change the traditional retail landscape to a well-rounded service industry combined with latest technology. We will partner with the Chinese giant Alibaba to be pioneer in the retail service industry, making people’s life more convenient. Our vision is “Lidl is a dynamic leader in food retail business. Our success is built on innovation, aiming at setting standards for the food industry.” We are aiming to become the leader of food retailer with a wide range of service in the Chinese market. With the continuous innovation, the service we offer is going to change the way people do grocery shopping and make the future near. Convenience, quality, transparency and health are the four features that we are proud of and we will with our effort set the standards for the food industry. Our service will also include a broad range of target audience – anyone that has a smartphone, middle to high income, living in first and second tier cities. Due to uniqueness of our strategy, we will target those customers who own a smartphone, which is a large base of people. According to a study, the number of smartphone users in China reached 663 million in 2017 (Statista) and the percentage of smartphone penetration in the urban areas is even world-leading. In addition, our survey shows that most Chinese customers are willing to use the cashless payment methods. Therefore, we will combine the characteristics of the Chinese market with our innovation to deliver service to as many as Chinese consumers.
According to World Bank Group, China is not the most friendly region to start a business. It ranked China as 90th in the world for ease of doing business, and 128th for starting a business in 2014. While the situation might have been improved over the last years, there are still plenty hurdles for a foreign company to enter the Chinese market. Therefore, our entry mode strategy will be discussed. According to China’s Foreign Investment Industries Guidance Catalogue (2015), foreign invested projects are categorized as “encouraged”, “restricted” and “prohibited”. Since 2015, neither E-commerce nor Commodities belong to “Restricted” categories anymore. As a result, we can technically enter the Chinese market as a Wholly Foreign Owned Enterprise. However, it is fairly difficult to set up due to the long set-up time, high costs and risks. Therefore, Joint Venture is a still a common and popular business type for foreign companies operating in China. As Entering the Chinese market in the form of Joint Venture has several advantages, our strategy of entry mode for the Chinese market is forming a Joint Venture:
· Restricted industries can be invested as Joint Venture. Certain sectors are reserved only for Chinese entities or JVs.
· Chinese partner likely has more experience doing business in China.
· Chinese partner can leverage its “guanxi” or connections.
· Less setup time than WFOE, which requires to go through a lot more procedures .
· Access to Chinese partner’s workforce and facilities as well as sales, distribution and other channels.
· It can potentially avoid or reduce red tape or bureaucratic hassles.
· Chinese partner has the existing market and reputation.
However, forming a joint venture in China can be risky for companies who do not have a formal relationship with their potential partner or extensive experience in working in China. In order to mitigate risks, we will pay attention to following points:
We will make sure that the general manager is not someone from the Chinese partner, instead he or she should be an employee of the JV. We will also make sure that the majority owner of the JV has the right to appoint and remove the Legal Representative and the party with the controlling interest in the JV has the right to control the chop.
Preferred JV Partner:
As mentioned in the previous section, choosing the JV partner is so crucial that it can decide whether the business succeeds or not. With careful consideration, we decide that we will enter the Chinese market by forming a Joint Venture with Alibaba.
Alibaba is China’s — and by some measures, the world’s — biggest online commerce company. Its three main sites — Taobao, Tmall and Alibaba.com — have hundreds of millions of users, and host millions of merchants and businesses. Alibaba handles more business than any other e-commerce company.
Alibaba is the most popular destination for online shopping, in the world’s fastest growing e-commerce market. Transactions on its online sites totaled $248 billion last year, more than those of eBay and Amazon.com combined. Its 334 million active users can provide a large customer base for our company.
Its payment method Alipay, which is transforming China into a cashless society, can realize the non-cashier payment of our strategy. As its name suggests, Alipay is a way to pay for goods and services. But now, it is more than that. It is a global lifestyle super app. It is used by more than 5% of the world’s population. This technology will greatly help with our strategy, which will be explained further in the coming sections.
Logistic is equally an important part. Alibaba has established its own smart logistics system – Taobao Logistics. Taobao logistics refers to an union named Cainiao logistics, it consisted by ali group and domestic courier companies like SF, ST, YT, ZT, Yunda express etc. It is guaranteed that goods can be delivered anywhere in China within 24 hours.
As we can see, there are obvious advances of partnering with Alibaba. By achieving a quicker set-up time will help us enter the Chinese market first and seize the market share as an innovative German retailor in the food industry. Moreover, the local customers will tend to have more exposure to our brand and trust with the help of Alibaba kingdom in China, as it has already established a business that penetrated into almost every aspect of Chinese people’s daily life. As mentioned, its well-established logistics system as well as payment system will contribute to a low investment needs for our company.
In terms of competition, there are two kinds. One is the online merchants, the other is the actual supermarkets and convenience stores.
According to our survey and research, online shopping is very prevalent in China. This due to the high penetration of internet and large users of smart phones. Therefore, our strategy includes opening online shop on one of Alibaba’s onlne platform – T-Mall. Tmall.com is an open business-to-consumer (B2C) platform enabling businesses world-wide to reach China’s vast and growing consumer market. Tmall.com has established itself as the destination for quality, brand-name goods catering to increasingly sophisticated Chinese consumers and is the most visited B2C online retail website in China (T-Mall official website). As opening an online shop does not require a large amount of investment, many foreign companies have online shops as their first stepping stone into the Chinese market. Our competitors are all the foreign merchants who offer similar products that have online shops.
Another part of competition is regarding the actual convenience stores, which is our core strategy. A convenience store is a small retail business that stocks a range of everyday items. Similar to a supermarket, but a lot smaller. So our competitors are the convenience stores that entered China, mainly Japanese companies, such as Lawson, seven-eleven, FamilyMart and so on.
According to a research by China Chain Store and Franchise Association (2016) studied the situation of convenience stores in China including 36 cities in 2016.
1.The retail industry is changing rapidly in China. Convenience store is developing at a 2-digit growth rate. But there is still a huge gap between the first tier city and second tier city in China.
As we can see from the charts above, the growth rate of convenience stores in Chinese second-tier cities is very high, while it is slowing down in first-tier cities such as Guangzhou and Shanghai. The reasons are due to the already fierce competition. The right side of the chart shows the saturation level of convenience stores in Chinese cities, meaning how many people own one convenience store. It is not difficulty to see that the four first-tier cities have a high density of convenience store existence. Whereas, there is still a lot more growing space in second-tier cities, such as Chongqing with 28846 people owning one convenience store. Another finding from the research is that there is a significant difference of opening hours between the convenience stores in the North and the South. This is due to the climate and customer habit between the North and the South. In Northern China, people tend to stay at home during Winter times since the temperature can down to -20 degree in some regions, which leads to an early closing time of convenience stores. However, in warm areas, 24-hour stores can be found significantly more according to the research. Our strategy also takes regional specificity into consideration.
As a result, our strategy focuses on the second-tier cities in China with high growth potential. When it comes to China, the commonly used term “second-tier cities” is a misnomer. The so-called “second-tier” cities should actually be called “first-class opportunities”, given that these cities have been growth engines of the Chinese economy, boosted by huge amounts of investment, new infrastructure and an influx of new talent. Roughly 170 Chinese cities have more than one million residents, but only four – Shanghai, Beijing, Guangzhou and Shenzhen – are considered “first-tier” in terms of size and per capita Gross Domestic Product. Some of these metropolises have populations that exceed that of many countries and are world-class in every way. Our strategy aims at entering the second-tier cities and filling up the gap of the unbalanced development of convenience stores in China.
Unmanned Convenience Store
Unlike traditional convenience store, Lidl is going to change the way people shop and be a trendsetter in the industry. In order to realize our plan, we are going to implement “Unmanned Convenience Store” in the Chinese market. First of all, we will analyze the reasons to justify our strategy. Then, we will explain what is an unmanned convenience store and how it works.
As the demographic dividend is disappearing and China is becoming always older. It results in the significant increase of labor cost. As we can see from the statistics below, China average yearly wages have almost tripled in 2016 compared to a decade ago.
On the other hand, The popularity and maturity of mobile payment in China provides a large group of customer basis. As you can see from our online survey, Chinese consumers are keen on new things and very technology-oriented. According to Statista, the number of smart phone users in China reached 663 million by 2017 and is still rapidly growing. As unmanned store requires smart phone as an intermediary to get information, to deliver order, to make payment and so on, the high penetration of smart phone in China plays an important role.
In terms of technology, Alibaba is embracing the new retail strategy where big data technology connects and optimizes offline outlets and online stores to enhance customer experiences. With its mobile payment and facial recognition, Alibaba already has mature technology and is ready to partner with a retail giant Lidl.
Then comes the next question: what is an unmanned convenience store? At first glance, there is nothing unusual about unmanned convenience store – shelves stacked with snacks line the walls, tempting passers-by through the glass windows. But upon closer inspection, it is no ordinary store. The door unlocks only after customers scan a QR code to enter, and there is no cashier to tally up purchases – just a lone checkout counter in a corner.
By entering the store, customer just needs to scan the QR code on the door with the Alipay App in their smart phone. According to the very strict law in China, everyone needs to complete the identification in order to use the App, which adds more security for the customers as well as for the stores in terms of theft. After selecting the goods, customers can pay without any cashiers with the help of Intelligent Detection System. Customer can place the goods on the scanning machine for self-checkout. At the end, Alipay can perform the mobile payment. No more queue! This technology helps essentially reduce the cost and time. When leaving the store, customer just needs to scan the QR on the door and it detects whether all the goods are paid or not. The 24/7 remote video customer service can not only solve problems for the customers in the store, but also save HR costs as one remote customer service can take care of multiple stores.
The unmanned store is a direct result of increased pressure in the retail industry as labor and storefront costs go up and in-store traffic becomes harder to keep up. In the context of offline business losing its appeal rapidly in China as e-commerce and mobile shopping platforms become ever more sophisticated. So we believe the future of offline retail is unmanned store and our strategy is to seize the market and to be the industry pioneer.
The portrait of the Chinese consumer highly differ from other consumers from all over the world, that’s what makes Advertising, from the start to the end, more complex to handle. By doing more research and analysis on their behaviors, there will be more adaptability since understanding them thoroughly is not obvious.
Our China team has identified several characteristics of the Chinese market to better understand and plan.
1. Digital marketing dominates.
With over 663 million Chinese now connected online China boasts the largest online community in the world. On-top of this the web has developed in a unique set of conditions, it’s therefore been built for the ultra-consumerist society of modern China & is perfect for online marketing, sales & branding.
However, in the unique digital eco-system of modern China you have a host of Chinese platforms that developed to cater for the Chinese user in a very effective way. No Facebook, rather WeChat, No Twitter, Rather Weibo, No Google, Instead Baidu & forget Youtube, time to embrace Youku.
These platforms all have unique characteristics and are very effective for reaching their large, active and impressionable audiences. Another reason why digital marketing is so important is that the average user spends 2 hours browsing the web per day. The best strategy is to understand where users are searching for information and ensure you are highly visible and reputable in front of your target demographic. The discerning Chinese consumer will research a lot in a market place often associated with counterfeit products, fakery and lower quality local products.
2. International brands and business sell.
It is well known that the China market has issues with lower quality domestic goods. One vital part of how you brand and market your project is to tap into the positive association Chinese have when it comes to ‘international’ products. This status helps a foreign brand stand out from local competitors in terms of quality and reputation.
3. High quality Chinese website help heaps.
Creating a quality site as your ‘shop front’ is essential. It won’t often cut it just to translate your existing site. This is because Chinese site formats are different and it is best to host on a Chinese server if possible.
It’s important to develop quality material for your site, optimize the site for the right set of Mandarin and tailor your message to this specific target audience.
More importantly, a smart translation of the brand name is even crucial to a company’s existence.
4. Second-tier cities are first-class opportunity.
Despite the fact that the first tier cities in China are highly developed, there remain more opportunities in the second tier Chinese cities. Our strategy is to go to the second tier, where the economic development, population, numbers of middle class are equally high as first tier cities.
According to the above characteristics, our China Expert Team has come up with our marketing strategy including 3 phases.
Phase one – Start Up: we will firstly leverage the popularity of German products and brands to register our Chinese brand name as “Li De”. The transliteration of Lidl ensures the consistence of our branding and the literal translation of the 2 Chinese characters means “the German experience”. Moreover, our T-mall online shop will launch with our professionally designed Chinese website, which suits Chinese customers’ habits and likings. Last but not least, our China Expert Team work on the marketing campaign by using China region-specific social media platforms, such as Weibo, Baidu and Youku, to increase exposure.
Phase two – Growth: in this step, our unmanned conveniences will be set up in the selected second tier cities – Jinan and Chongqing. In the marketing campaign of this stage, we focus on creating awareness and understanding of our new concept by social media as well as offline events in the city centers, such as flash mob.
Phase three – Takeoff: after analyzing our trial cities, we will expand our optimized unmanned convenience stores to more second-tier cities.
As the Chinese consumer’s health awareness is growing, and with that trend health and wellness packaged food is seeing an upsurge in popularity. As a response to the growing demand, we are introducing products with functional ingredients, natural healthy products and products with lower levels of fat and sugar. Ongoing consumer education through advertising and marketing have highlighted the benefits of these products. Therefore, our products include the health and wellness packaged food sector rather than standard packaged food.
Our product range mainly consists of 3 parts: ready-to-go meals, imported goods and hygiene products. As convenience is a huge advantage of a convenience store, our stores offer healthy ready-to-go meals, ranging from healthy snacks, fresh fruits and vegetables, packaged foods to bakery items. The selection of goods will meet city people’s fast-pacing lifestyle. From our online survey and research, we are convinced that the Chinese customers prefer imported goods from countries like Germany. Therefore, we also offer imported wine, snacks and organic food in our stores. As a response to high demand for baby products in China, our stores directly bring German quality baby products, such as highly demanded German milk powder, to the Chinese market, so that the Chinese customers do not need to order from overseas anymore.
All in all, our products focus on preferred selection of specialty imported food products from Europe and high quality premium products focusing on health.
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Smartphone users in China 2013-2022 | Statistic. Retrieved January 2, 2018, from https://www.statista.com/statistics/467160/forecast-of-smartphone-users-in-china/
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China Chain Store and Franchise Association. “Report of China’s convenience store”. 2016.