Bad decision making: The German food chain LIDL in Norway

LIDL is a global discount supermarket chain from Germany. Since 1988 the company expanded to 21 states e.g. Italy, France, Great Britain, Spain and many Eastern European countries. In 2004 LIDL entered the Norwegian marked. Norway at this point had no real low price food market and the LIDL managers were sure of having a big advantage using their low price strategy and without having competitors in that field. After only four years the company announced its withdrawal from Norway due to sustained losses and all the stores were sold to a Norwegian supermarket chain. What happened?

The Norwegian people avoided LIDL because they favoured their traditional brands and small shops over the imported products and the big LIDL-stores. Three psychological traps that undermined the decision of the LIDL management should be highlighted:

Sunk-Cost Trap:
After LIDL realized the absence of success in 2006, they decided not to rethink their local strategy but to open another 20 new stores in the capital Oslo. The management tried to compensate former losses by increasing the number of stores.

Confirming-Evidence Trap:
Klaus Gehrig, chairman of the board, is said to be the power behind the strict expansion policy. He justified the Norwegian expansion by referring to the success in other countries but fades out Sweden and Denmark, where LIDL suffered from similar problems.

Estimating and Forecasting Trap:
The LIDL managers seemed to be overconfident about their own business strategy and believed it would work everywhere in the same way (Overconfidence Trap). They also misjudged the future development when they assumed an early inclusion of Norway into the European Single Market.

What could the LIDL managers have done better?
Instead of investing more money to cover sunk costs, the management should have reconsidered the business strategy. However, LIDL completely ignored the singularity of the Norwegian market.
Instead of pointing to states where the LIDL strategy worked, the management should have considered the contrary development in other Scandinavian countries.
Instead of relying on the own advantages and calculating vague forecasts, the management should have analysed the market and its fitting properly. They should also have increased the validity and reliability of their own forecasts.

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