The Observation Scandal of Lidl

Table of Content

1. Introduction

2. A portrait of LIDL
2.1 The Situation of the German Discounter Market
2.2 The History of LIDL

3. The Scandal
3.1. Labor Conditions
3.2. Data Security

4. Consequences after the Scandal

5. Conclusion

6. Literature Review

1. Introduction

What is the social responsibility of every company? A quick and very good answer to this question would be to be profitable in long-run. Only when a company makes profits it can guarantee their employees a secure place of work which provides them safety in their income and for example enables them to raise a credit to buy a house. But is this the only responsibility a company has? Of course there is on one hand the responsibility of making profits because the employees and also the investors are depending to the company. But is there on the other hand also a moral or ethical responsibility or a responsibility to the environment and the resources of the earth? In the last years the keyword corporate social responsibility for every company became a bigger issue. It started with the accounting frauds of Enron, WorldCom and Arthur Andersen in 2001 or Bernard Madoff in 2008. Another case which made customers more think about the responsibility of companies was child labor at Nike or conditions in the factories of suppliers of H&M or Zara where last year a factory building in Bangladesh collapsed. Additionally the last financial crisis with the bankruptcy of Lehman Brothers made lots of people think about the way companies make their profits and how they do it. In the last years also were lots of cases in Germany where companies were criticized in public for the way they treated their employees or how the supply chains were build which made the customers more to think about where the products are coming from and how they are produced. Also in the finance industry is a change viable as the business with “green” investments is growing and many people try to avoid investing into arms industry though Germany is one of the biggest weapon producers in the world. In this paper the observation practices and labor conditions of Lidl, a German discounter market, will be presented. After the observation scandal got public, lots of discussions were held in public about the responsibility customers have and especially what every company has as an employer but also as a supplier. Also the whole retailing industry was more critically judged after the scandal got public. In the case of a retailer there is of course also the question about the responsibility the retailers have in their role as a provider of cheap goods. Retailers have often been criticized how they negotiated their suppliers and also in the last years for their working conditions. Furthermore this paper describes some consequences the scandal had for Lidl, German society and how Germans think now about topics like data privacy, employee observation, where to buy their goods and the use of observation cameras in public places.

First of all there will be a portrait of Lidl as a company, an introduction to the situation to the European discounter market with a big focus on the German market followed by the history of Lidl. In the third chapter the data privacy and observation scandal of Lidl will be described and after that some consequences for Lidl, the whole retailing industry and also what changed in the way German society is thinking about the topic of data privacy.

2. A portrait of LIDL

Lidl is part of the Schwarz group, a holding company which owns two German discounters, Lidl and Kaufland which are both operating internationally. In 2011 the volume of sales of the whole group was nearly €60 billion. Across Europe the group employs 310,000 people and is also one of the biggest company training centers in Germany. Because of the company structure it is not mandatory for Lidl to make any details about their financial key performance indicators public which creates a non-transparent image. (mfd, 2011) Among all the German discounters Lidl is one of the biggest and most successful ones. People in Germany go to Lidl because they offer goods with a high quality for only a little price. Besides this Lidl also offers once a year computers, LCD-Displays or also very cheap train tickets which the buyer can use for any distance they want. Those special offers are mostly sold out very quickly, which got Lidl and also the other big discounters often into legal problems because shops have to offer special discounts for at least two days according to a judgment of the court of Stuttgart. What Lidl differs from other discount markets like Aldi, is that they offer brand products like Coca-Cola and not only trade brands or no-name products. Though it is in this industry an open secret that big brand names are selling also their products with another label to the retailers it helps Lidl to stand out from the competitors. Also the offered products are more widespread compared to discount markets. For example Lidl offers 2000 products while Aldi has just 700 in the stores. The structure of Lidl today is very complex, especially when you take a look at the international branches. In total the Lidl network is separated in more than 600 companies and for example the UK chief executive has nearly no contact to the managers in Germany. When the scandal got public newspapers described it as a circuitous route until they were able to speak with somebody in the position of a public relations officer. (Pidd, 2007)

Another interesting thing of Lidl is their policy of standardization. For example are the products placed in nearly all cases at the same position, regardless of the city the store is so it makes it easier for the costumers to orientate during their purchase and create a more comfortable shopping experience. Most of the time the customer finds juices directly at the entry, then other soft drinks, wine and liquor until they reach the cooling shelf with milk based products. Additionally are all the newer branches build in nearly the same size and way. The standardized measure is nearly 55x28 meters, the storefront is silver grey, the roof in bright red and the company logo is located at the same spot.

The legal form of Lidl is a Stiftung & Co. KG, which is a foundation with a limited liability corporation and with the foundation as a partner with unlimited liability. A Stiftung & Co. KG is often chosen to regulate the succession in a company. Dieter Schwarz, the son of the founder Josef Schwarz chose this form as his daughters said that they will not lead the company in the future. Dieter Schwarz is compared to other German billionaires very unknown and most of the German people do not even know how he looks like or that he was the leader of Lidl for many years and responsible for their huge growth.

In the case of Lidl, the management of Lidl has the authority to decide about the whole company including the foundation. In this legal form, the work council has compared to a joint stock company (German: Aktiengesellschaft^[1] ) no or only a little power. At a joint stock company it is regulated in the stock corporation act that 33 percent of the board members are representatives of the employees who are mostly members of the work council. To sum it up, usually in German enterprises with the size of Lidl are many stakeholders represented at the board like the shareholders, employees or politicians and not only family members of the founder. Critical journalists or analysts can interpret the practices of companies like Lidl or for example also Bosch as a conscious decision to limit the influence and the power of a work council as much as possible.

The Lidl foundation and the German management board are seated in Neckarsulm, southern Germany. In Germany Lidl is departed in 35 territorial business units which are responsible for the local branches. In every territorial unit are departments like logistics or sales. Each territorial unit has a regional manager who is responsible for all these units and departments and is supported by the sales managers below him. The hierarchical level below the sales managers, are the sales directors who are responsible for a small local area with five to seven branches. The sales directors are at the same time disciplinary superior and lead up to 100 employees. In every branch is one responsible who is in charge for the time tables of the staff, knowledge of the trainees, the need of goods, settlements and reaching the performance indicators of the branch. The chairman of the board is now Klaus Gehrig who followed after Dieter Schwarz, the son of the founder Josef Schwarz. (Gabler Wirtschaftslexikon, 2012)

2.1 The Situation of the German Discounter Market

In the beginning of the 1960s the expansion of the discounter markets began in Germany, starting with the opening of the first Aldi store. Aldi was founded by the brothers Theo and Karl Albrecht who turned the small business of their parents into one of the biggest discounters in Europe. Karl and Theodor Albrecht were in Germany only known as the Aldi brothers and turned to be the richest Germans but were totally unknown to the broad public. Nowadays Aldi is divided into Aldi North and Aldi South but both parties are counted as one when different discounters are ranked or compared. Since that time, the discounter markets were growing very fast in Germany because they were cheaper than regular supermarkets and during this time Germans were more price-sensitive. The concept of most of the discounters was at the beginning basically the same. Inside of the stores is nearly no decoration, no service, no expensive fridges which leads to a low electric power consumption and of course to a cost reduction. Today most of those basics remained though some discounters like Rewe or Edeka try to stand out from Lidl and Aldi as they take more care about the inside of their stores. The market shares in the German food retail sectors were in 2012 the following. Edeka was with a market share of 21 percent the leader with total revenues of €49.3 billion. On the second place was the Rewe group with a market share of 15.7 percent. The third biggest player was the Metro concern, fourth the Schwarz-group with their discounters Lidl and Kaufland and Aldi on the fifth place. (dapd, 2013) These numbers are just for the food retail sector, which leads in the classic discounter markets to another order. Aldi had for example in 2007 total revenue of €27 billion and the Schwarz Group with Lidl €13.3 billion.

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^[1] In Germany only shares of an “Aktiengesellschaft (AG)” or a “Sociedad Europae” (SE, joint stock Company on a European base) can be traded at stock exchanges, other legal forms are not public.