ALDI The Retail Giant Business Strategy

Bharat Gupta (191134) Chitwan Garg (191135) Kantika Gupta (191142) Nimira Singhal (191152) Rahul Upadhyay (191160) Sampada Mittal (191170)

Case Introduction
ALDI was set up by Albrecht siblings. Incorporated in 1948 as the Albrecht Discount Company. ALDIs USP is aimed at top quality at incredibly low prices guaranteed. ALDI opened its first supermarket style store in 1961. ALDI went in for international expansion in 1967.

International Expansions
ALDI started international operation by purchasing HOFER Chain of supermarkets in Austria. All the international store also followed the same strategy with very less differences according to locale. ALDI discount business model was not successful in all the countries. E.g. Ireland.

Future Prospects
There is a saturation perceived in Germany market. ALDIs nearest competitor growing at a faster rate and stronger at a lot other markets. Changing consumer behavior from just purchasing to complete shopping experience. ALDI has diversified from fast moving products to Land and property, Flower service, Travel, Photo Service, etc.

SWOT ANALYSIS
STRENGTHS Leader in the discount grocery market sector in Germany. Bulk Purchase Low labor cost Low overall cost Relationship with Vendors Similar products, one size High inventory turnover rate Retail own branded portfolio at discounted prices International expansion Self service Minimal Human Resource THREATS Competition Grocery sector is becoming saturated Differentiated products is a necessity Value added services Commodity shortage Grocery inflation

OPPORTUNITIES Tap a bigger market segment Recession hit consumers would buy low cost grocery Higher reductions in International Purchasing cost Selling Power of suppliers in control

WEAKNESSES No advertising Operational hours Small store size with no frills Global expansion: Adapting to local areas High Risk of new players in foreign countries. Over dependence on one or two suppliers Image of a low price low quality brand.

Reasons for Aldis Success

Cost leadership strategy

Prevalence of discount shopping in Germany

Reasons for Aldis success in Germany

Porters Generic Strategies

Aldis Cost Leadership Strategy

Aldis cost leadership strategy was based on the following: 1. Business model based on simplicity and efficiency 2. All elements of business model aimed at keeping costs low and passing savings to customers 3. Elements include

Product strategy Small stores No frills setup No advertising Simplified operations

INDUSTRY FORCE

COST LEADERSHIP

Entry Barriers

Ability to cut prices in retaliation deters potential entrants.

Buyer Power
Supplier Power

Offering discounted low prices.

Concentrated on a few suppliers, ordered bulk hence discounted prices. Low price eliminate this threat as consumers do not have substitutes at such low price. Better able to compete on price. For differentiated product, the company faces intense competition.

Threats of Substitutes

Rivalry

Product strategy
Limited assortment of products
Products in only one size Stocked fast moving goods

Carried goods easily handled in terms of operational needs

Reliance on private labels rather than regular brand products

No money on fancy packaging

Did not carry more than two different brands for each product

Weekly Special Buys

Small stores
Limited assortment Small sales area of around 15000 sq. ft. In Germany, stores located at shopping centers and other retail properties Cheaper than free-standing stores Sales per sq. metre were much higher as compared to traditional supermarkets Lower staffing and maintenance costs Customers liked smaller sized stores Could get in and out faster

No-Frills Setup

Stores simple with no unnecessary decoration Minimal artificial lighting instead, open neon lights used No fancy layouts and product displays Easy stock replenishment (shipped on pallets and cartons put open, some items sold loose) Did not provide grocery bags (no greeters and baggers) Low-cost way to manage use of shopping carts by customers No need to employ people for this Limited store hours Minimize labour costs No listed phone numbers Complaints only made by customer in person No need to employ person to attend calls

No Advertising
Minimum advertising Small weekly newsletter called Aldi Informiert (Aldi informs). Distributed in stores, direct mail to registered users on mailing list and sometimes printed in newspapers Minimal advertising expenditure as company believed its low prices were advertisement enough Slightly more focus on advertising in overseas markets

Simplified Operations
Limited assortment of products and small stores Cost-effective operations Low wage bill Only 3 employees-a store manager and two assistants Employees expected to multi-task No pay for overtime, holidays and night shifts because of limited working hours Easy and quick billing process Earlier accepted only cash, then moved to debit cards and electronic benefits transfer cards (food stamps)

Simplified operations contd.

HR Policy Flat organization structure

Board of Directorsresponsible for future strategy and growth Managing Directors in control of his/her region

Internal promotion policy Bare-bones approach to inventory management High inventory turnover rate supported by well-developed logistics system Regions had regional logistics centers All stores within 50 km radius All shipping expenses up to distribution centers borne by suppliers Cross docking Relationships with vendors (single vendor and worked closely with them to streamline packaging and lower costs) No collection of customer data to profile them

Germanys Retail Environment

Germany thought to be home of the hard discounter German shoppers were extremely price-conscious Discount shopping not restricted to lower income groups, common for upper income groups as well No stigma attached to bargain stores Grocery retail market dominated by companies offering limited assortment of products at extremely low prices German consumers did not like to travel long distances for shopping Preferred small stores to get in and out easily

Market achieving saturation with large number of stores

Major challenge for foreign retailers who could not adapt to the German market

Problems in Germany

Retail spending relatively low in Germany

Discount wars among retailers

How to tackle market saturation in Germany

Re-branding initiative Appeal to German sensibilities by describing themselves as a German company Tweak the no-frills approach especially in other foreign countries as hard discounter concept does not work in other countries and should leverage on low cost business model to provide customer satisfaction Do not engage in discount wars with other retailers

Change in Strategy

Cost Focus Strategy

Here a business seeks a lower-cost advantage in just on or a small number of market segments. The product will be basic - perhaps a similar product to the higher-priced and featured market leader, but acceptable to sufficient consumers. This strategy will allow Aldi to leverage on its lowcost business model and product strategy of offering limited assortment of fast moving products.

EDLP Concept
Everyday low price ("EDLP") is a pricing strategy promising consumers a low price without the need to wait for sale price events or comparison shop. EDLP saves retail stores the effort and expense needed to mark down prices in the store during sale events, and to market these events; and is believed to generate shopper loyalty Aldi can adopt an EDLP concept as compared to its Weekly Special Buys. It also appeals to Aldis operational excellence in maintaining low costs and no advertising approach.

Limited Assortment of Products

Focus: High quality and low price Cheapest products can be offered only through simplicity and efficiency (KISS principle) Strong control on quality and price: USP of the brand Ease of shipping and handling , and storage of inventory

Contd..
Customer movement: quick and easy Keeping the store small also make the choice of a site easy (in case of place decisions) Simplicity of operations is one of its biggest strengths Limited variety helped in availing bulk discounts Competitive advantage

Costs/demerits of carrying wider assortment

Loss of control over price No emphasis on quality as quantity will be the focus Would defy the purpose of the company motto (lowest prices) and the business model as well Competition for private labels (currently doing well) Complex billing process

Following additional costs will be incurred:

Warehousing costs Salaries of additional staff that will be employed More space will be required (rent) Shipping costs Handling costs Procurement costs (suppliers), less discounts All these costs will be passed on to the consumer ultimately.

A Wider Assortment

The benefits of a wider assortment are: More variety for the consumer Supplement/ substitute availability Increase in the average bill size Impulse buying behavior However, the decision is case sensitive. Example: in a country like Ireland, consumers are not price sensitive. But for the present business model, the product line should not be expanded as the costs outweigh the benefits.

According to us Lidl will not adversely affect Aldi:

Aldi

is known for its low cost model and stands out from its competitors for the same
Shoppers

perceive high quality, assortment and service from Aldi (comparable to traditional stores)
Though

new stores offer wider offerings and experiences but customers in Germany perceived it to be good value for money
Lidl

was growing in areas where Aldi had no presence (but more than 80 % germans lived within 20 minutes of an Aldi store- high presence)

No frills policy In the International Retail Industry

Was not a uniform success in all the countries. Had to bring changes : Australia- Stock vegemite sandwich spread and Nescafe U.K. Stock marmite and sweet pickle called Branston Pickle Switzerland Stayed away from Toblerone chocolate and gourmet cheese Prepackaged fruits and vegetables in Australia, U.K., and U.S. Failed in Ireland- people were not so price conscious

1. 2. 3. 4.

Thus depended on country to country was a success somewhere and a failure somewhere