STRATEGICMANAGEMENTMGT703

ASSESSMENTTASK2
STRATEGICMANAGEMENTREPORT

ALDISTORESANDSUPERMARKETS

ALDI Australia
https://www.aldi.com.au/en/

0|P a g e

EXECUTIVESUMMARY

Aldi entered the Australian supermarket and grocery stores industry market in 2001,
introducing the concept of discount retailing to Australian consumers.
The company has had a significant effect on the industry. Since commencing
operations in Australia, ALDI has pushed the major supermarkets to reduce prices by
offering a national price, ensuring price consistency nationwide.
In the fifteen years of its operations Aldi has opened 30 stores per annum and
currently has over 450 stores spread across New South Wales, Victoria, the ACT and
Queensland. Aldi currently holds 11 percent of the industry market share and has a
decentralised structure with minimal functions and clear reporting lines.
Aldis target market has been anyone where cheaper groceries has an influence
and whether people choose Aldi over the major competitors. The typical Aldi
customer was less likely to be a young parent than in 2014. But making up for the
drop in young families is an increase in high-income earners shopping at the chain,
particularly in the $100,000+ income bracket.
Aldis success has been due to its cost leadership strategy. ALDIs strategy focuses on
providing high quality products at low prices. However, Aldi cannot rely on its past
performances and has to review its growth strategies in order to have competitive
advantage. A review of its external environment indicates Aldi has opportunities in
geographic expansion and the threat of entry by Lidl (another German hard
discounter) into the Australian market.
The future growth for Aldi can be achieved through related diversification in 3 ways:
(1) Organic: via better ranging, marketing and in-store offers, (2) Existing States:
through roll-out of more stores down the East-coast (NSW, Victoria, the ACT and
Queensland) and (3) New Regions: such as South Australia (Q1 2016) and Western
Australia (Q2 2016) and NZ on the horizon.
Parent company Aldi South invested $700 million to extend Aldis network into South
and Western Australia. The expansion is expected to include two warehouse
distribution centres and up to 120 stores across both states. Constructionof a
distribution centre in South Australia commenced in March 2015, with its first stores
opening in early 2016.
Whilst Aldis lean model has been its strength, going forward, Aldi should research
the benefits of offering quality products to its emerging segment of white collar
customers and create another aspect of shopping experience for that target
market.

1|P a g e

 Table of Contents
EXECUTIVESUMMARY...........................................................................................................................................1
1. INTRODUCTION...........................................................................................................................................4
1.1 Company background..................................................................................................................4
2. IDENTIFY ALDIS CURRENT GROWTH STRATEGY....................................................................................5
2.1 Describe the current strategy for the core business..............................................................5
2.1.1 Provide a business model statement (WHO/WHAT/HOW)..............................................6
2.1.2 Identify resources and capabilities to deliver chosen strategic positioning (WHAT)8
3. EVALUATE THE CURRENT GROWTH STRATEGY....................................................................................10
3.1. Evaluate the need to innovate the core business...............................................................10
3.1.1 Examine the external environment for potential threats, and or opportunities.......11
3.2 Examine the firms portfolio of growth options......................................................................13
3.3 Evaluate at least one of the emerging businesses in detail..............................................15
3.3.1 Using GE / Mckinseys portfolio framework to evaluate Industry attractiveness and
competitive position...............................................................................................................................15
3.3.2 Evaluate with (MACS) Market Activated Corporate Strategy.....................................17
3.3.3 Comparative Value Chains to identify resources and capabilities to be shared
across the existing and proposed new business.............................................................................19
3.3.4 Evaluate resourcing..................................................................................................................22
4. RECOMMEND CHANGES THAT RESULT IN HIGHER LEVELS OF GROWTH PERFORMANCE........24
4.1 What approach to take entering the new business and why?........................................24
4.2 Evaluate overall portfolio of business and a promising emerging product..................25
5. LIST OF REFERENCES.................................................................................................................................26
6. APPENDICES...............................................................................................................................................28
Appendix6.1:Pestelanalysis............................................................................................................................28
Appendix6.2:SWOT........................................................................................................................................29
Appendix6.3:PortersFiveForcesModel.........................................................................................................30

Figure 1 Overview of core business value chains 8

Figure 2 VRIA framework of resources and capabilities 10
Figure 3 Critical opportunities and threat 11
Figure 4 Ansoff product/market matrix 13
Figure 5 The 3 horizons 14
Figure 6 GE/ Mckinsey framework 15

2|P a g e

Figure 7 MACS framework 17

Figure 8 Comparative value chains 19

Figure 9 Leveraging management systems 20

3|P a g e

1. INTRODUCTION

1.1 Company background

Established in Germany in 1913, Aldi entered the Australian supermarket and grocery
stores industry market in 2001,introducing the concept of discount retailing to
Australian consumers. Aldi Australia is headquartered in Minchinbury, New South
Wales and operates solely in Australia. (IBISWorld, Feb 2016).

ALDI Australias mission is to operate discount supermarkets offering great quality at

incredibly low prices. (Aldi Australia website). And its fundamental objective is to
operate as a low-cost player that stocks a limited range of popular grocery items. A
typical ALDI store stocks about 1,000 products, compared with about 30,000 in an
average Coles or Woolworths store. (IBISWorld, Feb 2016).

ALDIs structure has three key characteristics:

(1) Flexibility built around formalization of key elements - clear reporting lines allow
for quick information flow and consensus decision-making.

(2) Decentralisation - warehouses only support 60 to 70 stores. Once the capacity is

reached, a new region is created and the roles replicated. Store sizes are also
capped. (Bonn, I., 2006).

(3) Minimization of functions - ALDIs focus on core business and cost minimization
also takes the form of it not having marketing, public relations, human resource,
information technology or legal departments. This is because ALDI prefers to rely on
word-of-mouth and localized advertising. (Bonn, I., 2006).

ALDI currently holds 11 percent market share in 2015-16, an incredible

accomplishment for a chain that launched in 2001. The main purpose of this report
is to identify and evaluate Aldis current strategy of growth is focusing on its
expansion into new markets.

4|P a g e

2. IDENTIFY ALDIS CURRENT GROWTH STRATEGY

2.1 Describe the current strategy for the core business

Where an organisation can operate at a lower cost than competitors, while offering
product parity, it can achieve a cost leadership advantage (Porter, 1985). Aldis
success has been due to its cost leadership strategy. ALDIs strategy focuses on
providing high quality products at low prices. Key elements of the low price element
of the strategy are:

(1) Exclusive brand products, (2) Limited range, (3) Focus and (4) price change
policy.

Exclusive brand products

Central to ALDIs strategy is its focus on exclusive brand products. ALDI forms
partnerships with leading manufacturers to produce own-brand goods. (Dunford, R
2004)

Limited range

Central to ALDIs capacity to reduce costs is the provision of only a limited range of
products. In regard to what to stock in terms of product characteristics, ALDI take
their lead from the market: We follow the market regarding what is successful, like
size, variation. Were not here to change what people want. ALDI then seek
suppliers who can provide the product with the required characteristics (e.g., taste)
at the most competitive price. (Dunford, R 2004)

Focus

ALDIs strategy involves a strict focus on what it sees as core business. Thus they are
not following the Woolworths and Coles practice of expanding their retail base to
include petrol, pharmaceuticals, liquor and online shopping.

The one area where ALDI will deviate from a very strict policy of selling only core
products is that it has a practice of surprise buys, in which a batch of products like
televisions or computers will be sold in the stores for a fixed period. These surprise
buys are especially prepared for, and bought in bulk by, ALDI to conform to the low
price/high quality policy. (Dunford, R 2004)

5|P a g e

Price change policy

ALDI policy on price changes is to be the first in the industry to pass on lower costs to
customers and the last to increase prices when costs increase. They point out the
change to customers through placing a note on cartons in the stores. (Dunford, R
2004)

Aldi has shown that by focusing on own business, which is simple, lean and efficient,
and by standardising and simplifying as many operations as possible, thereby
keeping costs low they are passing these savings on to customers in the form of
everyday low prices. (IBISWorld 2016).

2.1.1 Provide a business model statement (WHO/WHAT/HOW)

WHO

Aldis targets the larger families, lower socio-economic status with lower income and
people who have limited income to spend. Generally more families are shopping at
Aldi with young parents / families making up 32 percent of Aldi's customer base, up
from 29 percent in 2010. It is noted however that this figure declined from 2014, with
Aldi now attracting a wealthier, more white-collar customer base that demand and
want more (range, location, experience).(UBS Securities Australia Ltd, 2016)

WHAT

Aldis core range products are manufactured and supplied in Australia. Product
range is based around high quality like brands, also known as home brands or
private labels. 95 percent of Aldis products are private label and the other 5
percent is must-have products produced by external companies such as Milo,
Vegemite, and Nescafe. Aldi has a special buys weekly category that offers a
wide range of non- food item category and is growing very popular with its
customers.(Aldi Annual Report)

6|P a g e

HOW

Aldis unique business model enables it to provide the highest quality products at the
lowest possible prices. This value stems from the numerous efficiencies and
innovations instituted at every level of operation.

Customers bring their own bags or buy reusable bags to save

money

Innovative cart rental system helps keep prices low and eliminates
time spent retrieving carts

Modest store size plus eliminating non-essential grocery store

services means ALDI captures the very essence of conservation
and savings for customers

Not operating 24 hours a day lowers labour, energy & rent costs,
with savings passed on to customers

Specially designed packaging doubles as product displays, saving

time and money on stocking and replenishment

In-house distribution network streamlines operations and maximizes

efficiencies, resulting in even greater savings for customers

Aldi stores offer the customer over 1,000 of the most commonly purchased grocery
and household products in the most common size in a smaller, more manageable
environment designed with sustainable, long-term savings in mind. Aldi stores
measure 850 square metres compared to 3000-5000 square metres by its main
competitors. This reduces overheads associated with large premises including rent,
utilities and payroll. Its warehouses are located in non-prime real-estate land.
Overheads are kept at a minimum because of all of the above. (Aldi business
model)

7|P a g e

2.1.2 Identify resources and capabilities to deliver chosen strategic

positioning (WHAT)

This section identifies Aldis resources and capabilities, which are used to evaluate
whether Aldi has the capabilities to deliver the emerging growth strategy. In Figure 1,
below is an overview of the core business value chains which identifies the primary
and support activities. And the benefits and capabilities are evaluated using the
VRIA framework.

Aldi value chain - Resources and capabilities

The value chain of Aldi is based on minimizing costs at all levels while maintaining
'high quality at low price.

Figure 1 Overview of core business value chains generic.

Value chain is a process of separating a business into a number of connected

operations, each of which may create value for the client. According to Porter
(1985), value chain administration is a procedure that assists in classifying and
building ambitious improvement. Value chain management aids the company to
be competitive in the long run. It can assist in running the series of expressed
business operations and other information that are linked with the product flow and
develop a policy to accommodate workers into a chain to comply with customers
needs.

8|P a g e

Primary activities

Inbound logistics

Aldi continues to explore ways to minimise costs by improving their delivery trucks
routing and warehousing methods. Using distribution networks, enhancing supply
relationships, customer service capability, buying and cost management.

Operations

Aldi tests and samples quality of its products centrally at the Aldis state-of-the-art
Product Development and Quality Assurance Centre in Minchinbury NSW, opened in
May 2009. It is the centrepiece of their promise to deliver exceptional quality and
unbeatable value to its customers.

Outbound logistics
Similarly to their inbound logistics, Aldi is always innovating ways to minimise their
costs by improving distribution networks. Products are transported on pallets straight
stores for display minimising handling.

Marketing/ Sales

Aldi believes that the most effective form of marketing is word of mouth because
friends and family are consumers most trusted and reliable source of information.

Service

The activities that maintain and enhance product value, including customer
support, spare parts, training and repairs.

Support activities
Procurement - include procurement of raw materials, servicing, machinery, retail
outlets.
Technology and development includes technology development to support value
chain activities such as R&D, process design, and automation.
Human Resources Recruitment, development, training, retention, and
compensation of personnel.
Firm infrastructure general management, planning, legal, finance, public affairs
and quality management.

9|P a g e

Evaluation of resources and capabilities

For sustainable competitive advantage, resources must be variable, rare, inimitable
and appropriable. Resources must be able to create and capture value and must
have the ability to sustain the competitive advantage
In order to assess whether each capability is valuable, rare, imitable and
appropriable an analysis based on the VRIA framework is performed (Bowman &
Ambrosini 2007).
Resources & Valuable? Rare? Inimitable? Appropriable?
Capabilities

Customer experience Yes Yes Yes Yes

Modest store sizes Yes Yes Yes Yes
Low cost business model Yes Yes Yes Yes
Culture Yes Yes Yes Yes

Figure 2: VRIA framework

3. EVALUATE THE CURRENT GROWTH STRATEGY

3.1. Evaluate the need to innovate the core business

After fifteen years of operating in Australia, Aldis growth is slowly levelling out. Since
other supermarkets have taken up the price challenge, it is important for Aldi to
ensure its prices are lower or at least equal to the ones of its competitors and that its
products develop a reputation for high quality. This is particularly important
considering competition in the food retailing industry is likely to increase due to
economic factors that may influence consumer confidence and consumer
spending over the next few years. These factors includes high levels of household
debt, low national rate of saving, and possible increases in unemployment and
interest rates.

Also, the prospect of Lidl entering the market in the near future makes it imminent to
review their strategies. Lidl, which belongs to the Schwarz Group has copied the Aldi
approach in many aspects. Because of the similarity of its approach, an entry of Lidl
into Australia would clearly present a major challenge for Aldi. (Bonn, I 2006).

10|P a g e

3.1.1 Examine the external environment for potential threats, and or

opportunities.
Pestel analysis was carried out and relevant macro issues that impacted Aldis
growth are identified as appended in Appendix 6.1 and SWOT analysis was carried
out to identify areas of opportunities and threats appended in Appendix 6.2.

Summarised in the table below is the critical opportunity with corresponding macro
issues and critical threat.

Critical
opportunities/threats
Opportunities
Expansion to Western
and South Australia
with potential to expand
to other states and New
Zealand in the near
future.
Response
. Planning laws - existing policy places a cap on developments
outside shopping centres requiring expensive and timely
re-zoning efforts. This was an impediment for Aldi until 2010
when ACCC reached an agreement with the major
supermarkets to end existing provisions in supermarket leases
limiting new competition.
. Aldi is required to obtain FIRB approval if it wants to acquire
land. This is two negative impacts: (1) longer approval
process
(2) usually approved on the basis that construction begins
within 12 months, limiting the ability to land bank ( common
practice by Woolworths and Wesfarmers)

New product offering Recent research indicates more customers in the high income
range are starting to embrace shopping at Aldi. Aldi should
take advantage and offer products to suit this segment.

Threats The prospect of Lidl entering the market in the near

Threat of Lidl as a new future makes it imminent for Aldi to review its growth
entrant strategies. Lidl which belongs to Schwarz Group has imitated
the Aldi approach in many respects as a hard discounter.
Because of the similarity of its approach an entry by Lidl into
Australia would clearly present a major challenge (Bonn, 2006)

Figure 3: Critical opportunities and threat

11|P a g e

The change in planning laws has made it much easier for Aldi to move into existing
and new centres given landlords will not have to offer concessions to existing
anchors (i.e. Woolworths/Coles) in order to allow a new entrant in Aldi, IGA etc. Aldi
stores within centres also significantly outperform standalone sites, driven by Aldis
ability to leverage off increased traffic.

New rollout of stores on the east coast and expanding into the south and west
Australia will require customer evaluation so and enhance sales.

Customer based framework

Customer value proposition

In 2016, the typical Aldi customer was less likely to be a young parent than in 2014.
But making up for the drop in young families was an increase in high-income earners
shopping at the chain, particularly in the $100,000+ income bracket. (UBS Securities
Australia Ltd, 2016). This new customer segment are demanding and want more in
product ranges, shop locations and experience.

The above in mind and the threat of Lidl entering the Australian market, Aldi should
disrupt itself and take advantage of this and change the offering by sharpening its
range and try to capture more premium spend within its categories, especially
where it has already been accepted. This can include adding more organic
products to its range, as an example.

This new offering will do well with Aldis plans for expansion into the new geographic
locations and additional store roll-outs in the east coast.

12|P a g e

3.2 Examine the firms portfolio of growth options

Identify what mix of products and geographies they have

Ansoff (product/market) matrix

Product
New products Highest risk
portfolio
expansion
Unrelated

Market Market
Penetration Expansion
Existing products
Existing Markets New Markets
Related

Source: Module 6 MGT703

Figure 4: Ansoff product/market matrix

Aldi has been successful with its lean business model. With threat of Lidl and new
emerging customer segments, Aldi needs to review its strategies and try and capture
value. Aldi Australias only growth option is diversification in the following three
areas:

(1) Expanding into new market/ geographic locations and NZ on the horizon.

(2) New product offerings including organic range - via better product ranging,
marketing and in-store offers. Special buys are related diversification.

(3) Existing States - through roll-out of more stores down the East-coast (NSW,
Victoria, the ACT and Queensland). This area is where Aldi did very well and
can do more by rolling out more stores.

13|P a g e

Identify whether they have strong and emerging businesses

Figure 5: The 3 horizons

The Value-Time within the Three Horizons

Horizon 1

Horizon 1 has been Aldi in the last fifteen years. Aldi entered the Australian market
with a view to penetrate the market with its cost leadership strategy. ALDIs strategy
focused on providing high quality products at low prices. It achieved its goal and
has 11 percent of the current market share.

Horizon 2

For Aldi to continue its success and be competitive it cannot rely on its past
performances and has to review its growth strategies in order to have competitive
advantage. Aldi should concentrate on expanding to the rest of Australia in the
next 10 years.

Horizon 3

When Aldi has penetrated markets across all of Australia, there is will be one other
way for Aldi to expand and that is across to New Zealand. But a company
spokeswoman said while Aldi was planning to extend to new markets including
Western Australia and South Australia, it had "no immediate plans to enter the New
Zealand market." (Aldi website)

14|P a g e

3.3 Evaluate at least one of the emerging businesses in detail

3.3.1 Using GE / Mckinseys portfolio framework to evaluate Industry

attractiveness and competitive position

The GE/ Mckinsey portfolio framework maps the stand-alone value of a companys
businesses by evaluating them on two factors; the industry attractiveness and the
particular business units competitive position (Gluck et al. 2000).

High

NOW

Attractiveness
Industry

THEN

Low
Low Competitive High

Position
Figure 6: GE/Mckinseys framework

Industry attractiveness and competitiveness

Industry structure

Life cycle stage: Mature Regulation level: Medium

Revenue Volatility: Low Technology change: Medium
Capital intensity: Medium Barriers to entry: High
Industry assistance: Low Industry globalisation: Low
Concentration level: High Competition level: High

15|P a g e

Key statistics

Market size Key industry statistics; Revenue $101.3 billion

Industry growth - Annual Growth 4.0 percent (2011-2016)

Annual Growth 2.7 percent (2016-2021) estimate.

Industry profitability - Industry revenue is forecast to grow at an annualised 2.7%

over the five years through 2020-21, to reach $115.7 billion. Fierce competition,
subdued consumer sentiment and the continued expansion of private-label
products are expected to contribute to price deflation, constraining revenue
growth
The industry is in a mature life cycle phase. Steady growth and contribution to the
economy, stable enterprise numbers and product rationalisation all indicate a
mature industry

Aldis Competitive position

Market share 7.9 percent (Woolworths 34.2 %, Coles 29.2 %, IGA 7.5 %)

Aldi Stores Supermarkets Financial performance

Year Revenue ($ million) % change

2011 3,523.0 N/C
2012 4,163.0 18.2
2013 4,998.0 20.1
2014 5,560.0 11.2
2015 6,385.0 14.8
2016 8,026.2 25.7
Year-end December estimate Source: IBISWorld 2016

Fifteen years ago Aldi entered an already competitive market. Their strategy was to
penetrate the market by charging lower prices for their products to help them enter
the market and gain market share quickly. They achieved this and at present they
have 7.9 percent of the market share and is at present the fastest growing retail
company in Australia. (IBISWorld 2016).

Aldis current position as indicated in blue dot on the Mckinseys framework is neither
high nor low, it is steady. Aldis current market share has been primarily from the
success based on their market penetration in New South Wales, Victoria, the ACT

16|P a g e

and Queensland. The current expansion to Western Australia and South Australia will
no doubt improve their position on the McKinseys framework above to the red dot
position.

3.3.2 Evaluate with (MACS) Market Activated Corporate Strategy

The MACS framework is combining the McKinsey matrixs two axes into one axis
determining the business units optimal value and adds a new dimension; the parent
companys ability to extract value from the business unit (McLeod & Stuckey 2000).

Figure 7: MACS framework

Horizontal axis industry attractiveness & competitive position

The industry is very attractive to stay in for the established companies like
Woolworths, Coles, IGA and Aldi, but the high entry barriers for new entrants is a
deterrent. Given the industrys mature nature, players will need to fight even harder
for market share over the next five years. ALDIs growing presence and an increasing
number of Costco stores will only increase price competition. Woolworths and Coles,
which have dominated the industry for over 25 years, are expected to keep prices
low to maintain market share. (IBISWorld 2016)

17|P a g e

Vertical axis parents ability to extract value

Sharing of Resources, Capabilities and or systems
Due to its structure, distribution warehouses only support 60 to 70 stores. Once the
capacity is reached, a new region is created and the roles replicated.

Aldis expansion to South and Western Australia will therefore be replicated models
where the company establishes new businesses whose value chains will have
competitively valuable strategic fits with value chains of Aldis present businesses.
Competitive advantage can result when Aldi captures cross-business opportunities
to:

Transfer expertise/capabilities/technology from one business to another

Reduce costs by combining related activities of different businesses into a

single operation

One warehouse will supply all the stores in Western Australia and another
warehouse to supply all stores in Southern Australia.

Transfer use of firms brand name reputation from one business to another

Create valuable competitive capabilities via cross-business collaboration in

performing related chain activities. (MGT703 Study Guide 6 Corporate
Strategy I)

18|P a g e

3.3.3 Comparative Value Chains to identify resources and capabilities to be shared across the existing and proposed
new business

Value chain activities

Core Reducing Manufacturing Inbound Outbound Technology

Sales&
Business environmental andmaterials logistics& logistics& Marketing andR&Dand
impact management procurement distribution Operations

New Reducing Manufacturing Inbound Outbound Sales& Technology

Business environmental andmaterials logistics& logistics& Marketing andR&Dand
impact management procurement distribution Operations

Figure 8: Comparative value chains

Combine technology and R&D and operations to innovate ways to deliver products

Combine sales & marketing activities, outbound logistics and distribution channels, leverage use of a common brand name,
and/or combine after-sale service
Combine procurement, inbound activities, manufacturing and materials management to gain more leverage with suppliers and
get the most cost efficient supplies to support its lean business model

Committed to reducing the environmental impact of our business by reducing carbon footprint, maximising energy efficiency,
minimising impact of refrigerants, meeting global standards of green buildings and reducing waste.

19|P a g e

With over 1000 products, the value chain activities all support the core business. By
expanding to different geographic locations in Australia, Aldi simply replicates
exactly the same business model that is applied in all Aldi stores and supermarkets.
So the value chains for the core business are the same for the new business.

Aldis advantage in replicating its stores is that the sharing of resources and
capabilities become a natural part of their expansion plans.

Parenting control systems

Aldis individual stores characteristics and its decentralised structure make its parent
a Strategic architect where separate businesses share skills & exploit synergies where
possible; combines tight control of key risk factors, strategy, and investments with
relative operating flexibility for business units.

In its recent expansion endeavours, the parent company ALDI South invested $700
million to extend ALDI's network into Western Australia and South Australia. The
expansion is expected to include two warehouse distribution centres and up to 120
stores across both states. Construction of a distribution centre in South Australia
commenced in March 2015, with its first stores opening in early 2016.

Figure 9: Leveraging Management Systems

1. Systems for enacting strategy

Source: Module 7 MGT 703 Strategic Management

Using Simons typology of control systems, synergies can be drawn from control
systems that fit strategic imperatives across businesses. They can be used at any
level of the business and aligns strategy with environment and engage and

20|P a g e

coordinate the business through its architecture with the strategy. Systems can be
supported by empowering and controlling staff which is an important aspect of
business.

Types of systems can be, Performance management systems, financial control

systems, HR management systems and IT systems.

2. Interactive control systems

Interactive Control System is a management system used to provide strategic

feedback, track new ideas, trigger new organizational learning, and to properly
position the organization for the future: incorporating process data into
management interaction, face-to-face meetings with employees, challenging data,
assumptions and action plans of subordinates.

Again, due to its structure and decentralised functions, interactive systems become
useful in connecting the different stores or businesses. It is one of the 4 levers of
control described by Simons to manage the tension in organizations between profit,
growth, risk and control besides Belief Systems, Boundary Systems and Diagnostic
Control Systems.

Interactive control systems are formal information systems managers use to involve
themselves regularly and personally in the decision activities of subordinates. Based
on the unique strategic uncertainties faced by an organisation.

21|P a g e

3.3.4 Evaluate resourcing

Internal growth builds on the business own capabilities and resources.

Resource Valuable? Rare? Inimitable? Appropriable?
(enhance (enhance (enhance (for us)
Creation) Capture) sustainability)
Tangible

1. Small footprint Yes Yes Yes Yes

stores
2. Private label Yes Yes No Yes
products patents
3. Easy store layout Yes No Yes Yes
4. Shopping carts Yes Yes Yes Yes
5. Specifically Yes Yes Yes Yes
designed
packaging
doubles as product
displays
6. Staff with expertise Yes Yes Yes Yes
knowledge
7. Distribution network Yes Yes Yes Yes
and capacity
8.

Intangible

1. Culture Yes Yes Yes Yes

2. Management Yes Yes Yes Yes
expertise in cost
efficiencies
3. Cost efficiency Yes Yes Yes Yes
4. Staff skills Yes Yes Yes Yes
5. Supplier Yes Yes Yes Yes
relationship
6. Reputation with Yes Yes Yes Yes
environment issues

Human

1. Long serving staff Yes Yes Yes Yes

2. Loyal customers Yes Yes Yes Yes
3. Staff with inside Yes Yes Yes Yes
information and
knowledge

22|P a g e

 Capabilities Valuable? Rare? Inimitable? Appropriable

1. Materials management and Yes Yes Yes Yes

manufacturing protocols
2. High staff retention due to Yes Yes Yes Yes
better remuneration than
competitors
3. Responsiveness to market Yes Yes Yes Yes
trends

23|P a g e

4. RECOMMEND CHANGES THAT RESULT IN HIGHER

LEVELS OF GROWTH PERFORMANCE

4.1 What approach to take entering the new business and why?

Aldis geographical expansion into new markets such as South and Western Australia
is an internal or organic one and its success will definitely increase its share of the
market. This is the only expansion approach as it is related to its core business.

Other organic approaches are:

Designing and developing new product ranges

Implementing marketing plans to launch existing products directly into new
markets (e.g. exporting)
Opening new business locations either in the domestic market or overseas
Investing in research and development to support new product development
Investing in additional production capacity or new technology to allow
increased output and sales volumes
Training employees to help the best acquire new skills and address new
technology

Organic growth is generally considered to be lower risk than the alternatives;

acquisitions or joint ventures, however its major downside of focusing on internal
development is that the speed of change or growth in the business may be too slow.

24|P a g e

4.2 Evaluate overall portfolio of business and a promising

emerging product.

Aldi has used the same lean business model when entering new markets. Once they
establish their hold in the new region they thenroll-out stores.

There are 2 avenues for Aldi to roll-out stores:

(1) Existing Centres: Urbis in their research found that having Aldi in a centre lifts
centre productivity. It is estimated to be about 3 percent based on new
demographics Aldi can bring (UBS 27 Oct 2010: Aldi: assessing the opportunity 9
years on).

(2) Greenfield Sites: Through acquiring and developing sites. The requirement for
Foreign Investment Review Board (FIRB) approval was an impediment to land-
banking which the major chains do, until 2010.

The removal of restrictive leases has increased availability of sites for Aldi. Aldi has a
strong pipeline of stores and continues to target 25-30 stores pa down the East Coast
on top of its entry into Western Australia and South Australia this year (2016).

Recommendations:

1. Aldis lean business model has been successful. Without deviating much from
the model, Aldi should research the benefits of offering quality products to its
emerging segment of white collar customers and create another aspect of
shopping experience for that target market.

2. Extensive marketing to be undertaken if they are planning on expanding into

other states in Australia.

3. Sharpen its range and try to capture more premium spend within its
categories, especially where it has already been accepted. This can include
adding more organic products to its range, as an example.

25|P a g e

5. LIST OF REFERENCES

ACCC Grocery Inquiry Submission, 2008

Aldi Australia website, https://corporate.aldi.com.au/en/about-aldi/
Aldi business model, https://corporate.aldi.com.au/en/about-aldi/about-aldi/
Aldi Annual Report
ALDI stores, 2008, ACCC Grocery Inquiry Submission
Bonn, I., 2006. Aldi in Australia. Business papers, p.70.
Bonn, I., 2006 "Aldi in Australia" 2ndMilton, Qld, Australia Strategic management: An
integrated approach (2006) p. C1 - C11
Available at: http://works.bepress.com/ingrid_bonn/17/
Corstjens, M, Lal, R 2012, Supply Chain Design and Management for Emerging
Markets: Learning from countries and regions.
Dunford, R Strategy for successful entry into a concentrated and highly competitive
market, MGSM, Macquarie University, Sydney, Australia
Figure 1 Overview of core business value chains,
http://www.transtutors.com/homework-help/industrial-management/production-
system/support-activities-in-value-chain.aspx
Financial Analysis of market, ALDI Australia's ad spend soars as Coles and
Woolworths cut back, http://www.afr.com/business/aldi-australias-ad-spend-
Hitwise Australia the ALDI website receives more visits per month than any other of
the 865 websites classified in the Shopping and Classified Grocery and Alcohol
sector
Horizon 3, Read more: http://www.smh.com.au/business/retail/aldi-says-no-
immediate-nz-plans-after-australasia-appointment-20141125-
11tdl8.html#ixzz4BvyeZNAB
IBISWorld, Feb 2016, Supermarkets and Grocery stores, Major Companies.
IBISWorld, Feb 2016, Supermarkets and Grocery stores, Competitive Landscape.
IBISWorld, Feb 2016, Supermarkets and Grocery stores, Industry Performance
Liabotis, B, Baer, D 2009, Strategy Categories: Strategy.
Lorette, K A Situational Analysis of a Strategic Marketing Plan, Demand Media
Mezger, S. and Violani, M., 2011. Seven basic strategic missteps and how to avoid
them. Strategy & Leadership
Module 6 MGT703 Strategic Management, University of Sunshine Coast
Module 7 MGT 703 Strategic Management, University of Sunshine Coast
Morgan, 2015 The ALDI effect: Australias changing supermarket scene

26|P a g e

McLeod, K Stuckey, J, 2000, MACS: The market-activated corporate strategy

framework
MGT703 Study Guide 6 Corporate Strategy I
Nenycz-Thiel, M., 2011. Private labels in Australia: A case where retailer
concentration does not predicate private labels share. Journal of Brand
Management
Nielsen, A C 2006 Retail Grocery Report,
au.nielsen.com/site/documents/2006ACNgroceryreportfinallores.pdf,
Parnell, J.A., 2006. Generic strategies after two decades: a reconceptualization of
competitive strategy. Management decision
Porter, ME, 1996, What is Strategy, Harvard Business Review,
PricewaterhouseCoopers, June 2007, The economic contribution of small to
medium sized grocery retailers to the Australian economy, with a particular focus on
Western Australia, Report for the National Association of Retail Grocers of Australia
Dunford, R 2004, Strategy for successful entry into a concentrated and highly
competitive market, MGSM, Macquarie University, Sydney, Australia
Roy Morgan Single Source (Australia), April 2006 March 2015 (average 12-monthly
sample size n=13,134). Base: Australian grocery buyer
UBS 27 Oct 2010: Aldi: assessing the opportunity 9 years on
UBS and Solutions Marketing & Consulting
UBS Securities Australia Ltd, 2016
Urbis, July 2007ALDI Store Performance, study conducted for ALDI Stores based on
ALDI store performance data, consumer shopping patterns and market trends.
Wortmann, M., 2004. Aldi and the German model: structural change in German
grocery retailing and the success of grocery discounters. Competition and Change

27|P a g e

 6. APPENDICES

Appendix6.1:Pestelanalysis

Pestel analysis identifying relevant critical trends or events for Aldi

GERMINAL TERMINAL PIVOTAL/MAJOR

Earlysignsofa Trendoreventthat Keydevelopmentsthatcouldhavea
Possibletrend leadsto profoundimpactonthewayyoudo
obsolescenceofa business
wayofdoingthings

Political
Economic Planninglaws Existingpolicyplacesacap
ondevelopmentsoutsideshoppingcentres
requiringexpensiveandtimelyrezoning
efforts.
Social Onlinegroceryordersfor
over60sunabletodrive
Technological Onlineshopping/self
serviceinstore/
advancedconsumerdata
collection
Legal/ AldiisrequiredtoobtainFIRBapprovalifit
Government wantstoacquireland.Thishastwonegative
impacts:i)longerapprovalprocess,andii)
usuallyapprovedonthebasisthat
constructionbeginswithin12months,
limitingtheabilitytolandbank(common
practicebyWoolworths/Wesfarmers).
Environmental Sustainable/Organic
food

28|P a g e

Appendix6.2:SWOT
SWOT analysis to identify critical strength and weaknesses
STRENGTHS
Cost efficient
Private label sourcing
Simple operations in store
Lower prices than competitors
Small footprint stores
Lower overheads
OPPORTUNITIES
Increase market penetration
Expand to other geographic
locations.
Low cost positioning
New product offering targeting
White collar segment
29|P a g e
WEAKNESSES
Manual services used
Limited product assortment
No loyalty programs
No self- service checkouts
Minimum perishable items
THREATS
Competitor's imitating
private labelling
Cheaper products at Costco
Lidl threat of entering
Australian market

Appendix6.3:PortersFiveForcesModel

Industry analysis using Porters Five Force Model

1. Industry Competitors Competition in industry is high and trend is increasing.

With Aldi getting a slice of market share, Coles and Woolworths have reviewed
strategies to maintain competitive advantage. The intense growing rivalry has
prompted the two players to create own private-label products to compete
with Aldi. Aldis cost leadership strategy has worked in their favour for last 15
years and is probably time to review strategy.

2. Threat of new entrants - Barriers to entry in industry are high and steady. Entry
into industry is difficult due to numerous factors. Establishing new store or
purchasing franchise license is expensive. Operators may also struggle to find
suitably sized premises. Most operators in industry state that prime retail sites are
becoming increasingly difficult to find. Difficulty in finding suitable retail site may
be a direct result of store size. Analysis indicates that ALDI stores measure about
850 square metres on average, compared with the average Coles or
Woolworths store, which measures between 3000-5,000 square metres. The
above factors didnt deter Aldi from entering the market and will not deter other
international players, therefore Aldi must review its current strategies if it wants to
remain competitive.

3. Powerful Suppliers Suppliers have their own industry and can use the
bargaining power of supplies. To deter this, Aldi must work with suppliers to
create dependency on expertise advice and diversify supply base to remove
the autonomy of big suppliers.

4. Powerful Buyers with powerful buyers bargaining for improved levels of service
and high quality products at low cost, the industry (Aldi included) need to
constantly evolve and diversify its customer base. Aldi as a latest entrant needs
to create better relationship with its retail customers and understand them
better.

5. Threat of Substitutes - Cafes, restaurants and takeaway food providers compete

with supermarkets and grocery stores for consumer dollars. Over the past
decade, the number of Australians eating out has increased and households
now spend a greater percentage of their income on meals outside the home.
Expenditure on cafes and restaurants is forecast to increase in 2015-16, which
may pose a threat to industry revenue.

30|P a g e