BMA799 Strategic Management

1. Introduction:

Aldi is a German based food retailing industry, it was established in the year 1948. In
1961 the company was divided into Aldi North and Aldi South. The reason for this division
of Aldi was the different views about how to develop the business. By the year 2003 Aldi had
become one of the worlds biggest global food retailers with over 7000 stores. Aldis main
market is Germany, which accounts for about 40 percent share of the grocery market. Even
today Aldi operates as Aldi North and Aldi south. Aldi North, based in Essen, manages
operations in northern Germany, Belgium, Denmark, France, Luxembourg, Netherlands and
Spain. Aldi South, based in Muelheim, manages operations in southern Germany, Austria,
Great Britain, Ireland, Switzerland, USA and Australia. In Australia, the first Aldi store
opened in Sydney in January 2001. By the year 2004, Aldi owned 44 stores in New South
Wales, 20 stores in Victoria and 8 stores in Queensland. With these stores, Aldi captured 5
percent of total packaged grocery expenditure in New South Wales, 2.5 percent in Victoria
and 1.4 percent in Queensland.

2. Analysing the External Environment

2.1 The General Environment:

2.1.1 Demographic Segment:

The worlds population is is expected to be 6.7 billion by the year 2010. Increase in the
population will increase the consumption of food thereby increasing the sales of food
products. Supermarket industry has a great opportunity for the future expansion. Australias
economy being one of the highly income economy gives the population of Australia a great
spending power.

2.1.2 Economic Segment:

Economic stability of Australia is good compared to that of other nations in the current global
meltdown. Even though the global economical situation is not that good Australia has
retained it economical stability and maintained its GDP growth consistently with good
positive figures in the recent years which is a good sign for the individual firms and industries
to expand. The nations economy impact on the individual sectors that operates. Individual
income is high in Australia making the nation one of the high income economy.

Case study on Aldi

BMA799 Strategic Management

2.1.3 Political / Legal Segment:

General political environment is very important for international trade and operations for
foreign companies which operate with in Australia. Anti-globalisation has a voice against the
government in order to protect the local market players. Environmental protection and
occupational health and safety are the major concern in Australian work environment.

2.1.4 Socio Cultural Segment:

Australia is a society with people from all over the world from different background,
different culture as a result of migration Australia population is composed of people from
Asian, European and African countries.

2.1.5 Technological segment

The technologies used in the manufacturing of the food products those are sold in the todays
Australian super markets are best of its kind as they need to match the market competition.
Infrastructure of Australia is good which helps the transportation of the goods from one place
to other place faster with less or no damages to the products. Information technology is
playing a important role in the supermarket industry for Transportation and warehousing.

2.1.6 Global segment

Global ideas are very common in the supermarket industry since there are number of sources
like magazines, companies websites which educate buyers with all new products coming in
the market with their price tag. Hence consumers have got good knowledge about the global
market.

2.1.7 Overall Conclusions

Aldi in Australia faces a mix of opportunities and threats; however the high spending power
of the Australian population is a major attraction for Aldi to expand rapidly. The biggest
opportunity for Aldi is that there are varieties of buyers goods from supermarkets with
different age, income, education, gender. To gain competitive advantage Aldi needs to invest
more in customer relationship. Since it is an established industry there are many competitors
competing at global stage in a robust manner, which makes it more difficult to operate and
stay ahead.

Case study on Aldi

BMA799 Strategic Management

3. Industry Analysis

Supermarket industry is quite difficult industry to operate since it is an well established

industry in Australia with many competitors as well as technology sensitive which require
rapid innovation and changes to stay ahead in the competition(like logistics, material
handling, operations). Hence firms require different innovative strategies to adopt and satisfy
modern and rapid changing requirements of customers.

3.1 Barriers to Entry

Entry barriers are high as it needs high capital investment and major difficulty in finding
good locations and working out a good supply chain. Entering an industry under these
conditions typically demand significant investment of resources which make it unattractive to
the potential new entrants.

3.2 Power of Buyers

Buyers enjoy high bargaining power as the switching cost is minimal to buy a substitute. To
give incentives to customers and to promote the product the company at times sells the
product with a small margin or at cost (Surprise buys offered by Aldi which changes every
week)

3.3 Power of Suppliers

95 percent of the products of Aldi store products are Aldis own brands. More than 80
percent of its products are Australian made and many of its home brand products are
produced by well-known brand manufacturers. Aldi Focus on their own brands in order to
remain independent, which enables them to avoid high marketing costs often associated with
national brands and to set their own price reducing the power of the suppliers.

3.4 Substitutes

Aldi faces moderate to high level of substitution risk. Substitute includes other branded and
local products. The customers are not brand loyal and they do not recognize the quality of the
product and become brand loyal as substitutes are easily available.

Case study on Aldi

BMA799 Strategic Management

3.5 Rivalry

Is high because there are already well established players operating in this market segment.
And there are chances of rivalry becoming intense. Hence firm needs to be rapidly innovative
with reasonable price, quality and good supply chain and counterattack before the other firm
imitates to gain competitive advantage.

3.6 Overall Conclusion

This is a moderately attractive industry for existing market participants because there are high
entry barriers, suppliers enjoy low bargaining power while the buyers with a high bargaining
power with high threat of substitutes but there is intense rivalry among competitors. Even
then it is a good opportunity to explore more for the industry which are currently in this
market.

4. Competitor Analysis

Australias food retail industry is an established industry with many competitors posing threat
to Aldi. Woolworths and Coles are the major competitor with in Australia operating as
Woolworths Safeway and Coles Myers. Aldi, Woolworths and Coles all of them falls in
same strategic group as Aldi since they follow similar strategy with more emphasis on being
a cost-leader with hard discounts. Woolworths has about 37 percent of Australias grocessory
market where Coles has a share of 32 percent (as of 2004). Coles and Woolworths same like
Aldi has got very strong brand name.

Woolworths Safeway has positioned itself as the The Fresh Food People, many farmers in
Australia grow their products exclusively for Woolworths, adhering to strict quality, food
hygiene and safety standards. This strategy has been an important way of differentiating
themselves from its competitors. Woolworths strategy that is aimed to improve the
efficiency and to reduce costs by restructuring the companys supply chain, by adopting new
technology and introducing the new Every Day Low Price (EDLP) strategy into its
supermarkets. EDLP involves reducing prices for many national brands, pushing
manufacturers to cut their prices. This strategy is a indicator of Woolworths trying to be a
cost leader in the near future without compromising on its quality

Coles Myers largest division is also its food, liquor and fuel segment. The food division
includes Coles and Bi-Lo . Coles also has an online shopping facility in selected regions.

Case study on Aldi

BMA799 Strategic Management

Coles Myers liquor business includes 626 Liquorland. And fuel retailing business alliance
with Shell is a great success to the company. Coles Myers general merchandise and apparel
brands comprise of Kmart, a discount department store, Officeworks, a retailer of office and
technology products, Myer, a department store offering apparel, accessories, footwear,
cosmetics, gifts and home wares, Megamart, an electrical, furniture and home wares store,
and Target, a low margin, high volume retailer. This clearly indicates that the Coles strategy
is diversification within the retailing industry.

In addition to major players there are also a number of smaller regional players in the
Australian food retail industry, namely Action supermarkets IGA and Franklins.

Foodland aims to continue improving their fresh food departments, their innovation in store
design and their development of exclusive house brand ranges the company plans to improve
supply chain efficiencies to save on distribution costs required for long distances and to get
quickly to the market with products that are very fresh.

IGA has a market share of about 13.5 Percent. IGAs Distribution improved its customer
service levels. IGA has a reverse fuel offer in which motorists can fill up at a petrol station
of their choice and are reimbursed 4-cents per litre when they shop at an IGA store which is a
innovative strategy of IGA to attract customers to its stores.

Franklins the third regional supermarket of Australia. Franklins strategy concentrates on

Providing value for money, quality, friendly service, speedy checkouts and a good overall
shopping experience. Franklins also aims to improve supply value chain to increase the
efficiency and reduce the costs.

4.1 Conclusion

Woolworths and Coles, both full-service supermarkets that are trying to differentiate their
product offerings to provide more value for their customers by adding new retail services
such as access to discounted petrol and to banking facilities. They offer house brands as a
cheaper alternative to national brands and are aiming to increase the number of products they
sell under home brand. IGA, Foodland and Franklins pursue a similar approach. All the super

Case study on Aldi

BMA799 Strategic Management

markets are in the process of improving their supply chain efficiencies and improving logistic
arrangements, with the aim to cut costs.
5. Analysing the Internal Environment

Aldi has important resources and Capabilities which allows the firm to sustain in such a
competitive environment.

5.1 Tangible resources

The model of Aldis supply chain is excellent. They are able to organise a difficult
supply chain and handle a complex routing system.
Organisation structure of Aldi is flat with friendly culture with enables them to
delegate the task with equal responsibility.
Aldi has an excellent training program in which they learn about retail management,
store operations, trading rights, administration, logistics and property management.
Over all they train the individual to be focused on economic efficiency.
Aldi has an advantage in its access to the products as they depend on their home
brands to a greater extent and few local manufacturers.
Excellent knowledge about the local market due to decentralisation and delegation.
Their Finances are good which enables them to expand rapidly.

5.2 Intangible resources

The reputation of Aldi is good which has helped to increase its retail outlets in a faster
pace in the Australian market.
Aldi has decentralised organisation structure with informal reporting structure which
gives top management more space for strategic decisions.
Aldi has an excellent brand name which helps it Aldi to penetrate deeper in the
Australian market.
Co-operative exchange of experience, comparing methods and results of successful
approach between Aldi north and Aldi south which is unique in the industry.
Innovative and unique way of store design which reduces the cost of new setup and
saves the cost that incur in stock filling.
Buying power of the Aldi is the best compared to any of the best global competitors

5.3 Value chain Analysis

Case study on Aldi

BMA799 Strategic Management

Primary activities: logistics is the main area in which the Aldi has achieved a major
breakthrough compared to its competitors which has enabled the company to gain a
competitive advantage. Marketing and sales: Aldi has good contribution in the area of sales it
focuses on local marketing by advertising in local press, catalogues and web updates.
Operations: It is another area of the primary activity in which Aldi is very competitive, at all
the levels in the industry employees are trained for operations management which makes the
operations efficient.

Secondary activities: All the primary activities are supported by recruitment, training, and
procurement.

5.4 Capabilities

Aldi has a good number of capabilities with many core competencies.

1. Excellent logistic system capable of minimising the routing and maximising the
distribution efficiency.
2. Training and development programs which leads to efficient human resource with in
the organisation to develop and promote managerial talent from inside the
organisation
3. Effective marketing capabilities to attract the customer pool.
4. Good leadership and management ability to lead the organisation in a long run.
5. Brand understanding and flexibility in branding that creates the ability to be
competitive in difficult supermarket industry.
6. Ability to deliver good quality products to customers at low price

7. Better and consistent buying power of the industry letting the buyers not to determine
the supply quantity and price.

8. Efficient customer relationship enabling the customer letting know about the concern
about the products and services offered by having chat rooms and online surveys and
polls.

9. Excellent brand loyalty, holding the customer pool to stick to this particular brand for
the value that is delivered.

10. Wide range of products to choose from the supermarkets, giving the customer more
choice to choose the best that delivers more value.

Case study on Aldi

BMA799 Strategic Management

5.5 Core competencies

Sl Capabilities Rare Valuable Costly to Non-

no imitate Substitutable

1 Efficient distribution Yes Yes No No

2 Efficient Human capital Yes Yes Yes Yes

3 Marketing No Yes No No

4 Good leadership and management Yes Yes Yes Yes

5 Effective use of the brand No Yes No No

6 Ability to provide good quality Yes Yes Yes Yes

products at low cost
7 Efficient buying power Yes Yes Yes Yes

8 Customer relationship No Yes No No

9 Brand loyal Customers Yes Yes Yes Yes

10 Provide customers with wide range No Yes Yes No

of products to choose

Capabilities 2, 4, 6 and 7 are most important and can be considered as core competencies for
Aldi. Out of which 6 and 7 are important and give competitive advantage to Aldi.

Limited number of products and home brand enables Aldi to leverage its impressive buying
power and to control the cost of its products by buying in large quantities.

Capability of effective logistic handling is important and give competitive advantage to Aldi
but this capability cannot be considered as a core competency as the competitors like
Woolworths and Coles also possess the same capability.

The above four core competencies give competitive advantage to Aldi which will help them
to earn above average profits.

5.6 Weakness

Limited number of products range for customers to choose.

Case study on Aldi

BMA799 Strategic Management

Restricted opening hours.

No budgets or annual planning calculations.
Minimal marketing and customer relations.
All these gives Aldi limited market scope.

5.7 Current strategies

At business level Aldi is a typical hard discounter, pursuing a cost-leadership

strategy.
Its approach is to offer a limited number of quality goods and products at low prices
compared to their competitors like Woolworths, Coles Myers and foodland.
Aldi focus on own brands and exclusive labels. With few national brands, however
95 percent of the products are Aldis own brands
Aldi is focused on cost differentiation focusing on the segment of people who are
price conscious and as it adapts quickly into the environmental changes.
Aldi stores are usually 1200 square metres in size which is very small compared to its
competitors. Aldis strategy is that small size of the stores makes new sites cheaper
and easier to find.
Aldi focuses on rigorous training of their staff which enables them to decentralise the
decision making which enhances the local market based decisions which in turn leads
to higher sales revenue.
Aldi focus on economic efficiency and continuous improvement with determination
and persistence.
Aldi belives in the strategy of doing what they do the best which has kept them rigid
in the area of cost-leadership.

Their supply chain management and the unique way of store design are the cost savers
of the Aldi This is major achievement

At corporate level Aldi in Australia (Aldi south) keep links with Aldi North which enables
them to exchange the information about a range of issues such as performance and cost
figures, current and potential suppliers and they also conducted joint negotiations with
suppliers.

6. Future strategies

Case study on Aldi

BMA799 Strategic Management

At business level they must continue as cost-leaders. As the supermarkets in Australia is a

well established industry. Being a cost leader Aldi should also diversify in the industries
which operate in the similar lines to that of the supermarket like petroleum and liquor.

Aldi should involve itself more in local events to assist integration in society and ensure the
local public and the government cooperation to the fullest possible which helps in creating a
good brand name.

Expansion of Aldi should be geographically in Australia as they are operating in the limited
region, rapid expansion is possible for Aldi as the set up cost of the Aldi outlet is relatively
less compared to its competitors. Aggressive expansion can be boosted by the strong
financing capability of the company.

Pricing of goods must remain sensitive to substitutes available in the market. Products must
be cheaper than the usual goods offered by the competitors. This also makes it hard to expand
quickly.

Increase in the timing of service can attract the customer pool to a greater extent. As the Aldi
supermarket operating time is in similar lines to the working time of many of the office goers
it is advantageous to extend the time of the Aldi stores in the selected outlets. Even though
its a cost cutting strategy it will be beneficial for Aldi to implement the extended service
hours.

Aldi also have an international strategy possibility. Because the supply chain management is
so good and has become a core competency of Aldi, it is a viable export to other supply
chain challenged countries. This has the potential to be a major emphasis for this firm and is
an opportunity that should be urgently explored.

Aldi should also diversify into new sectors, such as petrol and liquor retailing. As the
retailing in these industries run in the similar lines in that of the supermarket. Aldi being a
cost-leader in the supermarket can easily penetrate into these two market areas easily.

Aldi needs to increase the number of products they offer to the customers as the products they
offer to the customers is very limited, even though it helps to be a cost leader this at many
times takes the potential customer out of the store who seeks more number of choices to
choose from.

Case study on Aldi

BMA799 Strategic Management

Aldi should collaborate with a petroleum and liquor retail industry and start giving the
discounts in the petrol with the forward or the backward discount. So that the customers are
attracted in both the ways customers who go out of Aldi will go to petrol stations and liquor
shops and the customers who go to the petrol stations and liquor shops are attracted to the
Aldi retail shop

Aldi may be able to focus on Asian and Middle-east markets as the supermarket industry is
not fully explored with few competitors operating at the present. The experience drawn from
the western market may be applied in further expanding in other markets around the world as
a part of its International strategy.

7. Remarks

Even though the five forces model states that the industry of retail business is moderately
attractive the Aldi being the business leaders in the market can succeed because of their
business know how. Aldi has the inherent potential to meet consumer expectations and create
economic value maximising its efficiency. Focus on core competencies, capabilities and cost
leadership strategy makes the customer shop in the Aldi supermarket

Case study on Aldi