Aldi's Success: A Case Study in Efficiency and Satisfaction

Introduction

Aldi opened doors in Germany, originally serving and supplying food products to the local population. Five years later, management foresaw the need for the company to reduce its dependence on local market conditions. The result was a move from and diversification into the European markets. The company started by acquiring small stores through which various products could be supplied. Aldi found that the market was saturated with bigger giants such as Tesco and Wal-Mart. The margin for profits in the industry was quite low. (Dess and Miller 1993) Show that the company had the advantage of operating in an industry where cash flows were large. This gave Aldi the first advantage in the industry. Unlike the competitors, the company was able to acquire smaller stores and companies in cash rather than through debt and offering of stock.

STRATEGIC POSITION: INTERNAL ANALYSIS- SWOT

A SWOT analysis includes a diagnosis of the company’s internal strengths which are vital for future growth. The SWOT analysis underscores the basic point that strategy must produce the best fit between the company’s internal capability and the external situation in which it operates (David 1993; Jeyarathnam 2008). The summary for the SWOT is as found below:

Strengths

Top quality products at affordable prices: the recent economic recession saw an increase in the sales margin for this company. While many were struggling to stay afloat and engaged in various price cutting measures; Aldi continued to enjoy a wide market. The main reason for this is that consumers are now more conscious about the price label in the product. Families are cutting costs in terms of reducing their grocery bills and they therefore need to invest in a partner who seems to understand the situation. Aldi has for years been renowned as a top brand retail store in addition to having low prices in the market hence being quite attractive to consumers.

Low operating costs: perhaps one of the biggest problems for retail giants such as Tesco is the fact that they have high operational costs. Growth in Aldi has been cautious, with the company leaning on the side of caution, (Williams 2009). This has ensured that the company for example enjoys a much lowered salaries and wages expense account. Low operating costs means that the company can enjoy and maintain its low cost strategy.
Diversified markets: the company enjoys a wide presence not just in Germany with over 2000 stores; but also internationally. Rebranding has made it possible to be a recognizable brand name. Lynch (2008); Rao (2010) indicate that the wide, diverse target market ensures that the company is able to be recognized as the customer first kind of retail store. Further, it allows for the application of unique marketing options which in turn produce ideal results.

Weakness

Relatively small in size: even though the retail company is causing headache for larger retail stores such as Wal-Mart; it is still considered to be relatively small in size as compared to the larger retail stores. Tesco and Wal-Mart enjoy the advantage of size where they have presence in almost every state in the European market. Further, they are able to purchase and invest in a wider range. However, it should be noted that the recent growth of Aldi is guaranteed to ensure that size is no longer an issue for the company.

Disadvantage of low cost: whereas the low cost strategy is guaranteed to draw interest, there has been speculation among the consumers that indeed the company low costs are maintained by investment in low quality products. Thompson (2001) states that such a notion is likely to affect the possibility of growth in an industry where quality is highly ranked.

Global presence: unlike the large retail stores and companies, Lindl is yet to enjoy a global presence. The numbers of stores are still too few to have any impact in the global region. In fact, it is not surprising that some consumers are yet to hear of this fast growing retail giant. In many cases, the company is considered more of a German national retail store than a global enterprise.

Opportunities

Advertising: the main reason why there are consumers who do not recognize the brand name of the company is that there has been a lack of investment in advertising. In an attempt to maintain lower costs of operations; the company has largely ignored the high cost high impact marketing strategies. With advertisement especially citing the advantage of low cost for high quality, the company is most likely to reach new audiences.

Exploring new markets: the European market is saturated with retail giants which leaves no opportunities for growth of the new companies. However Africa and Asian continents offer the greatest opportunity for unexplored markets with the possibilities of quick and fast growth. Hill and Jones (1998) agree with White (2004) that developing countries in Africa. Frank uses his own experiences to explain how technology has grown and is developing Africa especially is yet to become a planting ground for retail stores; yet the continent is continually playing a major role in shaping the global economy and income markets. In a market such as this, the company has the chance to enter and enjoy the benefits of being a monopoly for many years before other competitors set in.

Threats:

The main threats for the company come from the large, much more established giant retail stores. These stores have for a while enjoyed the monopoly of the markets, and are unwilling to allow establishment of another retail giant within the same market. Further, to the consumers they are recognizable and therefore more reliable, (Vijoen and Dann 2003).

Aldi is making attempts to introduce its own brands of juices and other products into the market. This in fact provides the advantage of ensuring that the consumers get a high quality product at an even lower price. With their own production, the company can definitely enjoy a better price negotiation platform. As shown by Thompson and Strickland (2003) unfortunately if the brand is not recognizable, the consumers and even other stores where wholesale supply could be possible may ignore such products in favor of more established brands. Considering the investment that goes into producing the branded retail products, losses in this sector could be hard for the company to recover from.

The main engaging aspect for retail stores today is the ability for consumers to enjoy a complete shopping experience. This means that by choosing one store, consumers expect to find everything in the same roof thereby making shorter the amount of time and energy that goes into finding products (Cesnovar 2006). The company is unable to offer this full shopping experience to the consumers. Consumers who opt to shop here may be required to still locate some items unavailable in the stores in other stores. This generates a low possibility for return consumers and clients to the store.

EXTERNAL ANALYSIS: PESTEL ANALYSIS

Political Factors

Aldi is a largely German company, with the main presence of the retail giant being felt in Germany that is at home. However, it has continues its growth into the European market with the main aim of becoming an established brand across Europe. The European economic climate has been stable. The main concern has been towards establishment and management of the recession in the region. The governments in the region are working together to ensure survival of businesses such as Aldi. In some countries such as Britain for example, the government has gone further to substitute loans and credit to these companies who provide the main source of employment.

Aldi has indeed enjoyed a positive political climate which has ensured access to a wide variety of cheap and affordable talent. Retail companies are often considered a main source of employment and often play a major role in determining the position of labor laws and regulations. European governments have been vocal in encouraging retailers to employ a mixed range of employees. While taking advantage of cheap labor from students and immigrant workers; such companies are also required by law to employ and consider graduates as well as highly educated employees. The same applies in terms of gender and race; where such stores are expected to give equal opportunities at all levels of employment.
Towards the end of 2011, the European governments and most notable the UK government put forward a tax policy that heavily impacted in the retail businesses. The VAT rate had stood for a long time at 17.5%, but in an effort to generate much required revenue the government increase the VAT to 20%, (Cadez 2006).

Economic factors

In the past decade, factors have come to play that have greatly affected the economy of many countries. The European market has not been left behind. In Europe the rate of unemployment has increased. While this means that the company can enjoy high quality labor, it also translates into less shopping by consumers, (Caldez and Guilding 2012). This factor has affected Aldi in two major ways. First, in an attempt to make savings and make ends meet, consumers are buying less and less cutting into the cash flow that the company has often relied upon. On the other hand, the low cost strategy by the company has paid off. New consumers are walking into the store hoping to take advantage of the company’s low costs and therefore save some of the much needed income.

Social factors

The main concern for Aldi is the expected shortage of labor a factor that has in fact caused an increase in the cost of labor today. This is a result of population decrease hereby family planning and general culture has led to a decrease in the birth rate. Today, there are fewer workers than there was when the company opened doors to its first store. Because of shortage of labor, the company has to come up with interesting and viable ways of maintaining the current labor and attracting new talents. This means increased income, possibilities of training and career development all which will increase the labor cost.
There is a new trend where more and more female workers are entering the market in an effort to substitute the breast cancer. Ann has been a staunch Christian since childhood just like the rest of her family income. This means that fewer meals are being prepared at home. More and more customers are therefore expected to flock into the retail stores looking for value added products to substitute the home cooking. Aldi is therefore strategically positioned and equipped to take advantage of this changing tend in the market.

Technological factors

The internet has completely transformed the shopping experience for many consumers. Today, majority of the consumers do not have the time neither the energy to walk into a store to purchase goods. Instead, they opt for the thrill of online shopping which ensures that they can access the goods at the comfort of their homes. (Aarker 1995; Coulter 2002)indicate that a majority of the consumers often visit a store online, gauge the environment and atmosphere before walking into the store physically. Therefore, Aldi needs to restructure and set up high quality online shopping to take advantage of this trend. Without a good online shopping experience, the store is likely to lose loyal customers to larger retailers who offer exemplary online shopping experiences.

Environmental

(Thompson and Martin 2005) show that majority of the European governments have set up legislation directed at reduction of waste and consumption in an attempt to become more environmentally conscious. Retail giants have been forced to abide with such regulation which includes changing of their packaging of goods from plastic bags to more economical re-usable bags. This of course means an increase in cost. However, stores that are not showing a more active environmentally conscious effort are losing customers to those that are seemingly environment friendly.
According to (Pearce and Robinson 1991) environment management is the one sector of CSR where companies are earning high marks and points. Aldi is expected by consumers and the government to behave in a way that is entirely beneficial not just to the company but also to the entire population.

Legislative factors

The main concern in legislature comes in the form of price changes. The European markets have out forth a law that requires and demands notifications before any change of price. The market has become highly regulated especially since retail stores have come to the limelight for charging much more for less quality. If the store seeks to increase a price, there is demand that is made that such announcements be put forth indicating the reasons as to why such changes are being made. Of course advertising an increase in price is likely to chase away consumers from the stores something that Aldi has to contend with,
It is important to note that Aldi has managed growth in what many considered a flat, saturated market by meeting the high demands of the consumers. Food retail is an arena where the client and customer rule, using this policy Aldi has been able to tread the murky waters into a much more profitable scenario. By gathering large databases of consumer information, trends and tastes, the store has been able to anticipate and meet the consumer needs.

THE CONCEPT OF DISRUPTION- SILLINCE (2006)

This model involves entering a new market with much lower prices, negotiating on behalf of the customer and in therefore drawing loyal clientele from competitors. When entering the UK market Aldi faced the largest competition from established retail stores with many branches. Sillince (2006) states that in such a market growth would be impossible, even simple entry and pricing the blanket of traders would be futile, hence the need for disruption. The company focused more, not on diversity or aggressive marketing but more towards lowering the price of products on their shelves.

In this decade where technology is on the fast lane, small upcoming retail stores such as Aldi have been able to take up a large share of the market owned by traditional retailers. Where Sillince (2006) had indicated that success would be non-existent, the company has proven otherwise. Research into the market showed that individuals were currently more concerned with the price of products. Aldi is providing the modularity, by ensuring customers get the goods they desire for a much lower price.

Sadler (2003) and Jeffs (2008) both agree that considering that spread of foodborne disease. Part 9. Washing and drying of hands to reduce microbial contamination. Journal of food supply is often a fast and rich market, it is not surprising that the company has succeeded to draw out consumers with the low cost strategy. It seems that each year, the company generates a new policy and strategy guaranteed to take the prices even lower. In fact, competitors have been vocal about the pricing strategy of the company. Majority feel that the company’s price policy is set not for profits but rather for pleasing the consumers.

The founders of the company have often defended their own strategy indicating that while competitors think of business today and tomorrow; Aldi is growing business for fifty years from now. Sillince (2006) shows that the Company’s strategy is to draw out consumers not just in the short term but actually in the long term for generations to come. As stated by Hunger and Wheelan (1996) that retail stores focus on stocking almost anything and everything, Aldi focuses more on ensuring that the top quality brands are stocked. Therefore consumers may have a smaller selection brands but they can be assured that these brands are the best in the market.

CONCLUSION

The power of meeting the consumer needs. In the case of the café, the consumers often need to eat, fresh and tastefully prepared food retailing stores remains in the hands of a few monopolies. The market may seem saturated but consumers are now enjoying a wider range of high value service. Aldo has offered a competitive ground upon which it has threatened the position of much larger retailers. The result has been astronomical growth. However such growth has not been without some challenges. The monopolies are less willing to allow intrusion into sectors that they have controlled for a long while. Lassere (2007) and Cattani (2011) both indicate that the highly competitive market has forced the company to develop highly creative and innovative ways to attract consumers and set apart a target market for itself.

It is important to note that Aldi has managed growth in what many considered a flat, saturated market by meeting the high demands of the consumers. Food retail is an arena where the client and customer rule, using this policy Aldi has been able to tread the murky waters into a much more profitable scenario. By gathering large databases of consumer information, trends and tastes, the store has been able to anticipate and meet the consumer needs.

References

Aaker, D. A. (1995). Strategic market management. New York, Wiley.
ČAdež, S. (2006). A cross-industry comparison of strategic management accounting practices: an exploratory study. Economic and Business Review. 8, 279-298.
ČAdež, S., & Guilding, C. (2012). Strategy, strategic management accounting and performance: a configurational analysis. Industrial Management + Data Systems. 112, 484-501.
Cattani, G. (2011). Project-based organizing and Strategic management. Bingley, U.K., Emerald
ČEšNovar, T. (2006). The impact of strategic management on business outcomes – empirical research. Journal for East European Management Studies. 11, 227-243.
Coulter, M. K. (2002). Strategic management in action. Upper Saddle River, N.J., Prentice Hall.
David, F. R. (1993). Strategic management. New York, Macmillan.
David, F. R. (2005). Strategic management: concepts and cases. Upper Saddle River, N.J., Pearson Prentice Hall.
Dess, G. G., & Miller, A. (1993). Strategic management. New York, McGraw-Hill.
Hill, C. W. L., & Jones, G. R. (1998). Strategic management: an integrated approach. Boston, Houghton Mifflin Co.
Hunger, J. D., & Wheelen, T. L. (1996). Strategic management. Reading, MA, Addison-Wesley Pub. Co.
Jeffs, C. (2008). Strategic management. Los Angeles, SAGE.
Jeyarathnam, M. (2008). Strategic management. Mumbai, Himalaya Pub. House.
Lasserre, P. (2007). Global strategic management. Basingstoke [England], Palgrave Macmillan.
Lynch, R. L., & Lynch, R. L. (2008). Strategic management. Harlow, Financial Times Prentice Hall.
Pearce, J. A., & Robinson, R. B. (1991). Strategic management practice: readings in strategic management. Homewood, IL, Irwin.
Subba Rao, P. (2010). Strategic management. Mumbai [India], Himalaya Pub. House.
Sadler, P. (2003). Strategic management. Sterling, VA, Kogan Page
Sillince, J. (2006). Handbook of Organizational Strategy. Maidenhead, England, Open University Press.
Thompson, A. A., & Strickland, A. J. (2003). Strategic management: concepts and cases. Boston, McGraw-Hill/Irwin.
Thompson, J. L. (2001). Strategic Management. London, Thomson Learning.
Thompson, J. L., & Martin, F. (2005). Strategic management: awareness and change. London, Thomson Learning.
White, C. (2004). Strategic management. Basingstoke, Hampshire, Palgrave Macmillan.
Williams, K. (2009). Strategic management. New York, N.Y, DK Pub
Viljoen, J., & Dann, S. J. (2003). Strategic management. Frenchs Forest, N.S.W., Prentice Hall.

An Analysis of Aldi’s Strategies for Success | Analytical Essay Example