Aldi's History and Values

Introduction

Aldi (stylized as ALDI) is one of America’s favorite grocers. The store started in 1913 as “Albrecht Diskont” when the mother of Karl and Theo Albrecht opened a small store in Essen, Germany. Karl and Theo took over their mother’s business in 1946 (after Karl Albrecht served in the German Army during World War II). By 1950, the Albrecht brothers owned 13 stores in the Ruhr Valley, opening the first self-service store in Germany.

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In 1960, a dispute over whether the store should sell cigarettes caused the brothers to split the company into two chains now known as Aldi Nord and Aldi Süd (in 1962, “Albrecht Diskont” was shortened to “Aldi”). In 1966, Aldi Nord and Aldi Süd became two legally distinct entities, even though the “Aldi” name is applied to both chains. Aldi Nord owns all the Aldi stores in Belgium, the Netherlands, Luxembourg, France, Poland, Spain, Denmark, and Portugal, and also operates the Trader Joe's markets in the United States. Aldi Sud owns all the Aldi stores in United States, Austria, Slovenia and Italy, Great Britain, Ireland, Australia, and Switzerland. Aldi’s US has three main corporate values:

• Consistency
• Simplicity
• Responsibility

Aldi’s business model reflects this, since ALDI looks to cut inefficiencies and make the store format compact and straightforward. According to the ALDI website, the chain looks “to provide the highest quality products at the lowest possible prices.” For instance, ALDI stores in the US keep products in the shipping boxes because it cuts down on time compared to shelving the products individually (roughly 30 minutes per pallet). ALDI also uses multiple barcodes on its items to speed transaction times, as evident in the 40% speed difference compared to the next fastest competitor. Although the exact number of products sold in the US are unclear, 90% of the brands are trusted inhouse brands.

Industry Structure

ALDI competes as a Discount Grocery chain which uses an Industry-wide and cost-effective competitive strategy to attract customers. ALDI pushes “ALDI exclusive brands” over national brands to lower their costs. Although ALDI attempts to differentiate itself by selling its own unique brands/products, ALDI competes in an environment in which competitors are constantly trying to lower prices to attract new customers. Therefore, the bargaining power of customers is moderate/strong. Essentially, the customer has a lot of options from which to buy their groceries. Moreover, many of the “ALDI exclusive brands” can be easily replicated by other stores, which allows the customer to sacrifice very little in choosing which store to buy their groceries from. On the same note, ALDI’s threat of substitutes is strong. To weaken the threat of substitutes, ALDI has implemented their own differentiated brands and products, which in the long run, may be helpful in maintaining customer loyalty. However, there still maintains a high availability of substitute products on the market at other stores like Giant, SafeWay, Harris Teeter, and Whole Foods. Moreover, although ALDI brands the products as differentiated, many times these same products can be found in similar forms at other grocery retail stores.

Some customers may have also developed a loyalty to a certain brand/product and are unwilling to switch to ALDI’s differentiated version, even if the price is cheaper. An example of this might be if a customer sees ALDI’s Cinnamon Crunch Squares and instead decides to buy Giant’s Cinnamon Toast Crunch, which is the original product by General Mills. Like many other grocery retail giants, ALDI obtains their products from a wide range of small suppliers, the suppliers have very low bargaining power in choosing the selling price of their products. If a supplier becomes too aggressive in their bargaining or asks for too much, ALDI may simply choose another supplier from their large pool who is willing to sell their products at a lower price. ALDI has built a vast empire within the discount grocery world which is hard to replicate, and the threat of new entrants is weak. Newcomers may be unable to replicate ALDI’s low prices and high-quality products without the same amount of volume ALDI receives every year. Newcomers who target ALDI’s customer base by selling low-cost, organic foods might pose a threat, but would almost always be unable to reach the same size and strength of ALDI.

The industry in which ALDI competes in (Discount Grocery) is very competitive. Since every store is selling roughly the same assortment of products, retailers have to choose whether to focus on lowering their costs, differentiating their products, or a little bit of both (which is ALDI’s approach). ALDI and its competitors have to constantly adjust their prices to compete with each other, and many customers keep track of these prices to lower their overall expenses of groceries. In an attempt to weaken competitive rivalry, ALDI has attempted to distinguish itself with unique brands/products; however, many of ALDI’s competitors are also taking this same approach.

Aldi’s Future

Given Aldi’s cost leadership focus continuing with this focus in the future Aldi must adapt and compete. While supply chain and organizational efficiency is helpful in all areas for Aldi proceeding with this large expansion Aldi needs to focus on key factors that customers value. The largest factors in order by size go: Best value for money, convenient locations, interior design, reputation, organic goods, personal, loyalty program, and parking. From what I have seen the value for the money is there. Locations are convenient and with online shopping through Instacart location concerns may begin to decrease entering the future. Aldi must look at recent examples like Sears and take direction from it. Large locations with overbuilt parking lots (legal restrictions aside) may be a growth vector but also end up being a downfall. With Sears having trouble selling such large lots of land and not having the capital or expertise to become a real estate company. Overhead costs will eat up and constrict physical location-based company’s if customers are not kept. Other variations Aldi should consider are their own branding. Cost differentiation has given Aldi a niche but it won’t give Aldi dominance. Aldi has the lowest stock rating out of market force survey. Pointing to Aldi focusing so much on price and keeping stock low they will churn customers.

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In Market force survey Aldi had a 32% item stock rating the lowest on the list half that of the highest Publix at 61%. Aldi has focused so much on vertical integration with private labels and customer acquisition through expansion and recent ad campaign launched in September the cost to keep extra stock on hand and in shelves would be well under the risk involved with having a higher churn rate downright turning away customers.

Case Summary and Main Objective

In view of Aldi UK’s successful implementation of ESN platforms, Aldi US intends to replicate their success as it seeks to expand within the country. The Aldi case aims to provide viable business experience and help Aldi generate an idea for an enterprise social network (ESN) platform. The first part of the task is to propose an ESN platform that efficiently and effectively disseminates information throughout the company, boosting employees’ decision-making abilities and maintaining Aldi’s efficiency in their operations and services. We must understand Aldi’s organizational structure, modes of communication, current employee development and retention program, characteristics and effectiveness of ESN platforms, and predict benefits and risks that ESN brings to Aldi and how ESN exhibits Aldi’s corporate culture, its goals to empower employees with information, and support its cost-leadership competitive strategy. We have to analyze implementation of the ESN to engage their employees and formulate a measure of the success of implementation. Based on our proposal, we will produce a cost-analysis of implementation on excel, including estimation of any costs that will be attributed to implementation and inauguration of our ESN. Lastly the team will upload a presentation about this ESN and if selected, present it to Aldi.

In order to be in line with Aldi’s case goals, the solution must not be complicated and cost effective. Aldi has a cost focus strategy and their three corporate values are simplicity, consistency, and responsibility. Therefore, if we implement a cost-effective enterprise social network this will benefit all three of Aldi’s corporate values. An efficient ESN will make it easier for Aldi employees to receive the information they need. An efficient ESN that is cost-effective will uphold Aldi’s core value of simplicity by having the headquarters or heads of departments to simply send out information instead of passing it down the executive line. Having employees able to receive information from executives or department heads in the company not only makes it easier, but it also gives faith to the employees that the executives care about lower level employees. This ESN will exhibit Aldi’s value of consistency by allowing information to get directly passed down to employees instead of always coming from different sources. This helps Aldi employees to know where to look for information instead of searching. The ESN demonstrates Aldi’s corporate value of responsibility by putting the responsibility on the employees to look for the information they need, instead of higher up employees having to search them out and make sure they are doing their job.

Bibliography

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