Introduction
ALDI is a German Based Discount Supermarket Chain. Albrecht Discount is the full form of ALDI. The Supermarket Chain consists of two main groups. ALDI NORD and ALDI Sud. However both groups are independent in their operations and work within the specific market grounds. The individual groups were originally owned and managed by brothers Karl Albrecht and Theo Albrecht. The company has transformed from a small business to one of the most successful and valuable retail business chain with an annual estimated turnover of 53 billion Euros, over 9,000 stores in 18 countries and around 100,000 employees around the world. ALDI operations are mainly based on the limited Assortment Concept – The high quality range of goods sold in the store was initially limited to a basic selection of goods to be purchased in large quantity, sold at realistic prices and presented in simple way. At ALDI, everything from building shop, selecting suppliers, locations and selling goods, is done to make possible considerable savings with the discount always passed on to customers in the end price.
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ALDI’s “No Frill” Strategy is their another cost saving methods. They have introduced Cart Rental System. Customer need to put one coin in the grocery Cart and gets back the coin when the Cart is returned. This mechanism will cut off the need to hire employees whose job is to retrieve the grocery cart. The grocery industry has been revolutionized with a unique business model by ALDI that enable them to provide the highest class product at the lowest prices.
ALDI’s VISION
ALDI has a clear business philosophy and a number of guiding principles. It can be summarized by following statement: “Top quality at incredibly low prices- guaranteed” . ALDI has got five main ideologies, to be precise 1) Huge savings, 2) excellent Quality, 3) Outstanding value, 4) Superb special buys and 5) Buy with confidence.
Organizational orientation can be of 4 types. ALDI is considered as mix of both Market Oriented as well as Sales Oriented Organization. Let us discuss about types of orientation and then focus on some important details on how ALDI is successful in grocery retail market by being mix of market and sales orientations.
Production Orientation
“Production orientation is an approach to business that centers its procedures on producing goods more efficiently and cost effectively; presumptuous that price is the only factor significant to customers”.
Product Orientation
“Product orientation occurs where the focal point is given to product rather than the market. A product is prepared so that it meets its own requirements and not that of the markets. The needs of the customers are less important to that of the products”.
Market Oriented Organization
“Marketing Orientated Organizations are treated as organizations wide generation of market intellect pertaining to the current and future customer necessities, distribution of intellect across departments and organization wide responsiveness to it. These companies get close to the customers in order to recognize their needs and problems and come up with strategies accordingly so as to reach the expectations of the customers and thereby satisfying them”. (Kohli & Jaworski, 1990 &1993)
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Market orientation consists of a three pattern of activities in the company, and has three dimensions, the generation of, dissemination of, and the response to the market intelligence. (Grunert, Baadsgaard& Larsen, 1996)
Product
ALDI specializes in their own-branded labels rather than any other branded labels so that they can control the cost and production processes. ALDI also stock non- food items such as
Clothes
Health and beauty products
Fresh fruits and vegetables
Stationery
Household goods
Electronic products
Soft tools
Price
The process of distribution of products shows ALDI’s pricing strategy used for being able to sell their products at low price. This comes from ALDI’s business model – Keeping high bargaining power over their suppliers, ALDI can buy large quantities of stock to service all the shops across the country. Secondly Customers have very limited amount of choices that enables ALDI to purchase one item per line that’s keeps the price of product low.
Place
Place is the one of the important ingredient of market mix. It concerns opening hours, communication channels, physical location as well as distribution channel. ALDI has got the physical presence in the form of stores as the physical building around Europe and Americas. Moreover online presence of ALDI in form of marketing channels helps the customers to locate nearest store, obtain information about the product etc.
Promotion
As mentioned earlier ALDI invest very less amount money for promotion. Another area ALDI save cost is marketing. It has got no marketing department. And the marketing budget is about 0.3 per cent of the revenue. Another interesting feature is Zero spending on public relations. ALDI offers some selective “Super Buys” offers which will change each week and are available till the stock lasts.
As explained earlier ALDI is the retail Grocery supermarket chain.ALDI’s founders influenced its culture very sturdily. Its business strategy, Organization’s philosophy and guiding principle are reflected by the cultural values and rules. ALDI’s simple business model concept is understood by its employees and customers. Employees at every organization level are very cost conscious. They try to reduce unnecessary cost wherever possible. For example when there are enough days light, all lights in the offices will be switched off.
ALDI pay a special attention for the economic efficiency. Economic efficiency is achieved by going to details of every aspect. Its aims to find small improvement in every area. If new ideas and solutions are proved to be successful, they are implemented quickly. The organizational culture is characterized by determination and persistence in addition to its focus on economic efficiency and continues development. Business approach of ALDI has been changed very slightly since its foundation. ALDI’s employees explore the customer’s need and stock them. The prices of the products across each country are uniform.
ALDI’s shops are relatively smaller in size as compared to other Supermarkets. Maximum size comes up to 1200 meter squares. And typical ALDI stores consist of five employees. ALDI don’t employs Butchers or Backers as these products come prepacked. Designs of ALDI store are similar and simple. That means all the stores have same layout and similar style of presentation. ALDI does not provide free shopping bags and customers are encouraged to bring their own shopping bags. This is ALDI’s another cost saving strategy.
Business structure is ALDI is mainly based on Decentralisation and Delegation. This will help to reduce the bureaucracy and conflicts. Issues can be easily dealt with.
COMPETITIVE ADVANTAGE
Competitive advantage can be defined as when the firm is able to make profits as compared with the competitor by still offering the customer a less price or by offering better benefits for the high price paid by the customer.
The concept of Michael Porter’s “Competitive Advantage” can be used to explain. It is divided into four section as:
1.Differentiation Focus
2.Cost Focus
3.Differentiation
4.Cost Leadership
Source:[ http://tutor2u.net/business/strategy/competitive_advantage.htm,30th October,2010]
As shown in the diagram above, Cost Focus and Differentiation Focus are for Business Activities in narrow scope; Cost Leadership and Differentiation Leadership are for Broad range of Business activities in a broad scope.
[ http://tutor2u.net/business/strategy/competitive_advantage.htm,30th October,2010]
ALDI main target sector are people in the middle class whose main factor in buying is the price factor than the quality. They give an edge over the competitor like TESCO, ASDA, Lidl, Netto,BI-LO, Kwiksave, Save-A-Lot, Penny Market, Plus, Dia by providing goods at cheap price but high quality product. And thus, it creates an excellent value for the money paid.
[http://companies.jrank.org/pages/109/Aldi-Group.html, 30thOctober, 2010]
Source: [ http://www.askbiography.com/bio/Aldi.html,30th November,2010]
Regular discount of products.
Brand items are refunded if the purchase receipt is submitted to the ALDI store manager.
If the products are found to be defective, it can be returned if the original receipt is submitted and the full amount is refunded.
It has 900 product lines in stock and it is a no-frill store with over 9000 stores throughout the world.
It has its own brand level products and stores of ALDI have diversified products like Bonanza Potato Chips, Millville cereal.
Watchwords of ALDI are “Incredible Value Everyday” and “The Double Back Guarantee”.
ALDI Talk (low cost pay-as-you-go) offers low rates of call to customer, say for e.g. 3c/SMS to other subscriber of ALDI Talk, 15c to landlines and mobile.
They offer sales on exclusive products like electronic items, computer, gadgets, clothes, toys etc on a weekly basis but in a limited range.
They believed at “Spend a little, live a lot”, “Top Quality at incredibly low prices” and “Smarter Shopping”.
[http://www.worldlingo.com/ma/enwiki/en/Aldi, 30th October,2010]
[http://tutor2u.net/business/strategy/competitive_advantage.htm, 30th October, 2010]
ALDI is a supermarket which offers the products at the lowest price possible. It operates on its business with “Low price philosophy “Strictly no frills” approach. They achieved it by allowing minimum operational costs like buying a single line per item of a particular brand which in turn gives minimum choices to the customer. Transportation costs are kept to the minimum by keeping the goods directly from the warehouse to the store, the process is quite straight forward. This reduces the overall purchasing expenses.
The design of the stores is done in a basic way and the first person to handle the products is the customer themselves. They store non-branded items more in quantities but fewer in products which is a significant factor as compared with the other key competitor of ALDI.
Another important system introduced by ALDI is the checkout system. Long queue is a common thing in most supermarket but in ALDI through checkout system it is made efficient in spite of the less number of staffs .The savings made by ALDI is generally passed on to the ALDI consumers.
All these factors make ALDI a low-cost producer and thus enable to offer customer at a lower price and yet still obtain the profits needed which gives a competitive advantage over others.
. [http://en.wikipedia.org/wiki/ALDI, 30th October, 2010]
[http://tutor2u.net/business/strategy/competitive_advantage.htm, 30th October, 2010]
ALDI supermarket as mentioned above, considers the middle class people in the rural and the sub-urban areas mainly by introducing the low price offer on all its products.
By focusing only on few products but in high volume, ALDI is able to increase more sales and thus can offer the price at minimum level by keeping few branded products and more local made products.
[http://companies.jrank.org/pages/109/Aldi-Group.html, 30th October, 2010]
Differentiation is about the ways of establishing the competitive advantage. The question of Differentiation advantage comes in focus when a firm delivers greater services for a non-unlimited higher price than its competitors. It emphasises on unique source of differentiation in the value chain rather than on products and market.
[http://tutor2u.net/business/strategy/competitive_advantage.htm, 30th October, 2010]
Value Chain Analysis shows how the company outperformed the competitor.
The diagram for Value Chain Analysis is given below:
Source:[http://www.provenmodels.com/26/value-chain-analysis/michael-e.-porter/,6thNovember 2010]
There are two types of activities while performing value chain analysis according to Porter and it can be stated as:
Primary Value Chain Activities: Its main activities are production and delivery of product so as to sustain the competitive advantage.
Inbound Logistics: Activities concerned with receiving and storing materials required to manufacture a product.
Operations: It Shows the lifecycle of product and services. Aldi have their own brand and they are able to get back their customer again and again to their store to purchase with the non compromising quality and services they are offering.
Outbound Logistics: It is concerned with how the produced goods and services are made reachable to buyers. If we look into ALDI and as we have mentioned earlier ALDI is cutting its cost in the production and operation levels and make it more convenient for the customer to reach the product.
Marketing and Sales: It is mainly concerned on how the products are made know to the customer through marketing and sales .ALDI advertising strategy is to save money and they do this by publishing a newsletter which offer weekly special prices and send it to the store so that the customer could easily get the special offer of the prices.
Service: Customer Service Excellence is aimed at satisfying the customers through excellent services. ALDI has excellent strategy in order to sustain the competitive advantage.
Secondary Activities: Activities which increases the efficiency but not directly involved with production. The activities are stated as follows:
Procurement: Associated with how the resources are acquired for the business operation.
Human Resource: Associated with recruiting the eligible staff in respected sections.
Technology Development: Activities involves managing information and protecting the knowledge in business.
Infrastructure: Concerned with support sections such as QUALITY, Planning, and senior management.
ores shows that most of these savings are passed directly on to consumers.
Source:[ http://www.mindtools.com/pages/article/newTMC_08.htm,6th November,2010]
Porter’s five forces model will help in knowing the flaws and improve it and at the same time help in understanding the strength and the current status in the present scenario.
The five forces can be explained with respect to ALDI as:
[http://www.thepost.ie/archives/2008/1116/aldi-success-built-on-no-frills-stores-37561.html, 30th October, 2010]
Since ALDI offers the everyday used products in minimum price but of high quality products, ALDI stores and customer has increased in huge number with time. This poses a threat to other competitor like:
Lidl (5,000 stores)
Netto (1,200 stores)
BI-LO (214 Store Australia)
Kwiksave (UK only)
Save-A-Lot (1150,USA stores)
Penny-Market (Europe)
Plus www.plus.de
Dia%(Spain,Portugal)
[http://companies.jrank.org/pages/109/Aldi-Group.html,6thNovember,2010]
ALDI has many competitors like TESCO, ASDA, Lidl, Netto,BI-LO, Kwiksave, Save-A-Lot, Penny Market, Plus, Dia and hence the new entry has to face the competition with the already existing supermarket.
As ALDI does not have specialized products or services, the product which can be found at ALDI can be found at other stores.
Only difference is that ALDI offer the products at the lowest fare possible.
Except ALDI’s own product, the other products can be easily available at other stores.
[http://companies.jrank.org/pages/109/Aldi-Group.html, 6thNovember, 2010]
There is intense competition in the retail world, so if ALDI is offering price that is quite high, consumer has the choice to choose from other stores.
Consumer can exercise their power and keep the price as per their value.
If the supplier does not agree with the price ALDI is offering, then ALDI can switch to other supplier chain.
“A product is a physical good, idea ,person ,or place that is capable of offering tangible attributes that individuals or organizations regard as so necessary, worthwhile or satisfying that they are prepared to exchange money, patronage or, or some other unit of value in order to acquire it… “(Brassington and Pettitt, 2006:288)
Like our company Aldi provide services in certain area of the region. It is necessary to Strategically plan the services and manage the brand and product line portfolios, serving multiple markets and segments.
“No matter how wide the product mix, both product lines and individual brands needs to be managed over time. A useful tool for conceptualizing the changes that may take place during the time that a product is on the market is called the product life cycle.” (Jobber, 2007)
There are four stages in a product life cycle.
“When first introduced on the market a product’s sales growth is typically low, and losses are incurred because of heavy development and promotional cost. Companies will be monitoring the speed of product adoption and, if this is disappointing, may terminate the product at this stage.”(Jobber 2007)
Aldi’s product approach was based on delivering a restricted selection of quick moving product.
The company focused in selling staple products like food, beverages, and household supplies, which customers shopped for on a normal basis. (Reportedly, many German customers made their main purchases at Aldi, and supplemented their shopping by purchasing products that were not stocked by Aldi from other stores.) Typically, Aldi stores carried only around 700 different products, compared to around 25,000 products carried by a traditional retailer and almost 150,000 carried by a Wal-Mart Supercenter.
Growth is the second stage in the product life cycle. In this stage product is considered by speedy sales and profit growth which is topped by rapid market recognition. At the closing stages, there are lots of competitions from the rivals and the profits decreases slowly but surely because of competitive shakeout.
Despite the fact that Aldi was one of the largest and most booming retailers in Germany, some analysts expressed concerns that the company’s growth might slow down as the German market became saturated. Apparently, more than 80 percent of the Germans lived within 20 minutes of an Aldi store. Analysts said that this would limit the company’s expansion in Germany. Besides, in Germany, shopping at discount retailers was not limited to the lower income groups.
This proves their deep saturation into the market and intensive network. Statistics show that there are repeated customer’s which proves that Aldi has created brand preference also.This proves that Aldi has migrated from the introduction stage to the Growth stage of the product life cycle.
“Sales peak and flatten as saturation occurs, hastening competitive shakeout.
The survivor’s battle for market share by employing product improvements, advertising and sales promotional offers, dealer discount and price cutting: the result is strain on profit margin particularly for follower brands.
The need for effective brand building is astutely recognized during maturity as brand leader are in the strongest position to resist the pressure on profit margin” (Jobber 2007)
Aldi’s business model is based on simplicity and competence. The company’s motto is ‘Top quality at extremely low prices – guaranteed.’ even though officially Aldi are two separate companies; both of them followed the same strategies and operating with the same business model. All the rudiments in Aldi’s business model are aimed at keeping costs low, so that the company could fulfil its guarantee of providing the lowest prices to its customers.
This is the last stage of the product life cycle company’s experiences decline in the sales and profits due to new technology or changes in consumer’s tastes, fashion, style or companies Budgets for promotions and product development. Companies need to look for other segments or products need to be dropped or slashed down to maintain profits.
http://www.zanthus.com/databank/strategy/images/bcg_growth_share.png
The cash flow of the product is believed to be dependent on the box in which the product falls in the Boston consulting Group Growth-Share Matrix.
They are the market leaders and they tend to high growth and profitability. Resources should be invested to maintain /increase the leadership position.
Since retail business is looked in long term prospective, Aldi decided to continue its operations. In the growth stage of the life cycle, Aldi has gradually entered into the Star box of the matrix. People started recognizing the brand name and reputation of the company. They started introducing innovative products and services and applied strategies to channelling their distribution network.
These are the low share products I high growth markets which are not profitable and causes a drain on cash flows.
The product in this box shows high profitability with lo investment. They have the highest market share in low growth markets. Excess cash generated are used to fund stars, problem children.
These are weak products that fail to achieve market dominance in low growth markets. They produce negative cash flows.
The final part of the 4P’s of marketing mix is the place element that means the channel or distribution .Place plays an important role in the marketing mix because for fulfilling the customer’s desire to buy, product should be available at times in adequate quantities in the convenient locations .By maintaining the supply chain that is the channel distribution products are reached to the customer through the channel intermediaries.
An important phase of marketing strategy is to choice the most effective channel of distribution.
To move a product from producer to consumers there are different types of intermediaries like wholesalers, retailers, agents, overseas distributors come into play. As a part of digital marketing the internet also creating a new opportunities to supply product to the customer instead through the retailers.
Consumer
Producer
Retailer
Consumer
Producer
Wholesaler
Retailer
Consumer
Producer
Wholesaler
Producer
Agent
Retailer
Consumer
To reconcile the needs of producer and customers
To improve efficiency by reducing the number of transactions or creating bulk
To improve accessibility by lowering location and time gaps between producers and consumers(Jobber:2007)
Channel Intermediaries used by ALDI: ALDI follows the strategy to direct purchase by the consumer from the producer for reducing the gap between the producer and the consumer .This cut down the profit margin of the distributer and create a opportunity of raising high profit margin of the producer .ALDI produce the goods in its own brand then from the central warehouse it distributes the products to the definite superstore where the customer gets the product directly. It has own transportation system through which it lowering the location and time gaps between the producer and consumers. ALDI has some online services which are maintained through the internet to communicate with the customer directly.
Channel strategy: The channel strategy decisions involve channel selection, distribution intensity and channel integration.
Channel selection – The decision pertaining to what channel is to be selected to distribute products. The factors that influence this can be grouped under market factors, producer factors, product factors and competitive factors.
Market factors: It’s all about the buyer behavior .Buyers may have the certain expectation about the way through which the products should be sold. Geographical location also have the impact on the channel selection .when few numbers of buyer buy large quantity of goods they prefer to use the direct distribution channel .ALDI consider the market factor in channel selection .here a specific targeted customer come to buy large quantity of goods and they expect to choice the economical way of reaching to products through direct distribution channel.
Producer factor: producers control over the product and price also influence the channel strategy .ALDI follows the direct distribution channel where total control over the product quality, price, and resources, managerial resources are controlled by the producer.
Product factor: Specific nature of products may require special treatment by the channel intermediaries and consumers also. ALDI doesn’t follow any special treatment for the nature of the product.
Competitive factors: If the competition controls the traditional channels of distribution an innovative approach may need to select the channel of distribution. Aldi chose direct distribution
Distribution intensity – Choice of distribution intensity is another channel strategy which can be intensive, selective distribution or exclusive.
Intensive distribution – This aims to achieve the maximum coverage of the market through all the outlets are the object of intensive distribution. With many products, sales are a direct function of the number of outlets covered. In Western Europe ALDI has an aggressive expansion in retail market. ALDI is one of the world largest discounter on grocery. Aldi’s German operations consist of ALDI Nord’s 35 individual regional companies with around 2,500 stores in Northern and Eastern Germany, and ALDI Süd’s 31 regional companies with 1,600 stores in Western and Southern Germany.
Internationally, the ALDI group operates around 8,078 individual stores. ALDI opened its first UK store in 1990. It has since grown rapidly and now operates some 300-plus stores across Britain.
ALDI Nord operates in Denmark, France, Belgium, the Netherlands, Luxembourg, Spain, Portugal, and Poland, while ALDI Süd is responsible for markets in Ireland, the UK, Hungary, Greece, Switzerland, Austria and Slovenia, the United States and Australia. (ALDI.co.uk)
Selective distribution -when producer uses a limited number of outlets in a geographical area to sell the product then market coverage could be possible through selective distribution .all products are not available in all outlets ,customer are willing to shop according to their choice.
Exclusive distribution – This is a form of selective distribution in which only one wholesaler, retailer or industrial distributor is used in a large geographic area. This allows close cooperation between producer and retailer over servicing, promotion and pricing.
ALDI do not follow the selective distribution and the exclusive distribution in considering the channel strategy, rather market coverage of ALDI is done with intensive distribution. ALDI adopts intensive distribution to achieve market saturation.
ALDI is a very different operator from the most UK incumbent trading small, austere supermarket in the place of superstores. The essence of its approach has been based on one type of outlet ,the out of town superstore .In Coventry ALDI has got 3 stores.(International journal of UK retail and distribution management 1992,vol,21,Iss-1 pp 35-39,European new entry into
UK grocery retailing, Robert Colin Duke)
Channel integration – Channel integration can range from conventional marketing channels, franchising and channel ownership. Producers need to look into the strengths and weaknesses of each system while deciding on channel strategies. It can be
Conventional marketing channels – In conventional marketing system ownership is being separated between producer and distributor and the manufacturer dominate the market through the power which results in the administered vertical marketing system.
Franchising – Franchise is a legal contract between the producer and channel intermediaries to define each member’s rights and obligation. Franchising manages geographically dispersed operations and it creates an approach to access the local knowledge of the franchise for the producer. It can happen at 4 levels of the distribution chain
Manufacturer and retailer
Manufacturer and wholesaler
Wholesaler and retailer
Retailer and retailer
Channel ownership – In this system through retail outlets manufacturer takes total control over distributor activities. Production, purchasing, and marketing activities are controlled by the producer.
ALDI has franchising in manufacturer level .It has got several franchise through which it controls the production, pricing and total marketing system.
Channel Management: The five key issues of channel management must be addressed for the effective implementations of channel strategy .these are
Selection: Selection relates to identify the intermediaries to convince them and developing the selection criteria to distribute the
DESCRIPTION OF ALDI’S COMPETITIVE ADVANTAGE BASED ON MICHAEL PORTER’S CONCEPT:
Strategy – Differentiation Focus:
Customer satisfaction is created by using criteria used by the customer while buying a product and it is about charging premium prices so that it covers the extra production costs justifying the need of choosing their differentiated product over the competitor’s product.
Products and Services Offered:
Strategy – Cost Leadership:
In this kind of strategy the firm produces the product at the lowest cost and if the price which it sells is equal or more than the average price of the market then it gains profit. Such lost cost producer gives discount to the product to increase the profit
Strategy – Cost Focus:
Firm dedicates to product that is basic at a lower cost to a segment of people but acceptable by the consumer.
Strategy – Differentiation:
Value Chain Analysis:
“Margin” states the difference between total price customers are willing to pay and the cost of performing value chain activities.”
Five Force Model
Competitive Rivalry: HIGH
“They advertised on a number of products in their Cash savers campaign. They effectively said that the benchmark for the best price is ALDI”.
Threat of New Entry: MEDIUM
Threat of Substitutes: HIGH
Buyer Power: MEDIUM
Supplier Power: LOW
Marketing Mix
Product
Product life cycle
First stage is introduction
Aldi in the introduction stage
Second is Growth:
Aldi in the growth stage:
Third stage is Maturity
Last stage is Decline
.
There are four boxes
Stars:
Aldi in Stars Stage:
Problem Children:
Cash Cows:
Dogs:
Marketing Mix – Place
Types of channel Intermediaries:
Distribution channels for consumers goods:
Source: Jobber: 2007
Function of Channel intermediaries:
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