The ALDI Brand: Private-label Success in Australia

What is Aldi’s biggest challenge?

Aldi first entered the Australian retail sector in 2001, a market dominated by two supermarkets in Coles and Woolworths. Aldi’s market share has seen an upwards trend, from 5.5% in 2007 rising to 12.1% in 2015, with its aforementioned competitors seeing declines of 1.2% and 3.6% respectively in market share [1]. The biggest challenge Aldi faces in the current market stems from the retaliation of Coles and Woolworths in response to Aldi’s increasing market share and growth. Its competitors have 807 and 995 stores respectively, in comparison to Aldi with 514 stores.

Additionally, Coles and Woolworths have integrated Aldi’s business model of stocking private-label products into their own in an attempt to reclaim market share. Another source of concern for Aldi is the rise of Aldi itself – the attractiveness of the compatibility of the discount model and Australian market that Aldi has demonstrated has raised interest from Lidl and Amazon. The challenge for Aldi in Australia is to expand and maintain its competitiveness in the market, meanwhile keeping costs down to keep up with its main competitors and future entrants in the market.

Identify Aldi’s key stakeholders, and outline what their unique needs might be

Aldi’s key stakeholders are its customers, employees, suppliers and competitors. Aldi’s differences with its competitors have nourished its customer base and hence a clear set of needs are established. Aldi customers seek high value and low cost in common household and grocery products. Employees develop company image, and are concerned with its operations and profitability to retain their employment with the Aldi. They also may demand competitive wages and benefits, otherwise may seek employment elsewhere. Suppliers are concerned with Aldi’s profitability and competitiveness, in order to consistently provide products to Aldi and generate revenues itself. As these tend to be smaller suppliers, they rely heavily on the market operations of Aldi. Competitors to Aldi are concerned with the market share, profitability, and product offerings of Aldi. As Aldi has been growing considerably in the Australian market, Coles and Woolworths in particular have adopted similar business models with Aldi, integrating it with their existing model.

Explain how Aldi’s management navigate the micro (immediate) and macro marketing environments to identify and protect their competitive position

Central to Aldi are the customers. The immediate marketing environment consists of Aldi itself, its corporate partners, and competitors. The macro marketing environment consists of political/legal, economic, technological, socio-cultural and demographic factors.

The Micro (Immediate) Environment

The company itself is the first factor that influences the consumer. To maintain competitiveness, Aldi has adopted efficient measures to maximise profits and lower the cost of products to the consumer. These methods include stocking a limited range of core products, minimising the number of staff at each store, using product packaging to shelve products in store, shorter opening hours than its competitors and using trolleys which require a coin to use to ensure returns. These decisions lower operating expenses and hence maximises profits. The corporate partners of Aldi are the suppliers of the products it sells. Aldi stocks private-label products, which are cheaper and are guaranteed to be of equal or higher quality than its competing nationally recognised products. This decision minimises the cost to the consumer. Aldi’s largest competitors are Coles and Woolworths, who together dominate the market with 70% market share. The business model adopted by Aldi, to provide a limited range of private-label products, has benefitted consumers with high quality and low price products compared to Coles and Woolworths. Although they have both retaliated in an attempt to regain market share, Aldi still maintains an increasing market share.

The Macro Environment

The legal factors surrounding the retail industry dictates how a company must operate, and operational standards. Examples of legal factors include the Foods Standards Code, implemented by the FSANZ which establishes standards on foods and beverages such as labelling requirements, changes in taxation policies with changes in political leadership, and the Australian Consumer Law, which establishes consumer rights. Aldi abides to these legal requirements to continue to operate in Australia. Considering the economic position of Australia, Aldi has a strong position in the current market with its business model. Economic growth has been poor since 2003, household debts are increasing and savings decreasing, the cost of living increasing, and fuel prices reaching four year highs. The poor economic situation has made consumers seek lower priced options, which Aldi offers meanwhile providing high value. This is one of the main reasons Aldi has been able to increase market share and competitiveness. Technological advancements in Aldi stores has not been evident, as opposed to with its competitors. In particular, service limits are transcended with self-serve checkout systems. Aldi has stuck to checkout staff which often leads to crowding, a negative situational factor in the consumer decision process. However, to try maximise service efficiency with limited store space, Aldi products have large barcodes that are easy to scan. Two key social trends in Australia is a low spending culture and higher preference for private-label brands. These align closely with Aldi’s visions, and hence has contributed to its increased market share and competitiveness.

How is Aldi’s value proposition unique? Explain how the value proposition can be used to strengthen its market position to build brand resilience

Aldi’s value proposition and market position may be analysed through retrospective STP analysis – segmentation, targeting and positioning. Aldi’s mission in Australia is ‘to provide you [the customer] incredibly high quality at impossibly low prices’. Aldi’s segmentation by benefits of consumers who desire affordability and quality for common grocery and household products was highly attractive, being identifiable, reachable and substantial, profitable and responsive. Through the various efficiencies implemented in every stage of their organisation, Aldi has been able to reduce operating costs, as well as by stocking private-label products to provide high quality and low cost to the consumer. Aldi’s product mix is low depth and low breadth. Consumers responded favourably for Aldi, as they sought ways to reduce daily expenses and maximise value-for-money spending which Aldi promised, and holds a market share of 12.1% in Australia as of 2017 [2]. Aldi’s value proposition can thus be summarised as being to provide a limited range of low-price, private label products which meet the needs of value-conscious consumers for common grocery and household products. Considering the circles of value proposition for Aldi’s target market, a large overlap exists between Aldi’s benefits and the customer needs due to product value Aldi offers, and a smaller overlap between competitor benefits and customer needs due to the convenience and wide product offerings its competitors offer.

Although Coles and Woolworths have retaliated to Aldi’s growth by increasing the number of private labelled products in its stores, Aldi has sustained increases in market share. Considering the elements of the marketing mix – product, price, place and promotions, it is clear why Aldi will be able to maintain a considerable market share. Aldi’s high quality private-label products are priced by competitive pricing strategy, which is fostered by buying high volumes of a limited range of goods. Aldi stores are strategically positioned to consider traffic volume and accessibility, and its value promoted through various campaigns such as ‘Good Different’ and ‘Pointless Points’ which highlight differences between its competitors in an entertaining way. These key distinctions are summarised by the supermarket satisfaction ratings, as in Figure 1.

Figure 1: CANSTAR Blue Supermarket Satisfaction Ratings 2018 [3]

How should the marketing team at Aldi approach marketing efforts? What recommendations can you provide to guide them in using marketing as a tool to create value?

Aldi’s marketing efforts should be directed towards highlighting the core competencies of the company, in particular its low cost. An example of this was its recent campaign ‘Pointless Points’, which highlights the unreasonable amount of points a consumer must amass for a small reward with its competitors and comparatively promotes the lower prices Aldi offers as being more rewarding. In order to maintain low operating expenses, Aldi should focus marketing efforts digitally, such as through emails by subscription or through social media channels to excite and educate the customer. It is also important for Aldi to focus on customer engagement to increase the reputability of service. Given a three-star rating by CANSTAR for customer service, and 19% of consumers stating customer service is the main driver of supermarket satisfaction as in Figure 2, this should be considered by Aldi.

Figure 2: Drivers of Supermarket Satisfaction [3] Although there is a trending shift towards private-label goods, 25% of people believe they are low quality, and 53% tend to buy big name brands over private-label [3]. To furthermore increase market share, Aldi must shift these consumer groups by creating value in the products it stocks. Through above-the-line promotion, which includes television advertisements, product leaflets and in-store posters, and below-the-line promotion, including social media and emails, Aldi will be able to more effectively communicate the value of the products to the wary consumer.

References