Aldi's International Strategic Management | Analysis

Introduction

Consumption plays a vital role in economic activities. In most developed countries, personal or household consumption takes up about 60% in GDP（OECD,2008）, of which retailing industry is often proven to be the most important industry. Recently, due to the economic growth, employment improvement, and favorable tax policies, retailing industry has the chance to develop in a more comfortable environment. According to statistics from Planet Retail, a Consultancy Organization for Retail Industry, in recent years, world retail industry has made a considerably fast development with a sales increase of 8.4% and 6.7% in 2005 and 2006 respectively(Network,2006）. Although the environment is good for retail industry, the intensity of competitiveness is also stronger ever than before. Many super large retailing corporations, such as Wal-Mart, Carrefour are competing for expanding and dominating both domestic and overseas market by implementing every strategy. Aldi, as a “hard-discount” retailer is very small and simple compared to those Wal-Mart or Carrefour regarding its sell items, store occupancy etc. However, Aldi has survived in this competitive retailing market and become one of the reputable retailers which could contend with other large retailing corporations. Therefore, based on Aldi in Australia, this article will analyze the Aldi’s business strategy and its management which contribute to its great success. Also the article will give an analysis of Aldi’s capability of competitiveness in terms of its internal and external environment.

Brief introduction of Aldi

Aldi is an international hard-discount supermarket chain which was established in 1946 by the brothers Theo and Karl Albrecht in Germany, has grown rapidly in the years characterized by low price (Mcloughlin and Aaker, 2010). By the end of 2003, Aldi has developed into one of the biggest retailers in the world with more than 7000 stores around the world and created an estimated annual turnover of 36.2 billion Euros. The first Aldi store opened in Australia in Sydney in January 2001. After making huge profits out of the first store, 72 additional stores were opened in other different areas in 2004. It was predicted that Aldi would run more than 300 stores in Australia by 2010.

Business strategy applied in Aldi

Strategic management is the ongoing process which enterprises apply to establish their visions and analyze their external environment and internal environment, thus to choose one or more strategies to adopt to create value for customers and benefit other stakeholders (Ireland, Hoskisson and Hitt, 2008). Any corporation should set its overall corporative strategy to define what the organization is doing and where the organization wants to be in the future. Business strategy is one essential part of the company’s overall corporate strategy. To be successful in the competitive market, managers must develop and execute an effective business strategy to promote its products in the market and account for a big market share. The business strategy concept implemented by Aldi can be regarded as very simple but effective. Aldi’s core business concept is to reduce cost in every way. Although both Aldi and Wal-Mart are the successful retailers by adopting cost reduction strategy, Aldi is very different from Wal-Mart with regard to its method of implementation. Aldi is featured with high efficiency of operation and management based on the cost-reduction principle. All Aldi’s stores in the world are characterized by simple design and decoration thus to minimize the cost. Aldi’s cost-saving method is reflected through the followings:

Compared to Wal-Mart, generally each Aldi store occupies only 750 square meters which can greatly cut down the rent and expenses of water and electricity consumption.

Limited number of good-quality products for selling in the stores to save the expenses of shelves. A typical Aldi store only sells about 700 products which is less but able to satisfy the dairy necessities (Pradhan, 2010). The grocery structure saves the logistic cost greatly and enables Aldi the absolute advantages of negotiating to suppliers with respect to the quality control and price.

Employee strategy: Aldi usually employs four or five employee for one store compared 15 employees at a standard supermarket. Although Aldi pays more to its employees but it have eventually reduced the employee cost.

Simple promotion method: compared to Wal-Mart or Carrefour, Aldi never does advertising or public relations. Aldi holds the view of saving the cost for benefiting the customers because all the expenses related to the PR or marketing are all paid by customers.

Another business strategy attached to Aldi is its good-quality assurance. Hard-discount is the most important feature of Aldi stores, but the low price is not based on the sacrifice of product’s quality. By contraries, Aldi always persist in providing customers with goods with the same quality of other supermarket but a relatively low price. In addition, Aldi has its own brands ranging from cookies to diaper and the quality is controlled very strictly. One of Aldi’s business strategies is emphasize the cooperation with suppliers and control the quality strictly. When Aldi purchases commodities from suppliers, Aldi puts forward its quality requirements and employ a third inspection organization besides the inspectors of Aldi’s company to conduct a strict inspection on the commodities. Whenever unqualified commodity is found, Aldi will not consider to cooperate with this supplier.

Aldi’s business strategy is also based on the customers-orientation concept. Aldi focuses the needs of customers and pay much attention to develop customers’ loyalty. Aldi considers from the perspective of customers and provides customers with practical benefits. Aldi never applies the promotion ways of “tying” or “wholesale” which appear to give consumers the favorable benefits but actually ignore the needs of certain consumer groups. In addition, Aldi ensure the price of every commodity is the same despite the stores are located in different or remote places, therefore consumers should never worry the price difference case will happen.

Another success secret of Aldi is that Aldi takes a slow step to expand the market. Aldi will open a trial store and analyze the profits before it launch other stores in that area. Meanwhile, Aldi uses decentralization management strategy. For example, Aldi North may sell more products than the Aldi South. The two companies maintain communication quite well, so that they are able to learn from each others managing experiences. Aldi’s success also can not separate from its strategy of Human Resources. Aldi attaches importance to the exploitation and development of HR. All managers and employees are well-trained about the knowledge of Aldi’s concepts before getting started in Aldi.

Analysis of Aldi’s competitive environment in Australia

Although Aldi expands very fast in Australia during the last years, it also faces challenges and competition from the local retailers in Australia, such as Woolworths and Coles Myer which are considered as the major rivalries in food retail industry. To analyze how Aldi can survive from this intense competition, it is very necessary to discuss both internal and external environment lying in Aldi Corporation. As the food retail industry develops very fast, some other large global retail players will probably enter in Australian market, such as Wal-Mart (US’ largest retailer) or Tesco (UK’s largest retailer) and Lidl (another Germany retailer). Therefore the competition will become more and more intense ever than before as many retailers also prefer to adopt price strategy.

Internal analysis of Aldi—Strengths and weakness

For an organization’s development in the competitive environment, it is essential for the organization to conduct internal analysis of its organization. A comprehensive internal analysis will provide management with a detailed understanding of the business, how effective its current strategies are and how effectively it has deployed its resources in support of its strategies (Campbell, Stonehouse and Houston, 2002). By executing internal analysis, a company will know their unique resources, capabilities, and competencies. In a word, by studying internal analysis, a company will identify what the can do.

In Aldi case, it is oblivious that Aldi’s biggest strength in combating with other local retailers in Australia is its good-quality and low-price strategy. As mentioned in the previous part, Aldi stores offer customers with good quality commodities at a relatively lower price than in other retail stores. Aldi maintains to manufacture 90% of its commodities tagged with its own brand which are exclusively sold in its stores, which attracts customers. Meanwhile, the quality is ensured in this way. Aldi is a famous brand in Germany ranked as the third best corporate brand, which will accelerate its recognition by customers(Riesenbeck&Perrey,2009). Aldi always persists in its management and business principles which seldom have been changed. It can be regarded both good and bad for the development of the organization. As we know the outside environment is changing everyday and people’s thinking is changing, so the Aldi should probably think about change some of the principles to acclimatize itself to the changeable environment in order to get better development.

External analysis of Aldi-Threats and Opportunities

External analysis is one of the strategic management processes in terms of analyzing the organization’s external operating environment. The purpose of external analysis is to examine the strategic opportunities and threats in the organization’s operating environment which will affect how it pursue its mission (Hill and Jones, 2009). External environment analysis requires analyzing the overall environment of the industry which the business operates in (is it good or bad for developing in the industry? What is the current macro environment of the industry?). By studying the external environment, firms can identify what are the opportunities and threats for its operation in the market and will know what they might choose to do.

The macro environment of retailing industry is very prosperous because the daily consuming commodities are essential in people’s life. In Australia, the situation is the same; people’s consumption of the general stuff for food and household products is increasing as well. Therefore there is great increasing market in terms of retailing sectors, which contributes to a great development chance for all retailers including Aldi. Some prediction shows Aldi will continue to expand more market in Australia with more than 300 stores and capture 10 percent of the Australian packaged grocery dollar market by 2010. Meanwhile, as the development of globalization, Aldi could also have chance to enter into other overseas market such as China or other Asian countries. There is a great potential in these markets. As Aldi is very confident for its expansion plan in Australia, Aldi still faces the coming threats from its local existing rivalries and oncoming large retail competitors. The threat first comes from the price competition from other local retailers. As the competition between retailers is becoming more and more intense, the local retailers also play price strategy as low-price offers for certain products. Other threat for Aldi comes from the potential entrants of other world’s largest retailers, like mentioned in the above, Wal-Mart, Tesco and Lidl. Once these largest retail players move into Australia, Aldi will have to face combat not only with the domestic retailers but also have to survive from the competition with these largest players.

Conclusions

In conclusion, Aldi is very successful in the retailing industry and famous for its unique operation styles in terms of its concept of running small-quantity products and cost-saving strategy and hard-discount strategy to attract buyers. Aldi is very wise in its expansion strategy, it never risk to expand to open another store unless it sees the previous store is making profits in that area. The concept of Aldi seems very simple which is centered at the customers and seeking for customers’ benefits. In this way, Aldi wins a lot of loyal consumers. However, despite these advantages Aldi has, the competition is cruel and Aldi may need to take further actions to combat with its rivalries.

Recommendations

After making analysis of Aldi case in terms of its business strategies and external and internal environment, two recommendations are made as to Aldi’s development in Australia:

Although Aldi is competitive in some ways, it never changes its business strategy despite the external environment changes. Therefore, in my opinion, Aldi should make some changes regarding its business strategy and management to cope with the changeable market environment.

As Aldi made profits from the 72 stores in Australia, Aldi should consider expanding market potential in other Australian states and territories before new rivalries move into Australia.