Wine Market (ALDI Group) - Case Study Example

ALDI Group Market Analysis Report An Industry Segmentation Survey of Wine Suppliers Executive Summary A global retail grocery conglomerate, ALDI Group extends its reach through partnership with winemakers and brewers around the world in order to bring consumers 'exceptional beers and wines at remarkably modest prices' (ALDI USA 2010) The Company's selection of wines are purchased from many of the world's best wine producing regions: Germany, France, Spain, California, Argentina, and Australia. National market coverage varies, and some ALDI's supermarkets carry select brand labels, while others carry wines and spirits native to the region more intensively. In economies of scale where there is a broad stratification of cultural and ethnic diversity, not to mention income segmentation, like the United States, all products are exclusives to ALDI's in order to sustain effective competitive edge through 'honest to goodness savings' in a national market with a large wine industry of its own unencumbered by volume discount. In 2008, ALDI's global revenues reached an estimated $65,700.0 million in tendered sales. Distribution of revenues across markets reveals growth in some regions of the world, and retraction in others. Adequate analysis of sites for aggressive advancement of wine varietals within ALDI stores across the board requires data on the overall picture of the various market regions and segmentation analysis of both the wine industry and its customers, for future integration of operations and knowledge sharing with industry partners toward realization of the Group's planned expansion in this product area. One of the strengths of ALDI's German based operations has been the Group's flexible approach to strategic opportunities during moments of economic downturn. A company known for its vision of offering the 'cheapest' high caliber products to its markets, ALDI has brought its 'home,' national and international brand grocery product lines to customers at the lowest possible prices while retaining the select-assortment concept indicative of specialty stores. ALDI's philosophy of grocery retail is based on a 'less-is-more' approach; from supplier selection to store location development and operations, each step in the distribution to market chain is managed to facilitate savings substantial enough to impact the everyday lives of consumers. The Group is reliant upon a tri-partite model of conducting retail business, which includes concentration on: 1. Purchasing power which translates to customer savings, by a large grocery retailer with focused attention on a limited number of 1,400 grocery and household items, of which are mostly ALDI 'select brands'; 2. Streamlined operations that enable the corporation to reduce costs; 3. Adherence to stringent quality standards dedicated to matching or exceeding the leading national brand in taste, appearance, and/or performance. In the context of the most recent global financial crisis, ALDI is looking for ways in which to expand its market share in the retail wine sector. Strategic planning toward this vision must acknowledge points of saturation in the wine market, as well as the total competitive picture in the retail grocery industry. For instance, ALDI's market share in its home country, Germany, has actually seen a reduction recently due to a high level of competition from other compatriot corporations. In efforts to retain the Group's 19% share of the German national market, the stores have begun to offer shoppers more in the way of international brands, and better incentives through semi-weekly promotions in order to capture a larger segment of the middle-class consumer population. Despite the challenge faced at home, ALDI's operations in over 15 other countries continue to be successful, and while hit and miss in 'hot' markets in Eastern Europe sustained by youth demographics, ALDI has recently opened stores in Hungary and Poland. The Commonwealth countries of South Pacific offer a similar demographic operations in Australia now exceeding 100 store outlets, is a positive indicator of parallel outcomes were the company to expand to the New Zealand market. In both these national markets, the prevalence of wine as both a 'home' industry, and a key product line within everyday grocery purchases point to the significance of accelerating planned expansion of the wine product segment as a critical promotional factor for building and sustaining ALDI Group's market share. Revenues are certain to follow. In the United Kingdom and the United States, there has been a high degree of response from middle-class shoppers looking for high quality at a discount. The two national markets are both growth regions. The planned expansion in the U.S. is linked to direct competition with Wal-Mart, which provides an apt territorial map for locating customers, and breaking gravitation toward big-name brands. The US retail grocery industry is comprised of about 65,000 supermarkets and other grocery stores with combined annual revenue of about $465 billion, of which seventy percent of those sales are generated by fifty of the largest companies (Hoovers Industry Report 2010). Since branching out into the United States in 1976, the German discount supermarket chain now exceeds approximately $5.8 billion in annual revenues, or 10% of ALDI Group's global share. Again, wine sales expansion in this national market will contribute to an existing market where consumers have been associating the corporation with 'exceptional values in wine and beer' since 2003 (ALDI USA 2010). ALDI's Operational Approach to Market Segmentation Historically, the grocery marketing presented few problems for advertisers and marketers charged with the job of creating a synthesis between consumers and product line. This is even more pertinent in regard to alcoholic beverages and their demand, as the very nature of the product's compliment to dining and to entertainment has always been met with almost universal sustainability. While exception to this rule can certainly be seen in regional or national contexts where moral prohibition has been met with law, for the most part wine and its range of connoisseurs is a global market phenomenon with a high impact in the luxury market; even in times of economic downturn. In the past, the big brands typically won the hearts of the consumers with ads on one of three television stations or in a few newspapers and magazines, and traditional research methods involving household surveys were effective enough to generate adequate data and analysis on market segmentation, and especially in regard to sectors like the wine industry that despite growing popularity, have continued to retain 'speciality' status into the present in the face of limited competition in the marketplace. For producers and distributors of wine and spirits products, there are multiple retail channels selling products through a number of different channels, and seemingly unlimited consumer and price information furthers the density of availability and knowledge through online communications. An international conglomerate, Aldi Group has been exceptionally effective in meeting the flexible influences in global market demands, and recognizes the inherent volatility of the grocery market in general, as less than half of all buying decisions are made before the shopper goes into the store as shoppers are keeping their options open later into the decision process. Aldi Group's market research mission is responsive to those shifts within the market, and promises to continue to be a leading provider of actionable, revenue-producing, differentiated shopper-centric solutions. As a result, the foregoing report on consumer and industry segmentation targeting recommendation for expansion of the Group's retail wine product lines is dependent upon differentiated and integrated data. Essential to finding solutions to trends where the Company may not yet be effectively or precisely meeting market demand, is the Study's distinct approach from the grocery research 'establishment,' in that the industry generally views analysis through a disjunctured process by which dissemination of data is considered to be of high-value, yet primary and secondary data collection and analysis is considered an entirely outsourced commodity unrelated to internal operations. Aldi Group employs an 'operating system' as the key concept in the Company's market analysis and this idea corresponds well to our suppliers whom have long applied the 'Six Sigma' approach to manufacturing excellence. Aldi Group is dedicated to adherence to such a framework, and provides additional analysis to the framework through incorporation of data from SWOT analyses, in order to achieve ongoing, strategic, revenue producing, insights and solutions, sales and marketing needs in its' operating system. The operating system includes an interface between decentralized inventory control systems in the various regions, and accountability at Aldi Headquarters in Germany. Part of the rationale for such an integrated model of tracking products aside from cost analysis and logistics, is the contributory effect that well designed inventory control offers market analysis through best-of-class shopper insights and category management methods and technologies. The overall systemization of Aldi Group is intended to rapidly activate and operationalise shopper insights with the goal of building more 'shoppercentric' stores, from displays and planograms to new partnerships in supply. Specific benefits in linking market knowledge with operational logistics are many, and include improved speed to market, more accurate hypothesis testing, increased revenue and more efficient spending. Key internal management involvement in Aldi Group's inventory control and tracking system includes the Company's global and regional marketing, sales and marketing research units; working on a unified platform to align brand strategy with retail strategy, and overall product to market execution. Specific steps required include: The creation of a well designated and funded 'task force' toward bridging the gap between the Company's current wine product lines, and consumer marketing and sales; A unified marketing and sales strategy, including regional tactics of advertising according to cultural tastes; Building the quantification of Retail Operations Inventory (ROI) into the process from the start. By using the experiences learnt from the Company's shopper-centric knowledge base, Aldi Group may extend strategy of its processes toward more effective marketing campaign implementation, by focusing on the customer segmentation and preference in buying at all decision points; Building an insight network with suppliers and distributors so that actors might keep abreast of changes within Aldi's retail markets, and expertise might be made available through the knowledge sharing portal, that also mobilizes direct data reporting from the Company's inventory control system, toward mobilisation of partners to then collect and analyze their company's activities in relation to aggregated data pertaining to industry information; providing a more efficient and integrated decision making approach to actionable, production to market partnerships. Aldi Group and its wine manufacturer and distribution suppliers acknowledge that diversity of the retail grocer conglomerate's consumer base is if not adequately addressed by product differentiation within the wine category(s), is ready for new product segmentation at present. As suppliers, wine manufacturers specialize first and foremost in the viticulture of their product; leaving consumer selection to the auspices of their distributors and supplier sales agents. Aldi Group recognizes that value added from new varietals or price points in the wine industry may vary according to crop year, and also to shifts within global tastes in consumer demand. Deep understanding of the market and the Group's customers is in direct correlation with marketing efforts and in consumer decision often as localised as the site of purchase. Shopper segmentation research tells us much about the nature of consumer interest in certain products over others, and the qualities attributed to 'luxe' categories of grocery products like wine, upon in-store selection. From taste, type, vintage, and price point to often less known measures of decision making such as prestige and nation of origin, wineries and their products are subject to a range of decision making influences and patterns, not always within the control of advertising nor reach of the retail marketing team. Instrumental to changes within the national markets that Aldi Group benefits from the market research and analysis of its suppliers, and quite a few of the better known brand names associated with alcohol and wine stock products offer invaluable market insights into the current state of the industry through Strengths, Weaknesses, Opportunities and Threats (SWOT) analyses. An example of an industry related SWOT can be analysed in this Barcardi Limited's 2010 rendering of India's emergent market in this segment. Although complex in relation to prohibition factors, the national economy reflects potential forthcoming sites of investment by conglomerates like ALDI that will be looking for broad based economies of scale with significant middle class ascension and young adult demographics, two indicators for future sustainability in revenues. DATAMONITOR: Bacardi Limited. Bacardi Limited SWOT Analysis, Apr2010, p1-8, Chart. Available at: http://www.barcardilimited.com Attention to secondary research in the retail grocery market is imperative, and especially for Aldi Group and other major global chain conglomerates interested in large scale economic growth. Information from the supplier perspective on national or regional markets greatly enhances retailers like Aldi to target consumer market segmentation with product segmentation more succinctly. To this end, Barcardi Limited's qualitative SWOT analysis helps to further knowledge on potential directions that operational strategies might impact the Group's inventory toward market expansion, and ultimately sustainable organizational growth in the wine and spirits division of the Company's global business development plan, through informed analysis and decision. Wine Market Due to the high tariffs, taxes and additional costs generated by subsidies in the wine market, export of wines means incorporation of those additional costs into the price to consumer by retailers. The price chain has definitive influence on ALDI Group's strategy in planning expansion of its wine product lines, and is deeply affected by externalities related to cost inflation in the various national markets. To this end, the Company has crafted a strategy that takes government cost inputs, and attendant regional regulation on industry and sales within the Group's markets toward a sustainable model of growth in its wine products segment. ALDI's appreciation of regional wine industries has enabled the company to partner with wineries to offer its customers the highest quality product at the most affordable price. In ALDI's national present markets, wine in almost all if not all cases, is value added. The company's projections in this area mirror the steady growth potential of the sector globally. Of the total global distiller and vinter sector industry segment, wine constitutes 55% of the market share value (Datamonitor 2009). Saturation of the European market is evident, in that European companies in this segment capture 63.9% of the market, followed by North American counterparts at 20.3% and Asia-Pacific at 14.3%. Given the stratification of the market measured against population of consumers, the median apportionment indicates that North American markets are the most primed for the expansion of wine product offerings, and quite ready to contribute to the overall ALDI global picture. The US wine industry is constituted of approximately 1,800 companies with combined annual sales revenue of about $12 billion. Industry concentration is characterized by fifty major companies with more than eighty percent of market share (Hoovers 2010). Demand for wine is primarily driven by the restaurant and hotel industries, correlated to the level of business entertainment spending, and consumer income. Profitability depends on production volume and sales price. Translation of cost mitigation to consumers is directly dependent upon the volume of crop sales and production, and in the case of smaller wineries, distribution channels may also impinge upon price point. In the United States, the wine industry is an economy of scale, driven by several strong regional production areas, and especially the West Coast region of the country, which includes the California wine industry. Small producers compete with big-volume suppliers through vintage of high quality wines that can then be sold at a premium price. As the industry is capital-intensive, with average annual revenues per worker at about $370,000, translation of costs to consumers may run high. ALDI's challenge is to coordinate partnerships with large and mid range volume producers that also offer 'luxury' quality wines. In 2009, the California vinters shipped approximately $467.7 million gallons (196.7 cases) of California wine to the U.S. wine market with a modest .02% increase to the prior year. Estimated retail value of those sales was about $17.9 billion, a reduction of 3% as U.S. consumers 'traded down' to lower priced wines in response to caution over spending (The Wine Institute 2010). This is not to say sales from all wine sources did not benefit, as the national market consumed steadily with an increase of wine sales to the U.S. from all production sources-California, other states and foreign producers-grew 2% to 767.4 million gallons (322.8 million cases) in 2009. At the international level, California wine shipments actually decreased by 1.2 % to 563.5 million gallons (237.0 million cases). According to the Nielsen Company, a global provider consumer information and analytics, growth overall all is seen with the American wines, while foreign wine volume was flat. In short, the United States revealed the most promising market for ALDI Group's wine expansion strategy, while the European Union with its decreased imports by 22 percent to $380 million in winery revenues in 2009 compared to 2008 stagnated. Wine revenues in other regions in 2009 are as follows: Canada, $242 million, -7%; Japan, $79 million, +28%; Hong Kong, $47 million, +84%; and China, $36 million, +64%. California Winery Shipments1 (In millions of gallons) Year California Wine Shipments to All Markets in the U.S. and Abroad California Wine Shipments to the U.S. Market Estimated Retail Value of CA Wine to U.S. 2009 563.5 467.7 $17.9 billion 2008 570.2 466.7 $18.5 billion 2007 555.1 457.3 $18.9 billion 2006 539.9 448.0 $17.8 billion 2005 532.8 441.2 $16.5 billion 2004 521.7 428.2 $15.0 billion 2003 493.5 417.0 $14.3 billion 2002 464.2 401.0 $13.8 billion 2001 449.1 387.0 $13.4 billion 2000 445.9 392.0 $13.0 billion 1999 443.1 397.0 $13.0 billion 1998 432.5 385.0 $12.0 billion 1Includes table, champagne/sparkling, dessert, vermouth, other special natural, sake and others. Excludes foreign bulk shipped by California wineries. Source: Gomberg-Fredrikson & Associates and Wine Institute. To convert gallons to cases, divide gallons by 2.3775 Trends in the Wine Market As ALDI Group moves toward expansion of wine segments in the United States and elsewhere like Australia and New Zealand that are comprised of avid consumers of both national and foreign wines, the company also looks to two major trends within the market that reflect both: 1) the gender flux within market segmentation indicative of a split between men whom consume for health purposes (American Heart Association 2007, and Barclay 2009), and women whom purchase based on preference (Matasar 2006); and 2) green consumerism that has affected selection within the wine market according to organic elements and inclusion of codes of sustainable winegrowing on brand labels, and in particular in the U.S. and South Pacific consumer and industry segments (Wine Institute 2010). While consumers traditionally have based wine purchase on things like occasion, taste, quality, price and packaging, one mitigating factor which is third-party recommendation has been tossed into new a new marketing mix predicated upon environmental factors, and in general health. Unlike decades past where wine fulfilled an advertising idiom related to prestige and wealth, it is now health and affordability at the least cost to the planet that grocer's like ALDI's must consider. References Aldi Group USA. Available at: http://www.aldifoods.com/us/html/company/7255_ENU_HTML.htmWT.z_src=main Barclay, Laurie, 2009. Drinking Up to Half a Glass of Wine Daily May Increase Longevity in Men. Medscape Medical News. J Epidemiol Community Health, Published online April 30, 2009. Available at: http://www.medscape.com/viewarticle/702519 Campbell, G. and Guibert, N., 2007. Wine, Society, and Globalization: Multidisciplinary Perspectives on the Wine Industry. New York: Palgrave Macmillan. Consumption by Country. Wine Institute. Available at: http://www.wineinstitute.org/files/PerCapitaWineConsumptionCountries.pdf Consumption By Volume. Wine Institute. Available at: http://www.wineinstitute.org/files/WorldWine%20ConsumptionbyVolume.pdf Datamonitor: Bacardi Limited. Bacardi Limited SWOT Analysis, Apr2010, p1-8, Chart. Available at: http://www.barcardilimited.com Distillers & Vintners Industry Profile: Global; Mar2010, p1, 35p, 19 Charts, 13 Graphs Drinks: Feature Analysis, 2010. MarketWatch: Global Round-up, Apr2010, Vol. 9 Issue 4, p41-43, 3p Giuliani, E. Et al. (2010). Who are the researchers that are collaborating with industry An analysis of the wine sectors in Chile, South Africa and Italy. Research Policy, Jul2010, 39 (6):748-761. Light Wine Intake Is Associated With Longer Life Expectancy In Men, 2007. American Heart Association, 1 March 2007. Available at: http://www.supercentenarian.com/archive/wine.html Matasar, Ann B., 2006. Women of Wine: The Rise of Women in the Global Wine Industry. Berkeley: University of California Press. Piercy, Nigel F., 2008. Market-Led Strategic Change: Transforming the Process of Going to Market. Oxford: Butterworth-Heinemann. The 'Green Buying' Influence on Consumer Wine Purchases: California Wine Leading the Way in Sustainable Winegrowing, 2010. Wine Institute. Available at: http://www.wineinstitute.org/resources/consumerfeaturestories/article335 Women Spur New Trend In Wine Marketing: California Women in Wine Move into the Marketplace. Wine Institute. Available at: http://www.wineinstitute.org/resources/consumerfeaturedstories/article334 World Vineyard Acreage by Country. Wine Institute. Available at: http://www.wineinstitute.org/files/WorldVineyardAcreagebyCountry.pdf World Wine Production by Country. Wine Institute. Available at: http://www.wineinstitute.org/resources/worldstatistics/article87 Read More