The Success of Aldi - Case Study Example

The Success of ALDI- An Environmental Analysis Executive Summary Aldi has been labelled the high street copycats with its success mainly coming fromthe way it apes the look of top brands while at the same time offering better quality for the products. In the British market, it is important to note that its sales for the supermarket have gone up by about 32 per cent yearly and has more than five hundred stores in Britain alone with about fifty more to be opened in the near future. Statistics also show that one in three households visit Aldi at least once a month and are always full of praise for the products produced and sold at Aldi as compared to its competitors such as Harrods. This report examines the strategies employed by Aldi that has inevitably contributed to its success to be the leading supermarket of choice in the United Kingdom and whether the external environment has influenced its growth as a ‘budget’ supermarket (Johnson & Scholes, 1999). Introduction Currently, Aldi has become the supermarket of choice for most shoppers in the United Kingdom that has immensely contributed to its profits shooting up almost 32 per cent year-on-year and its opening of the 500th store with fifty more set to be opened in the near future (Shooter, 2013). Almost one in three homes visit Aldi at least once a month and of these, one in five consumers belongs to the upper or middle-class showing how this supermarket chain has a competitive advantage as compared to its rivals. This store has put in place strategies to snatch customers from its competitors such as Sainsbury’s by introducing consumer-tailored goods and proclamations that almost half of its goods are produced in Britain by leading brands. However, the major success of Aldi can be put down to one factor which is the cost of its goods which are low achieved through cost-cutting by stocking and branding its own goods which means that they do not have to share profits with the brand manufacturers. Just like any other business, Aldi is also affected by external influences in the running of its business affairs, which has an effect in its performance (Worthington and Britton, 2006).  The Success of ALDI- An Environmental Analysis As already stated half, the United Kingdom populace shop at Aldi for bargains with the supermarket set to be the sixth biggest supermarket in 2014 according to market research specialist Kantar. This is majorly due to the affordable price on the products Aldi sell as compared to the four leading stores as well as offering products of good quality just as is offered by its competitors making it have a competitive advantage in the market (Hawkes, 2013). Market research specialist Kantar state that the middle class and the upper class have made Aldi as the store of choice with sales in the period under study exceeding a percentage of 30% compared to similar period in the previous year. Coupled with external factors such as recession, most shoppers would rather shop at Aldi due to the reduced prices of goods as compared to its competitors such as Tesco, Sainsburys, Asda and Morrisons. Further, the report shows that in the few weeks before December 2013, Aldi has been offering quality products such as puddings, fresh supplies and grocery. Through offering cheaply priced and quality products, Aldi won the Grocer of the Year at Grocer Gold Awards beating its competitors such as Tesco and Sainsbury’s amongst others. This award is also on top of other awards such as sixteen gold and ten silvers at the Grocer Own Label Awards and the GHI seal of approval of twenty-three of products sold by Aldi. The consumer watchdog ‘Which’ has also added to the accolades won by Aldi by naming it the best supermarket among consumers showing that quality can also be achieved at a reasonably cheaper price as Aldi attests (Aldi, 2014). The question that is therefore asked is what makes Aldi a successful store as compared to its competitors and how the external environment both national and external affect its strategies as well as the management strategy it puts in place to achieve its business objectives (Boddy, 2008). A discussion will also be made on which models of management Aldi employs to drive its success and the role globalization plays in the business activities of Aldi. External Environment-PESTLE Analysis Aldi is a German multinational with headquarters in Essen and therefore its performance is likely to be affected by the political and legislative factors prevailing in the nations it operates in including the United Kingdom. The political situation in the United Kingdom is relatively stable and the government of the day’s main concern is how to fix the economy in the midst of the biting financial crisis. Therefore, politically, the government enacts legislations that are aimed at creating employment and Aldi with such an understanding employs large number of students, persons living with disabilities including the elderly in its stores. This has affected positively to the economy in line with the political legislative agenda of the UK government. In looking at the success of Aldi from the economic aspect, it is imperative that its success is partly due to the success of the UK economy that is slowly recovering from the recession of 2008 (OECD, 2010). The economy of UK is on a recovery path picking up at the end of 2013 though unemployment continues to soar while banks increase the interest rates to safeguard their interests. Economic factors therefore play a significant role in dictating the success of Aldi as it influences demand for its products, the costs, prices and profits that are all affected by unemployment in one way or the other. The economic factors aforementioned are beyond the control of Aldi and affect its performance and it stands to be badly affected if there is any slowdown in the UK food market that may expose the company to economic market risks. Socio-culturally, the United Kingdom population has undergone reduced growth and is composed mainly of an ageing population that leads to a shortage of labour and increased expenses such as medical expenses (Punch and Pearce, 2000). This affects the buying behaviour of the shoppers as they are forced to spend more thus compromising their choice for quality that may affect the profit margins of Aldi. Demographic changes in the population in terms of culture such as decline in home meal preparation may make the store to start focusing on added-value products or own-label share products, which may end up increasing the costs of the business thus eating their profit. The type of products that consumers demand is a function of their social condition that affects their attitudes and beliefs such as issues on health that may force the company to relook at its strategies. In overcoming this for instance, Aldi offers a variety of organic or herbal products and accepts payment in cheques as well as cash. Technologically, consumers often require convenient and high tech experience while conducting their shopping and this enhances their user experience as well as the costs incurred (Boone and Kurtz, 2000). In retailing, there are some convenient technological device and services such as self-checkout, intelligent scales and electronic advertising displays as well as the internet that may be important in attracting new customers. Most of the products offered by Aldi have been influenced by technology that benefits both the customers as well as the company. Weber, Pinhammer and Herrlein (2011) state that Aldi has adopted electronic shelf labelling, self-check-out machines as well as Radio Frequency Identification (RFID) that has contributed positively in efficiency of distribution and stocking activities. Environmentally, the main concern has been in terms of the use of energy in the daily running of human affairs and devices. In the United Kingdom, the main concern has been on the use of clean energy and reducing carbon emissions that calls for all concerned including both producers and consumers to aim at reducing the emissions (Marletto, 2012). While recognizing this objective as an ethical issue, Aldi has a corporate social responsibility that helps it regulate governance and perform its obligations. Added to the usual government regulations, the UK government enacted the ‘fat tax’ that put a cap on the advertisement of processed and fatty foods inevitably affecting the product ranges offered by Aldi. Strategic Management and Models of Management Strategic management involves enterprises establishing visions and analysing the external and internal environments and aims at creating value for benefit of customers and benefits to other stakeholders (Hitt, Ireland and Hoskisson, 2012). All corporations should put in place strategies that enable it achieve its business objectives and managers should develop and execute an effective business strategy that promotes its products (Blythe, 2005). Aldi reduces costs through high efficiency of operation and management and has a limited number of good-quality products that saves on costs on logistics such as negotiating with suppliers with respect to quality control and the price of the goods. Aldi also employs a considerably fewer employees per store as compared to its competitors thus reducing employee costs and reduces costs on promotion through limited advertising. Good quality assurance is one strategy that Aldi employs through the provision of products with the same quality as that offered by other supermarkets at similar prices. It also co-operates with its suppliers and has strict control of quality measures as well as inspection of products that ensure that consumers insist on their products. Its business strategy is also based on the customer-orientation concept that focuses the needs of customers in order to develop their loyalty (Haberer, 2010). Globalisation Globalisation has contributed in the success of Aldi as it has enabled to take advantage of free market economy to venture into more markets to shore up its profits. For example, the store chain took advantage of economic crisis in some markets such as the United Kingdom and the United States to offer goods of high quality at low prices in high price markets. Through this, Aldi is able to derive benefits from these markets to continue with its expansion strategies that enables it have a presence in many markets enabling it have a competitive advantage over its competitors (Knigge, 2009). Conclusion Notwithstanding the successes of Aldi attributed to the low product prices, the PESTLE analysis also show that there is a balance of threats and opportunities for the store within the UK market environment. By analysing it from the five forces model of PESTLE, it is clear that the intensity amongst its competitors is also high and it will have to work extra hard to surmount the competition in order for it to maintain a competitive advantage over its rivals. Even though Aldi continues to remain competitive in the UK market, they have to develop new strategies to take up the opportunities as well as handle threats decisively. References ALDI. 2014. Aldi Scoops Grocer of the Year at Grocer Gold Awards. (Online). [Accessed Jan 21, 2014]. Blythe, J. 2005. Essentials of marketing. Harlow, Essex [u.a.], Financial Times/Prentice Hall. Boddy, D. 2008. Management: an introduction. Harlow [u.a.], FT Prentice Hall. Boone, L. E., & Kurtz, D. L. 2005. Contemporary marketing. [Mason, Ohio], Thomson South- Western. Haberer, J. 2010. Strategic Management - Aldi Is Aldi being deprived of the German discounter-throne? München, GRIN Verlag GmbH. Johnson, G., & Scholes, K. 1999. Exploring corporate strategy. London, Prentice Hall Europe. Knigge, M. (July 17, 2009). “Aldi advances on Wal-Marts home turf”, Deutsche Well. (Online). [Accessed Jan 21, 2014]. Worthington, I., & Britton, C. 2006. The business environment. Harlow, Financial Times Prentice Hall. Shooter, A. 2013. “The high street copycats: Yes its cheap - but the real secret of Aldis success is the ruthless way it apes the look of top brands... and often the quality is even better” , Daily Mail Online. Read More