The Strategic Policies of Aldi - Essay Example

Aldi strategic evaluation Executive Summary Aldi in the recent times has emerged as an important player in the retail segment of the U.K. The low price and high quality products offered by Aldi, is considered to be a plausible threat for existing retailing giants such as Asda, Sainsbury and Tesco. Aldi however due to their relatively small market operations and smaller range of products are not able to enlarge their target consumer market. The current paper is an attempt towards analyzing the strategic policies of Aldi in the market of the U.K. The paper focuses upon both corporate and business strategies of the organization. The analysis ends which a brief understanding regarding what measures the company is require to undertake so as to enhance their market presence. Introduction Aldi is a global supermarkets chain, with their headquarters located in Essen, Germany. The company has approximately 8000 stores located in different nations of the world. Aldi’s stores were first opened in the year 1990 in the U.K. There are currently 512 Aldi stores located in the U.K. Aldi mainly sells food items and beverages. Majority of the products of the company are the less expensive household items and most of these products are Aldi’s own brand. In order to sustain competition, enhance sales and attract a larger target market, the company incorporates selling a number of branded items. The number or brands sold by Aldi in their electronics and kitchen appliance category have also enhanced in the recent times. The company also provides weekly and seasonal discounts on it more expensive category of products. Such discount items also includes clothes, flowers, toys and stationeries. Internationally the stores of Aldi are subdivided into two groups, Aldi Nord and Aldi Sud. The U.K chain of Aldi stores fall in the Aldi Sud Category. Over the years, successful business operation and suitable market strategies have facilitated Aldi into becoming one of the valuable retail chains globally. In the U.K the operations of the company are mainly based upon the limited assortment technique. According to this concept, high quality products are restricted to a small number of brands and categories, to be purchased in bulk and sold at competitive prices. Every business activity of the company is undertaken with the motive of creating savings. Discounts are usually seen to be passed on to the consumers through the end selling prices (Barney, 1991). The current project aims to analyse the corporate and business strategies of Aldi in the U.K and accordingly understand the viability of firm’s operations techniques. The paper focuses upon the internal and external analysis on the basis of their corporate and business strategies. Corporate Strategy Corporate strategies are essential the important long and medium term decision taken by the administrators and the senior managers of a company. Usually corporate strategies involve actions such as investment or sale decisions, mergers and acquisitions and resource management. Corporate strategies are mainly focused towards creating or reducing value. Value creating corporate strategies facilitates enhancing revenue, increasing operational efficiency, increasing product quality and generating greater consumer satisfaction. Value creations strategies are essentially cost enhancing and in most cases leads to the increase in the size of the firm. Value creating strategies also focuses towards diversification and critically enhances real value of organizations. Corporate strategies incorporate identifying potential scope of growth existing in the external environment and accordingly develop different types of policies for growth. Corporate level strategies can be mainly of two types, diversification, growth and stability (Porter, 1985). In case of Aldi the company’s follows the diversification model to meet its corporate level strategies. Diversification model can again be subdivided into the conglomerate and unrelated diversification. Most retailing firm, considering their line of activities follow the conglomerate diversification strategy. Conglomerate diversification essentially focuses upon developing a range of products and services. Aldi’s conglomerate strategy involves developing products and services which meet the long term visions and objecti8ves of the organization. Aldi gives much importance to the efficiency of their services. Upper level managers and administrators and constantly seeking ways by which resources can be utilized in better way and create value for the organization. The following figure explicitly defines the corporate policies of the firm (Lamb, 1984). (Source: Rumelt, Schendel and Teece, 1994) Aldi is seen to concentrate upon diversification in a manner such that the firm is able to achieve competitive advantages in the market. An important component of the conglomerate diversification strategies of Adi is the company’s long term vision. Aldi’s long term vision is based on the fundamental policy of providing high quality products at a low price. However, even through such a vision is related to profit making, the company essentially ensures that the organization’s image and their ability to meet the needs of the customers are not hampered (Rumelt, Schendel and Teece, 1994). The long term visions of the firm can be summarised as follows: 1) Achieving high savings potential, for making reinvestments in firm and achieving growth. 2) Excellent and high quality products and services. 3) Generation of value through constant innovation and research. 4) Creating competitive advantage through special buys. 5) Enabling consumers to buy with confidence. Aldi ensures that their long term vision towards conglomerate diversification fulfils both sales and market oriented needs. An important aspect of the companies long tern diversification strategies include developing lean supply chain and value chain systems. Lean systems enable a firm to procure raw materials and send them down the production in the most cost effective manner. Aldi continuously explores ways in which lead time requirements can be reduced. Achieving lean manufacturing systems also include detecting errors on time and initiating rectifying measures suitably. Lean systems also facilitate removing redundant business activities and thereby facilitate costs reduction. The corporate strategies of the firm also include developing greater efficiency. Efficiency is the manner in which the firm converts its inputs into suitable outputs. Performing business activities through optimal utilization of resources is the most important aspect considered while developing efficiency. Efficiency is also enhanced by measuring market needs and manufacturing products which suitably satisfies consumers. Aldi trusts that in order to achieve a high level of competence, it becomes essential to have talented employees. Additionally efficiency also gets developed when the right kind of technologies and support activities are procured by the firm. Through cost reduction and efficient utilization of resources, the firm is able to generate enough profits which can be ploughed back into the business. Aldi believes that savings generation is important so that growth can be achieved. Much of the growth which Aldi has achieved in the recent times can be attributed to successful accumulation of saving and reinvesting the profits into the business. Reinvestments are mainly done in increasing asset base, increasing the number of subsidiaries and procuring greater product diversification. Aldi’s corporate strategies also include the manner in which they promote their services and create a corporate image for themselves. Developing a suitable firm image is essential for communicating with suppliers, influencing consumers to trust the brand and make purchases. Corporate strategies of Aldi also involve developing plans for future course of activities and expansion. The company formulates future plans of action on the basis of their current objectives and vision. Administrators at Aldi also focus upon develop strong ties with shareholders and financiers. They believe that without the financial support provided by the investors, Aldi can never convert their plans into action. Hence, much effort is given by the firm to ensure that returns are provided to investors on time. Aldi also ensures that shareholders of the firm are provided with timely information regarding the firms operations. The company also considers that shareholder and investor participation in the corporate decision making process is essential for the growth of the firm (Kapferer, 2012). In summary it can be stated that the specific importance given to efficiency development, saving creation and developing lean systems are mainly factors which set Aldi different from other retailing firms. Most of the competitors of Aldi focus upon their product lines and service delivery systems. Less effort is given towards understanding the resource competencies of the organization themselves and developing strategies accordingly. This sets Aldi different from other retailing firms. Aldi considers that internal operation and systems of working are as important as the manner in which the firm delivers services to consumers. When there exist high internal efficiency, it is automatically presumed that consumer needs can be dealt with suitably (Porter, 1979). Even though Aldi’s corporate policies have undergone a number of changes in the recent times, the company ensures to keep their core values the same. Business strategy Internal analysis Internal analysis of Aldi has been conducted on the basis of the value chain framework developed by Porter. Value chain analysis reflects the manner in which Aldi utilizes resources for so that desired services can be provided to consumers. Organizations try to create competitive advantages for themselves in the market through developing a suitable value chain framework. It emphasizes upon recognising what the company does more cheaply and better than its competitors. The value chain framework comprises of primary and secondary activities (Semeijn, Van Riel and Ambrosini, 2004). Primary activities Inbound logistics- The inbound logistics of the company comprises of purchasing bulk materials from different suppliers and accordingly produce products in their own brand name. Inbound logistics of the company also includes acquiring products from manufacturers of different consumer goods, so that the same can be distributed to consumers. Operations- Operations emphasize upon the lifecycle of products and services. The company ensures that their products and services meet the needs of consumers. The primary motive of the operations carried out by the firm is to ensure that consumers are tempted to make repeated purchases. Aldi ensures that the operations Carried out do not lead to enhancing the costs of the firm. As a result the company is able to deliver products at cheaper rates than its competitors (Bradley, 2005). Outbound logistics- Outbound logistics are related to how the manufactured goods and services are made available to consumers. Aldi’s outbound logistics system includes transportation and their retail outlets. Marketing and sales- Through effective marketing and sales strategies, Aldi informs consumers regarding their cheap and effective services. Aldi is not seen to undertake extensive promotional activities, as it is leads to cost additions. The company tries to maximize cost efficiency and passes on the savings gained to consumers. Services- The services segment of the company’s value chain includes providing after sales services, meeting consumer grievances on time and ensuring that consumer queries are answered correctly. Services facilitate interaction of the company directly with consumers. Support activities Support activities includes, human resource, technology resources, infrastructural facilities and procurement systems. Support activities although are not visible directly, they play a crucial role in making the products available to consumers. Through support systems the company tries to reduce lead time and ensures that turnover of stock are rapid. Organizational control and the culture employees follow at the workplace also play an important factor in delivering services to consumers. Research and development activities also facilitate developing innovative products which meets consumer needs. External analysis The external analysis for Aldi has been conducted on the basis of Porters five force model whose components are shown in the following figure. Competitive rivalry: high (Source: Dobson, Starkey and Richards, 2009) The competition faced by Aldi in the U.K retail market segment is adequately high. The main competitors of Aldi are seen to be Tesco and Sainsbury. The main drawback is in terms of size. Aldi stores do not sell as many products as Tesco and Sainsbury due to size constrains. Also it is seen that the number of brands sold by Tesco and Sainsbury are much higher than the Aldi. However Aldi has been able to capture a proper market share by providing high quality at cheaper rates. This has posed suitable threat for existing large firms, who are seen to lose their price conscious consumers to Aldi (Bennison, Clarke and Pal, 1995). Threat of new entrants: Medium New entrants into large scale retailing are low. The retailing segment is already occupied with a number of strong competitors. This induces fear for new companies to enter the market. Moreover existing retailers of the U.K such as Asda, Sainsbury and Tesco have been successful at establishing business relations with suppliers. This further hinders new firms to enter the market, as suppliers will only prefer to trade with strong companies. Threat of substitutes: High Apart from the products which belong to Aldi’s own brand, most of the products sold by Aldi can be found in other stores as well. Hence consumers can easily shift to other retailers. However the rate at which Aldi provides goods are not provided by any other retailer in the U.K market. This is the strongest competitive advantage enjoyed by Aldi. Bargaining power of supplier: Low Bargaining power of suppliers are low when business relations are associated with a strong brand. In order to earn profits, it is essential for Aldi to develop business relations with companies which are a popular choice for consumers. Bargaining power of buyers; Medium Aldi has been able to retain consumers due to the fact that they offer products at low prices to consumers. However if the company begins charging higher prices, consumers may easily move to other brands. CSR strategies Aldi’s CSR activities are directed towards meeting the needs of consumers, suppliers, resource utilization and the employees. The company ensures that their consumers are provided with the best products and services, at the most effective prices. It is also ensured that the manufacturing processes followed by the company do not cause any harmful impacts upon the environment. Hence responsible production is an essential value carried forwards by the company. Aldi also believes that establishing proper relation with suppliers, producers, employees and company stakeholders is essential in efficient business functions. The company credits their stakeholders highly for being able to achieve success. Aldi ensures that their employees remain satisfied with the organizational policies and ensures that their needs are dealt with on a timely basis (Teece, Pisano and Shuen, 1997). Evaluation of strategy Consistency- The strategies adopted by Aldi in terms of their internal operations, value chain and developing competitive advantages, have aided it to achieve a strong position in the market. Aldi’s focus upon fewer brands and selling more self manufactured products facilitates achieving high economies of scale. The company ensure that all activities undertaken in the organization are in accordance with the set objectives and visions. As a result every activity undertaken by the company is expected to support the notion of cost efficiency and optimal utilization of resources. Consonance- Even though Aldi stores are not as large as Tesco or Walmart, the company has been able to meet all consumer needs effectively. Moreover small retail spaces leads to shorter rent payments. Moreover the company is able to earn high margin of and incur low expenses for providing the same, making their ventures highly profitable. Aldi tries to maximise loss and damage of property by temporarily charging for carts. A number of steps have been taken to speed up the process of payments made by consumers. In the light of such savings and very less expenses incurred in terms of advertisements, the company has been able to successfully achieve high profits. Such competitive advantages are not present for Tesco and Sainsbury given their store sizes of operations. Feasibility and advantages- Aldi ensures maximum feasibility in their operations. Long term feasibility is an essential aspect considered by the firm. In order to be able to sell products at a low price, it is essential that the market can accept commodities which are sold at lower prices. Strategies in respect of costs and resource utilization are undertaken on the basis of the needs of the consumers. For understanding market needs, the company gives much importance to research and development. The company tries to enhance their services by optimal utilization of resource. By cutting down wastages wherever possible, Aldi tries to pass on maximum saving in costs to their consumers through prices. It is also ensured that the undertaken strategies facilitate adding value to the organization (Rumelt, 1998). Aldi’s low price strategy and concentration of limited number of products facilitates attracting large number of consumers. SWOT analysis Strengths- The primary strength of the company, which facilitates it to achieve a supreme standing against competitors is the ability to provide low costs products which are of high quality. The strong presence and brand value of the company in Germany facilitates attracting consumers of the U.K Aldi’s focus upon limited number of products leads to increased specialization. Aldi has limited number of shareholders. As a result the company is not required to answer a large number of stakeholders in respect of every decision taken. Weakness- Aldi stores do not provide a wide range of products and brands as Tesco, Sainsbury and Walmart. This makes the store lose consumers who are brand conscious and buys high end products. Aldi’s small store size also creates an impression that the number of products expected to be available are low. Also the global presence of Aldi is not as strong as Tesco and Walmart. Opportunity- The firm is required to concentrate more upon investing in advertising strategies. The company also needs to expanding into a number of developing nations. Threats- The firm loses much of its consumers due to its incapability of providing all kinds of products from different brands. The company also cannot meet the needs of shoppers who are looking for a complete experience. Conclusion Aldi in the recent times has emerged as an important player in the retail market. Competitors such as Asda and Sainsbury are finding it increasing difficult to capture the firms existing market position and weaken it. Aldi’s success is reflected through their soaring share prices. It is expected that in the near future, the company can enhance their product reach capture even the high end products market. Aldi also continue to maintain their commitment towards automation for reducing costs and increased innovation potential. However in order to be able to sustain their market position is required that Aldi continues to expand their operation by increasing the number of stores and diversifying the manner in which they acquire different types of products. A large amount of investments are also required to be made in undertaking more advertising measures. Also the company requires being more creative in terms of the manner in which products are presented to consumers. The store designs are commented to be less attractive and do not facilitate visual advertising and promotion. The company may also consider undertaking in store advertising policies. Although the discounted commodities are hugely preferred by consumers, a large amount of consumers consider price as a measure of quality. Hence in order to attract such consumers, the company must consider not to frequently indulge in providing discounts to consumers. Reference List Barney, J. B., 1991. Firm resources and sustained competitive advantage. Journal of Management, 17 (1), pp. 99-120. Bennison, D., Clarke, I. and Pal, J., 1995. Locational decision making in retailing: an exploratory framework for analysis. International Review of Retail, Distribution and Consumer Research, 5(1), pp. 1-20. Bradley, F., 2005. International marketing strategy. New Jersey: Pearson Education. Dobson, P. W., Starkey, K. and Richards, J., 2009. Strategic management: issues and cases. New Jersey: John Wiley & Sons. Kapferer, J. N., 2012. The new strategic brand management: Advanced insights and strategic thinking. London: Kogan page publishers. Lamb, R., 1984. Competitive strategic management. New Jersey: Prentice Hall. Porter, M.E., 1979. How Competitive Forces Shape Strategy. Harvard Business Review, 1(1), pp. 12-32. 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