Competitive Advantage for Aldi Using the VRIO Framework - Case Study Example

Strategic Management Table of Contents Introduction 3 Company Profile 3 Competitive Advantages of Aldi 4 SWOT Analysis 4 SWOT Analysis Summary of Aldi UK 4 PESTLE Analysis of Aldi in UK market 6 Competitive Advantage for Aldi Using the VRIO Framework 8 Competitive Positioning of Aldi in Retail Market of UK 11 Porter Fiver Forces Analysis 11 From the above analysis, it is apparent that the impact of present retail food industry structure of UK is quite intense and the rivalry amid the competitors is quite intense. In order to ensure long term sustainability, the company has utilized the strategy of attracting customers with low priced goods, which further ensure that the company moves in parallel with the increasing competition. The company has also been able to predict or comprehend the buying behavior of the customers of the UK market quite effectively that contributed towards its long term sustainability. 13 Porter’s Generic Strategies for Aldi in UK 13 Porter’s Value Chain Analysis 14 Resource and Capabilities 15 Corporate Social Responsibility 16 Conclusions and Recommendations 17 References 18 Bibliography 20 Introduction Strategic management can be defined as the alignment of planning with the implementation process of strategies adopted by companies with the objective to enhance its performances within a specific situation and attain competitive advantages in common instances. It is often argued that the strategic management competencies of the company ultimately determine the performance level of the entire business. This can be better comprehended from the example of Aldi Einkauf GmbH & Compagnie, oHG (a.k.a. Aldi), which has been operating successfully in the UK market over the years (Hitt & et. al., 2012). In order to get a comprehensive understanding in this regard, this particular discussion will mainly focus on depicting strategies adopted by Aldi in the UK market that has enabled it to sustain as one of the major low cost supermarkets of the country. Company Profile Aldi is one of the fastest growing retailers in the UK and a competitive leading brand in the global market with its considerable number of stores operating worldwide. Irrespective of its global expansion at such a magnitude, it has also been observed that the company continuously seeks for expansion in various places of the world, making it an aggressive competitor. The product line of Aldi can be categories under the sectors of food and general products, which further include frozen foods, bakery products, sweets and beauty products among others. Notably, the company has been able to flourish more successfully in the UK market, which is also its home country, as compared to other regions of the world (Aldi, 2013). Competitive Advantages of Aldi Over the past few years, Aldi has gained the fame to be one of the notable players in the global retail sector. The success of the company over the years has been immensely supported by its competitive strengths amid the global business market, wherein Aldi is known to ensure customers satisfaction to the maximum extent by changing a minimal or reasonable amount for its products and services. The company also emphasises offering regular discounts for the customers on its products and services, which helps it to sustain in the UK market for a longer period despite of stiff competition from Tesco and other well-known retail giants. The company is also involved in developing lean approach in its operations, which is again one of the reasons for its sustainability, offering it with ample competitive advantages for the company over the years in the UK market (Creevy, 2010). SWOT Analysis A SWOT (S- Strength, W- Weakness, O- Opportunities and T-Threats) analysis is a structured planning, utilised to evaluate the internal environment of the business through analysing its strengths, weaknesses, opportunities and threats (Sekhar, G. V. S., 2009). This analysis will be crucial in this particular report as it will depict the internal business operations of Aldi, which has ensured its long-term sustainability in the UK market. SWOT Analysis Summary of Aldi UK Strengths In the UK market, one of the biggest strengths of the company was its approach towards managing different ranges of products and services, which further enabled its customers to choose from various different set of products. This in turn facilitated greater customer convenience and enriched customer loyalty in favour of the company (Jha, 2009). Weaknesses The company lacks a bit in terms of providing services to the customers. It is believed that the efficacy of the customer services delivered by the company is limited in comparison to those other noteworthy retail players in the UK market, which acts as a weakness for the company in the UK market (Jha, 2009). Opportunities Continuous growth of the UK retail sector presents a vital opportunity for Aldi to expand and flourish its business operations aggressively. The company also has the opportunity to strengthen its position in the UK market by enhancing its association with some of the well-known and topmost brands. The company also has the opportunity to strengthen its positioning in the e-commerce sector to enhance the operations of the business in the market of the UK (Jha, 2009). Threats As customers have a large number of options to make their retail purchase, Aldi will need to ensure the deliverance of high quality products and services to the customers to attract them towards the business, which might again increase its operational costs to a significant extent. A fierce price competition of the company, with that of other operators can also be witnessed in the UK retail market, which is again a threat for the company in the long run (Jha, 2009). SWOT Analysis Summary The company has strengthened its position as a player in terms of providing quality services to the customers, which was among its weaknesses in the past. The company has also mitigated its business risks and threats effectively through presenting themselves as a low price brands in the market further enhancing their competitive positioning in UK market. PESTLE Analysis of Aldi in UK market Political Factors Since the current political environment in the UK is quite stable, it is likely that Aldi will face minimum hazards in terms of governmental interventions. However, the UK government is observed as quite appreciative towards the foreign business units operating in the country, which includes the retailers, reducing the entry and exit barriers within the UK retail industry. This might further increase competitive challenges for the company. The UK government has also formed strict employee legislation, which is adhered by Aldi in its operations, but might raise labour related challenges in future, subjected to company’s strategic management efficiencies (Scribd, 2014). Economic Factors In the current market scenario, the UK economy is deemed strong and growing immensely, post the global recession in the year 2008. Predications have also been made that in the coming future, the economy will experience a considerable rise in its customer purchase capacity as well as labour market growth suitable for the growth and sustainability of many retail chains like Aldi. However, the increased interest rates of the financial institutions of the nations are causing certain potential problems for the business of Aldi, giving rise to monetary challenges as well as competitive challenges with better distribution of resources (Pettinger, 2012). Social Factors The trend of rising rate of expenses is also influencing the buying preferences of customers in the UK retail market, which is further influencing them to consider reasonably priced products over the quality features offered by the stores. Additionally, it was observed that the customers of the UK market are more appreciative towards making bulk purchases, wherein Aldi is expected to get positively impact from the same emphasising competitive pricing strategies in its current marketing practices (Scribd, 2014). Technological Factors Consumers in the UK market are believed to be attracted towards high tech buying experiences with utmost convenience, deciphering lowering preference in practicing traditional high street shopping. Hence, companies have the extreme need to show innovation in their operational approaches through the adoption of advanced technology, which will ensure the deliverance of quality experiences to the consumers (Scribd, 2014). Environmental Factors The UK government has been quite strict towards restricting the environmental impacts caused by the business units operating in the country. Contextually, there are various environmental protection laws, which companies need to adhere in pursuit to improve their environmental performances in the long run. Contextually, Aldi has been quite appreciative in the UK market with regard to its environmental performances, which again depicts a major strength and competency of the company’s strategic management initiative (Scribd, 2014). Legal Factors Legally, the UK business environment is highly regulated, which further impacts the operations of the companies one-way or the other in the retail industry, increasing the entry and exit barriers and forcing the existing players to take tactful measures when practices strategic management in mitigating the competitive challenges. Contextually, the operations of Aldi also get impacted from the legislation and policies practiced within the UK. Aspects, such as proper licensing and registration requirements also have major impacts on the operations of the foreign companies in the UK market (Scribd, 2014). Competitive Advantage for Aldi Using the VRIO Framework Valuable Aldi delivers quality products to the UK customers at quite a cheap price, further ensuring a valuable position for the company in the market. The company also has effective strategies in terms of refund of defect goods, which is again a valuable approach for attracting the customers (Peng, 2013; Creevy, 2010). Rare The low price policy of the company is also quite rare in nature as there are an insignificant number of companies enjoying such liberty on price, which might have otherwise enabled them to provide good quality goods with a lesser price policy similar to Aldi in the UK market and other parts of world. Moreover, the culture of the workplace of the organization has also been strongly impactful to accelerate rarity of Aldi’s strategic practices, which further influenced its employees to depict maximum dedication towards their work and yield better customer satisfaction (Peng, 2013; Creevy, 2010). Inimitable Offering quality products in low price accounts as one of the major strengths of Aldi has further ensured utmost sustainability for the company. This particular approach of the company is deemed to be inimitable by the competitors; hence, offering better competitive advantages to the company (Peng, 2013; Creevy, 2010). Organization Aldi is very organized in its approach of conducting the business. It works as per the demands of the customers and intends to use its resources to the optimum level to ensure the successful accomplishment of its cost cutting goals. This is also one of the major aspects that have provided competitive advantage for the company in the UK market (Peng, 2013; Creevy, 2010). Competitive Positioning of Aldi in Retail Market of UK Porter Fiver Forces Analysis Porter Fiver Forces Analysis is a particular developed by Michael Porter, which is useful to understand the present status of any particular industry structure. It component include analysis of bargaining power of the customers, bargaining power of the suppliers, threats of the new entrants, competitive rivalry within the industry and threat of the substitutes among others (Henry, 2011). In this particular research, the framework of Porter will be significant as it would ensure the analysis of retail food-market of the UK where Aldi is currently operating in. Threats of the New Entrants The threats of the new entrants in the UK retail sector are mediocre owing to the presence of large number of major operators. The companies, which include Tesco and Aldi, operate on quite a larger scale and have managed to develop an appreciative reputation, which further leaves very little chances for a new entrant to enter into the grocery market of the UK (Henry, 2011; Haberer, 2010). Bargaining Power of the Buyers The bargaining power of the customers in the UK grocery industry is quite high owing to the aspect that they have a large number of options for themselves to purchase their products from. It is also believed that in the UK based grocery industry, the number of customers is quite large in number as most of the individuals are a potential buyer. The fact that there is less switching cost for the customers in this particular industry, their bargaining power is also observed as high. However, Aldi has managed to make a mark for itself in the UK market owing to its strategic approach of providing high quality products at low price, enhancing its differentiation prospects and likewise, rewarding it with competitive advantages (Henry, 2011; Haberer, 2010). Bargaining Power of the Suppliers The power of the suppliers in grocery/retail industry is quite low owing to the persistence of large number of suppliers in the industry. Again, most of the big companies have their own regular suppliers, which further provide minimal scope for other small suppliers to sustain in the market. This further minimizes the bargaining power of the suppliers. Since Aldi has its own set of suppliers, it remains less effected from their bargaining power in the UK market (Henry, 2011; Haberer, 2010). Threats for Substitute Products The threats for the substitute products in the grocery sector are quite low. This is because of the aspect that the products in the grocery sector include the items that are not replaceable by any other product being demanded on a daily basis. This aspect also worked in favor of Aldi in its operations within the UK market as well as within the global plethora (Henry, 2011; Haberer, 2010). Intensity of the Rivalry The intensity of the rivalry in the grocery industry is quite high in the UK market owing to the presence of large number of players offering products having almost similar value features. These leave a minimal margin of error for the companies operating in the sector. However, Aldi has been less affected from the same owing to the fact that they have a distinct position for themselves to provide low price products as opposed to other big brands, which further provides them utmost competitive advantage (Henry, 2011; Haberer, 2010). Summary of Porter Fiver Forces Analysis From the above analysis, it is apparent that the impact of present retail food industry structure of UK is quite intense and the rivalry amid the competitors is quite intense. In order to ensure long term sustainability, the company has utilized the strategy of attracting customers with low priced goods, which further ensure that the company moves in parallel with the increasing competition. The company has also been able to predict or comprehend the buying behavior of the customers of the UK market quite effectively that contributed towards its long term sustainability. Porter’s Generic Strategies for Aldi in UK Differentiation Focus of Aldi The main target customer segment of Aldi in the UK market comprises the middle income group who are mostly cost driven customers. Their purchase behavior is largely influenced by the cost of the products. Since, the company emphasizes low price marketing strategies, these middle income group customers (which are quite large in number) get attracted towards the products of Aldi at a vast magnitude. This also provides competitive advantages for Aldi in the UK, where they are able to surpass the operations of major competitors like ASDA and Tesco (Hwy-Chang, 2010; Sehgal, 2010). Cost Leadership As often argued, in order to attain cost leadership, it is important that companies manufacture their products at quite a low cost. This will allow the company to attract the customers through providing discounts and other schemes gaining a high degree of control on their pricing strategies. Over the years, Aldi has been quite effective in practicing a similar strategic approach (Hwy-Chang, 2010; Sehgal, 2010). Cost Focus The business strategy of Aldi is principally cost focused, since it targets the middle class customers who are cost driven. This enables the company to gain sustainable advantages in the UK market by increasing its sales continuously on a higher level (Hwy-Chang, 2010; Sehgal, 2010). Porter’s Value Chain Analysis Inbound Logistics Considering its inbound logistics operations, Aldi can be observed to purchase its materials in Bulk and produce products with its unique brand name, which further not only helps it reduce the cost of production but also enhance the competitive advantage of the company in the UK market (Kleemann, 2013; Recklies, 2011). Operations Since Aldi manufactures most of its products with its own brand name, it can offer the products to the customers at quite a low price, further enabling it to attract maximum number of customers. Its products are also high in quality with regard to the prices on which, the products are being offered, further assuring a competitive advantage for the company in the UK grocery market (Kleemann, 2013; Recklies, 2011). Outbound Logistics Aldi has its own logistics facilities, which further ensures that the products are delivered to the customers ensuring utmost efficacy. This aspect of the value chain of the company also provides it with enhanced competitive advantages in the UK market (Kleemann, 2013; Recklies, 2011). Resource and Capabilities There are certain capabilities of Aldi, which acts as crucial resources for it in attaining competitive advantages in the UK market. The superior competencies of the company in various domains have been one of the major competitive strengths for it over the years. The strategic competency of the company to provide low priced products is crucial in attracting the middle class customers of the UK, which has again been quite advantageous for the company. The distribution capability of the company is also amid its major resources that can be beneficial in the long run. However, the company will need to ensure maximum product differentiation, which can provide it with long term sustainability (Kleemann, 2013). Bowmans Strategy Clock It is a particular model that is used in the domain of marketing, which is further implemented to evaluate the competitive position of a business in comparisons to its rivals. This model will be crucial in this particular research as it will be helpful to analyze the strategic positioning of the company within the UK market. The three important components of this particular framework include cost leadership, product differentiation and market segmentation among. Contextually, it will be crucial to mention that Aldi has one of the rare companies in the UK industry that has been able to ensure the deliverance of products at quite a lower price with reasonable quality. This aspect has enabled the company to gain cost leadership. The company has also been quite effective in the domain of product differentiation, as it has been able to deliver diverse range of products to attract customers from all areas of the UK society. This has also worked positively for the company and ensured it with long term sustainability. However, the company will need to be effective in the domain of market segmentation as it only segregate customers on the basis of income excluding other demographic factors (Thomson & Baden-Fuller, 2010). Corporate Social Responsibility Aldi has been quite appreciated for its performance as a socially responsible unit in the UK retail industry. The company believes that social responsibility is its response to the community demand for high quality product and services with minimum effect to the environment and other stakeholders overall. Notably, corporate social responsibility policies of Aldi have been founded on three basic concepts including simplicity, consistency and responsibility towards safeguarding the UK environment and the UK society. This aspect worked in favor of the company in its operations within the UK market (Aldi, 2014). Conclusions and Recommendations From the overall analysis of the paper it can be comprehended that operating in the competitive business environment in the contemporary scenario is quite a challenging task for the companies owing to which, they need to emerge with a diverse range of effective strategies. This aspect can also be better comprehended from the example of Aldi and its operations in the UK market. As noted in the above discussion, the company has adopted various key strategies in order to sustain as one of the major low cost supply chains in the UK market for the past five years. However, the company must focus to enhance its operational efficiencies to the next level in order to ensure future sustainability in the increasingly fierce competitive environment. In this regard, the company will need to focus more on the quality of its products rather than focusing only on the price of the products. The company will also need to emerge with effective product differentiation strategy in order to strengthen its positioning for a longer duration of time in the UK market. References ALDI, 2013. ALDI the Australian History. Home. [Online] Available at: https://www.Aldismartercareers.com.au/aboutAldi.aspx [Accessed April 19, 2014]. Aldi, 2014. Responsibility is Our Response. Corporate Responsibility. [Online] Available at: https://corporate.Aldi.co.uk/en/responsibility/corporate-responsibility/ [Accessed April 21, 2014]. Creevy, J., 2010. 10 Ways Aldi Changed Retail. Retail Week. 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