Aldi Company in Australia - Strategic Management and Strategic Competitiveness - Case Study Example

Aldi Company in Australia Name Institution Course Date Contents Contents 2 1.0 Introduction 3 2.0 Strategic Management and strategic competitiveness 3 3.0 External Environment 5 3.1 Intensity of rivalry among competitors 5 3.2 Threat of Substitute products and service 5 3.3 Threat of new entrants 6 3.4 Bargaining power of suppliers 6 3.5 Bargaining power of Buyers 6 4.0 Internal Environment 7 5.0 Business level Strategies 8 Recommendations and conclusion 9 1.0 Introduction Since opening its first store in the year 1913, Aldi Company has grown to become one of the most successful global food companies. The company is popular for its strategic marketing method of providing quality products are very low cost. The first store was opened in Germany in the year 1913 but the company has expanded to overseas market in different parts of the world. The major regions where it operates include most parts of Europe such as Netherland, Germany, France and Britain. In addition, the company also operates in Australia where it takes a considerable market share in the region. This essay will discuss the approach the Aldi Company should employ to maintain its current level of growth and strategic competitiveness in light of challenges that the sector is facing in Australia. 2.0 Strategic Management and strategic competitiveness Strategic management is the implementation of the goals that are formulated by an organization’s top management. The goals are both short time and long-time goals which are aimed at achieving success in the organization. On the other hand, strategic competitiveness is the outcomes that are attained when an organization successfully implements a value-creating strategy giving it an advantage over its competitors (Brinkman 2010). It is the success of a strategic plan that gives a firm an advantage over the rest of the firms in the industry. A successful strategic plan is achieved when an organization understand the position of its competitors and act to spot gaps and opportunities. The characteristics of the competitive landscape affect Aldi Company either positively or in a negative way. Such characteristics as innovation and differentiation have given firms a strategic competitiveness over their competitors (Brinkman, 2010). The same has been happening to Aldi. Aldi has been using cost leadership strategy to maintain their growth. This strategic has positively affected the Aldi performance in this competitive landscape (Brinkman, 2010). The focus on the price has seen the company provide products at very low price hence attracting a lot of buyers. Differentiation is a major characteristic of the competitive market which Aldi has not paid much focus. The company though has a strong brand does not completely differentiated its products (Brinkman 2010). The strategy has not been affecting the performance of the organization as most buyers are away of the Aldi products. Buyers are able to identify Aldi products mostly due to their low price (Brinkman, 2010). However, with the increase in the competition in the market and threat of new entrant, the strategy is likely to affect the business negatively. Aldi has managed to low its price to get the competitive landscape due to a number of factors. The competitors are offering their products at a relatively high price which Aldi feels that it can provide the same product at relatively low price. By focusing on few products, the company has managed to provide the products at price lower than the other firms which have given it competitive advantage in the market. Economies of scale also play a vital role in enabling the company providing quality products at low price. It buys good at relatively large quantities hence low cost per product (Brandes 2012). This strategy of low price focus has seen the company maintain its growth and strategic competitiveness in the market. 3.0 External Environment 3.1 Intensity of rivalry among competitors The supermarket industry in Australia is and will continue to become competitive in future. Aldi has been facing competition from Coles, Woolworth, Franklins and IGA supermarkets among others. As the price leaders in the market, the company has been enjoying competitive advantage over these competitors. However, in the recent past, these competitors have lowered their prices resulting to price war among them. This has reduced the competitive advantage the company has enjoyed since its establishment in the year 2001. In addition, it is apparent from the case study that the economic situations in the country are further intensifying the competitions among the firms in the supermarket in the industry (McGahan 2009). 3.2 Threat of Substitute products and service The main threat of the supermarket industry in Australia is the product substitutions. The four competitors have their own products which substitutes Aldi products. Woolworth and Coles has in the recent past lowered the price of their products to values closer to the Aldi’s product price. Consequently, these supermarkets has provided substitute to the low price products provided by the Aldi (McGahan 2009). In addition, Woolworth has introduced online supermarket which further provide substitute to the supermarket products initially provided by the Aldi supermarket. Lastly, there local brands that are becoming increasing popular hence acting as a major substitute for the Aldi’s products. 3.3 Threat of new entrants Aldi Company external environment is prone to threats that can endanger the company growth and strategic competitiveness in the future. As mention from the case study, Australian food market is open to entry by global firms such as Wal-Mart and Tesco. The entry of these companies will reduce the market share of the company and increase the competition in the market. Though the company is using price war to force other companies out of the market, the strategy may not achieve this objective with entry of major companies with ability to provide products at low price and still make profit (Porter 2010). 3.4 Bargaining power of suppliers The suppliers’ power is medium because low price strategy means needs to seek low cost suppliers in order to get good price and gain profits. Aldi is using the low cost strategy where it provides only the products it can provide at low price. In order to achieve this, the company seeks suppliers who can provide the product at a low price. Currently, it has stable supply of goods from different suppliers and they terminate it supply whenever it becomes uneconomical to deal with (Porter 2010). 3.5 Bargaining power of Buyers The buying power of customers is relatively low. According to a survey conducted in the year 2012, the supermarket industry in the Australia is approximately 13 million (Gerald 2012). Among the firms in the industry, Aldi has the cheapest prices. This means that the buyers bargaining for the firm is low as it still remains the cheapest firm to buy from in the industry. 4.0 Internal Environment Internal environment also plays a vital role in the current level of growth and strategic competitiveness of Aldi Company in the market. Therefore, in the light of the challenges that are affecting the company, the organization should consider its internal environment if it has to remain competitive and maintain its current market share. The main factors the company should consider are its internal capacities and the resources (Gerald 2012). In addition, the factors can further be divided as support activities and primary activities. The primary activities include marketing and sales, services, operations and inbound logistic. Marketing is one of the major activities, where the company saves a lot of cost. Aldi does not engage in extensive advertisement to inform and convince potential buyers to buy their products. The aim of the economic efficiency is to identify areas that can be utilized to increase its strategic competitiveness. The same efficiency is applied in inbound logistics to ensure that the organization incur the lowest cost. Logistics has become a key element in ensuring food quality both within chilled and fresh product ranges. In addition, Aldi opens their stores only during the peak trading hours. This allows the company to lower its overhead cost as well as employees cost. Support activities include technology, human resources management, firm infrastructure and procurement. Currently, the organization is using innovative technology such as trolley renting and use of advanced technology such as PDA wireless device (Brandes 2012) which has reduces the cost of operation. Aldi in Australia has human resource department that deal with employees’ issues. The company employs only a few employees in every store which are involved in the day to day running of the store. For instance, most of the stores have five to seven employees per store (Brandes 2012). This is unlike its competitors who have a significant number of employees in every store. Cools and Woolworth employ an average of twenty employees in every store. The few employees has enabled the company perform better in terms of reducing the cost of operations. Aldi has a strong procurement strategy that allows that allow the company to service large amount of people (Hoskisson&Hitt 2009). The suppliers are provide services when they are needed and sometimes directly to the customers. This reduces the storage cost and sometime transportation costs. The saving enables the company provide quality product at a very minimal cost (Gerald 2012). 5.0 Business level Strategies Aldi uses cost leadership business-level strategy to gain advantage over the rival companies. The high efficiency working condition makes it possible for the company to operate at a minimal cost in order to grab more market share. For instance, the company employs a few numbers of employees to reduce the cost of the employees. In addition since it entry in the Australian market, Aldi has continued to provide quality goods at very low price compared to the other companies. This has made the company gain competitive advantage over its rivals whose prices have always been high (Aldi, 2005). However, the strategy may not maintain the current growth of the company in the future. Most of the competitors such as Coles and Woolworth have recently lowered their cost to almost that of the Aldi. This indicates that Aldi does no longer have competitive advantage over the other in regard to the price. The company should focus on differentiation strategy business level strategy if it has to maintain the current level of growth and strategic competitiveness in the future (Brinkman 2010). This business level strategy would enable the company deal with challenges such as entry of new firm among others. The organization also uses focus strategy in order to maintain its level of growth and strategic competitiveness. Aldi deals with approximately 700 products they can provide at very low cost compared to the other firms. The company has specialized in providing food staffs which it can provide at a cost that is suitable to every buyer in the Australia. This is different from the other supermarkets in the country such as Coles and Woolworth which provide more than 20000 products. The focus on the limited products has made the compare have a better understanding of the products by focusing their entire effort on these few products (Rainer 2006). The focus strategy plays vital role for the success of Aldi supermarket. Since its formation, almost a century ago, the supermarket has been using the strategy and it has proved to be a success. In Australia, the strategy has also proved to be successful and have given the supermarket a competitive advantage over the other firms in the market. The strategy is promising and continuous use of the strategy will continue enhance the grown of the supermarket and increases its strategic competitiveness. It should eliminate all the products that prove to be uneconomical and introduce new ones that it can provide al low price and still remain competitive. However, relatively new products should be increased to diversify its profit. Recommendations and conclusion The competition in the supermarket industry in Australia has been increasing gradually in the recent years. During its first entry in the market in the year 2001, Aldi supermarket faced less competition in the market. It adopted cost leadership strategy where it specialized in relatively few products which they could provide at relatively low price. However, over the years, the supermarket faces a number of challenges such as threat of new entrants and high competition among others. In order to retain its current market growth and strategic competitiveness, Aldi need to invest in development of new products, change its market strategy and embrace innovations. The focus on the few products might not be effective upon entry of new firms. It should increase the products they provide in order to increase their performance. Second, the company should not focus on the cost leadership but also the differentiation market strategy. Lastly, it should embrace innovation in various aspects such as online supermarket among others. This essay has discussed the approach the Aldi should employ to maintain its current level of growth and strategic competitiveness in light of challenges that the sector is facing in Australia. Aldi is a global food company that started in 1913. Aldi started operating in Australian in 2001 and has grown to become one of the major firms in the food industry in the market. The company adopted the cost leadership strategy which was successful in the market. However, the market has been changing gradually and the organization has to change this strategy if it has to maintain its growth and strategic competitiveness. Current the market is characterized by threats of entrants and high competition among the firms in the industry among others. These challenges require Aldi to review its strategy in order to retain competitive advantage over its competitors. References Aldi, 2005,Home for the holidays: Celebrate with Aldi's festive baking recipes and crafts. Lincolnwood, IL: Publications International, Ltd. Brinkman, J., 2010, Unlocking the business environment. London: Hodder Education. Smith, L., &Mounter, P., 2008, Effective internal communication. London: Kogan Page. Brandes, D., 2012, Bare essentials: The ALDI way to retail success. London: Cyan/Campus. 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