International Strategic Management: ALDI Case - Essay Example

1 Running Head: CASE STUDY ALDI Case International Strategic Management ALDI In Australia Introduction ALDI opened up its store operations keeping in mind one basic notion and kept it as a philosophy for their business. That notion related to the fact that all people, wherever they live, should have the opportunity to buy everyday groceries of the highest quality at the lowest possible price. Serving the same notion, ALDI 's first store in Australia was opened in Jan 2001 in Sydney and we may very correctly say that it has been operating internationally for over 50 years. Particularly in Australia, over 200 stores are successfully operated across New South Wales, ACT, Queensland and Victoria providing great value to all consumers. With such a zeal and expansion, ALDI is now employing thousands of Australians and with the constant growth planned for the future; this figure is increasing by the day. ALDI started its operation as a small food store and the range of the products kept on increasing from frozen canned food items to bakery stuff, including household, health and beauty products along with vegetables and fruits. Mostly, ALDI store contained its own brand in different ranges and varieties; however later on it also started to store brand like Nestle, Milo, Kellogg, Vegemite cereals etc. Analyzing the Environment For any brand or a company, it is very important to keep in mind that the market in which that company is prevailing should be properly analyzed and surveyed so that it may provide assistance while strategy formulation. For analyzing the environment, there are two basic parameters. These parameters are defined on the basis of internal and external forces and thus are called external environment scanning and internal environment scanning. External Environment External environment refers to the scanning of the environment outside the company. It is related to the industry and the competitors prevailing in the market. Moreover, other external factors which may have an impact on the sales of the company. When we study the environment on macro level, we need to do PEST analysis. PEST stands for political, economic, sociocultural and technological factors which are directly related to the external environment which have a great influence on the business. Let's analyze the external environment of ALDI through PEST. Political Factors. The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses. For ALDI the political environment is suitable as government of Australia is democratic and has a labor part rule. Thus, there are certain taxes which are applicable at the federal, state/territorial and local level. A new Tax system (goods and services tax) Act 1999 is introduced which is applicable on ALDI which is not very nominal. As far as government's role in marketing is concerned, ALDI has an advantage as it does not spend any penny on marketing so it does not have any influence of that portion. Economic Factors. Marketers need to consider the state of a trading economy in the short and long-terms but when it comes to ALDI the biggest advantage of economic factor for the company is that they do not use their marketing budget. The marketing budget which if 0.3% of the total revenue is added in the revenue so if there is any economic pressure even, ALDI will not have to be worried about. ALDI also saves cost by not giving shopping bags for free and thus it also saves money. Along with these savings, ALDI can also benefit from the investing policies of Australia on both short and long term basis. GDP of Australia is slightly higher than the market of UK with respect to the purchasing power. Since past, Australia has grown with an average annual rate of 3.6% which is a positive sign for the business of ALDI. Sociocultural Factors. The social and cultural influences on business vary from country to country. In Australia, we would find Christians in majority and thus the social and cultural environment of the country reflects majority. People living in Australia are with an attitude of accepting different brands and thus ALDI has also achieved an optimum level of customer satisfaction due to which it is enjoying the major shares despite of the fact that other brands are also kept in ALDI stores. The ratio of people from diverse cultures living in Australia have now grown but this difference has shown no adverse impact on the sales of products of ALDI. Technological Factors. Technology is vital for competitive advantage, and is a major driver of globalization. ALDI has been working on latest technology which can make easy accessibility of the goods and management of store. But due to technological advancement used by competitors, ALDI might have to face problem as it offers more value to the customers by giving discounted petrol filling and banking facilities. Michael Porter has also given its model to analyze external competition with respect to competitive strength and position of a corporation or business organization. This model is based on five forces which includes: Existing competitive rivalry between suppliers Threat of new market entrants Bargaining power of buyers Power of suppliers Threat of substitute products (including technology change) Let us analyze ALDI based on the porter's model. If we look at the competition, there are two major competitors naming Woolworths and Coles. Both are super markets and are competing in the same chase. In such a competitive market where both competitors are providing additional values to the customers, the external forces seem extremely influential. There is one major challenge that ALDI can face from external pressures and that is of new entrants. Many international players from the retail market are about to enter the Australian market seeing potential here. Some of the major ones include Wal Mart, Tesco, Lidl etc. The other important element of Porter's model is the bargaining power to the buyers. As bargaining reduce the profit margin, companies normally set a target or level of bargaining. But if we observe this force in the case of ALDI, we would witness that ALDI is lucky enough as it has always kept the pricing low from the competitors on basic and bulk buying. Although ALDI is offering competitive pricing but the power of the suppliers is very influential. Though due to pricing, ALDI captured maximum confidence in the company but due to close competition and supply of similar goods and items the power of the competitors has increased. Along with that, the value added services by the competitor has also become a threat for the company. As food retailing is increasing day by day, it may become challenging in terms of substitute items being introduced by the new entrants which may lead a shift in the market and may become a reason for making the loyal customers move to the other brand due to value added services. Internal Environment Scanning of internal environment refers to strengths and weakness of the company. With ALDI, its major strength which is the actual potential and unique selling proposition is the idea of providing high quality products in low and competitive prices. The resources and capabilities include the following: Low pricing of goods Higher quality in nominal price Wide range of goods Availability of other brands More than 200 stores If we closely monitor all these facts which are the actual strength of the company, we would not deny the fact that these capabilities can prove to be a door of opportunities and these strengths can be used to formulate future strategies. Such factors help in leading competition and also gives a leading position in the market. These factors also helps in creating and maintaining the goodwill of the company as the strength of the company increases the level of trust and satisfaction in the customer. Industry Structure and Basis for competition The industry in which ALDI is surviving is dealing in day to day used products through superstores. These products include frozen and canned food items, bakery stuff, household, health and beauty products along with vegetables and fruits. Besides ALDI there are two more competitors who are in the same chase and are striving to get maximum share. The basis of the competition in this industry is due to competitive pricing. In such industries, the profit margin is very low and for day to day products people chose a place where they can not only get access to all the items of their need but they also look for pricing as such products are normally bought in bulk quantity. There is a very thin line between the competitors in pricing as items and goods are normally same (It may vary a bit in quality). Key Resources of ALDI For ALDI, the biggest benefit or the key factor which supported the company to hold a strong position in Australia is the experience it has gained from past 50 years. This experience has proved to be the key source for ALDI to learn more and more about the industry. The principles of the company has also proved to the source of success for ALDI through their five main principles. Huge savings on bulk buying (weekly) Excellent quality through leading brand availability Value for money Special buying offers Total satisfaction in terms of money back guarantee Success Factor for Companies The major reason why companies flourish is due to the strategy they initially formulate in order to achieve short term and long term goals. However, the success factor of any company lies in the strategy which are the basis of any organization. Strategy provides a pathway to the organization which helps in decision making. These strategies are made keeping in mind the business needs and the target audience. Strategies normally provides a full fledge plan which is defined step by step with certain goals. While implementing the strategies, one must be clear on goal that what needs to be achieved and then the strategy will give its result. Strategies may differ depending on the unique situation of the individual business. Such strategies are categorized as under: Strategies based on market dominance - There are three types of market dominance strategies: Leader Challenger Follower Porter generic strategies - These are based on the dimensions of strategic scope and strategic strength. Product differentiation Market segmentation Innovation strategies - This deals with the firm's rate of the new product development. There are three types: Pioneers Close followers Late followers Growth strategies - These includes: Horizontal integration Vertical integration Diversification Intensification ALDI's current Strategy ALDI has adopted one of the most easiest strategies to capture the market. This strategy is being incorporated by the company keeping in mind day to day needs of their customers along with the psyche. People normally are very much conscious about what they are buying for themselves. They would always prefer all best quality things for themselves but when it will come to paying or the pricing on those commodities, people would want to pay as less as possible. Such behavior of customers is called price savvy. As ALDI is in the industry, where day to day purchases are made, it is very important for the company to adopt a strategy which may not only help in attaining the goals of the company but also help the customers regarding their key concerns. The current strategy ALDI is using is known as cost leadership strategy. The company is commonly known as the discounter as it has devised the pricing mechanism in such a manner that people may get maximum benefit out of it. It is considered to be at a leading position as it offers the most competitive prices in the market. Other two national rivals are also present in the market but when it comes to pricing, no one can beat ALDI. Issues faced by the company Currently, ALDI in Australia is holding a very strong position but in future it is anticipated that ALDI will have to face problems. These problems and issues will be created due to strong competition and new entrants in the market. There are two major competitor who are in the same chase and are striving to keep ALDI backward. However, competition has already taken over ALDI by providing additional benefits to the customer by offering added value along with the routine goods and products. Such an act was initiated to grab some of the potential buyers or customers of ALDI and to make them loyal customers of other two superstores. More to this, due to new entrants in the industry there is a chance of losing major shares from the market. New entrants are coming up with full insight of the customer and are planning to implement their best practices in the Australian market. Reasons for these issues The reasons of these issues are very clear. Due to major recession taking place globally, the share of many big companies and groups have reduced. This notion today is very common as every other person or industry is suffering from it. Economic factor is also an important reason of issues which are created in the industry. Due to recession, the level of household debts have increased. Along with that saving has reduced and oil prices are going high. Another important reason of he issues which are anticipated is due to the market getting competitive day by day. Now companies are not thinking from a prospect of making more money and capturing the greater share from the market. Instead companies are working more on the element of customer loyalty and satisfaction so that retention to the customers can be made easy. Recommendations For ALDI, there are some recommendations which I would like to make keeping in mind the current scenario. Studying the market very well Research to get consumer insight Keeping an eye on competitor's move Try to introduce schemes which are unique from the competitors like package deals, discounted coupons on shopping, membership etc. Introduce customer support center to establish and maintain loyalty of brand and customer Introducing wide product ranges and variants in the commodities Providing right option to the right person A survey from the customers can be done in order to know the areas of improvement Prompt actions shall be taken Inventory management can be done for future Revising strategies with the changing time Justification of Recommendation All these recommendations are made based on the fact the market is extensively spreading and these recommendations will help in standing out in the competition. Applying such actions will help people in identifying difference between the old and the up graded system which is normally required by all. 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(2007), Strategic Management - An integrated approach, 2nd edition Wiley. Read More