Aldi Supermarket Company - Essay Example

INDUSTRY ASSESSMENT: Aldi Supermarkets BY YOU YOUR ACADEMIC ORGANISATION HERE HERE HERE Industry Assessment: Aldi SupermarketsIntroduction Aldi, a German-based supermarket chain, has found significant successes in recent years due to the company’s low-cost pricing model which has offered consumers unique food options for limited costs. In difficult economic times, this is especially important for those buyers who do not maintain a high level of disposable income. Aldi has managed to position the company as not only a value-based company in terms of offering low-cost food options, but as a progressive organisation which remains focused on providing superior products, a specialty brand concept, in order to lure a wide variety of demographics to the business. This paper describes the current strengths, weaknesses, opportunities and threats facing Aldi as part of a comprehensive SWOT analysis and also provides the various strategic options available to the supermarket chain in order to boost profitability and reputation. SWOT analysis Aldi Supermarkets maintains a wide variety of current successes worthy of benchmarking as well as significant drawbacks to the current business model being utilised by company leadership. Strengths: Sound Marketing Strategy. Since the Aldi low-cost model was established and company began operations, the business has remained focused on changing its image from simply a discount supermarket chain to that of a progressive, well-positioned company. The business has transformed its image from a no-frills business to a specialty brand company which removes consumer emphasis from the term discount to that of one focused on quality products. This has had appeal to mass markets and raised their sales 25 percent in early 2009 by being able to cater to a larger volume of potential demographics, even including the upscale consumer. Privatisation. Aldi is not a publicly traded company, which does not give the business the types of pressures felt by other publicly-traded supermarkets in terms of investor pressures for rapid expansion or other activities which benefit the shareholder. By holding higher levels of control over internal activities, Aldi has been able to emerge a leader in low-cost grocery shopping needs. Knowledge of consumer audiences. Aldi, unlike other discount grocery stores, appears to understand the lifestyle and behavioural needs of its customer base by creating marketing strategies which fit consumer psychology profiles. For instance, Aldi Supermarkets realises that in order to lure more image-conscious consumers to its facility, it would have to eliminate the strong focus on no-frills and reposition the firm based on quality products and selection. This eliminates the social fear of shopping at what might be considered a budget organisation and instead gives the impression of select branded products designed for active and affluent consumer groups. Weaknesses: Brand varieties. Even though the Aldi brand likely has a significant amount of contractual agreements for the retail distribution of various unfamiliar brands of products, there is a weakness in focusing on this strategy as well. Many retailers rely on the brand recognition or years of brand loyalty from various well-known food brands in order to ensure higher sales volumes in the retail marketplace. However, since Aldi’s selections come from relatively unknown international manufacturers of food products, Aldi must devote a higher portion of its advertising and promotional budgets to establishing brand recognition with these lower-cost food products in order to build customer trust and loyalty toward Aldi selections. Too much, too soon. Aldi is currently becoming famous in different consumer segments due to its low-cost model which is still in operation today. The company has expanded its non-food selections to include various electronic equipment, such as portable MP3 players, instead of focusing on building the aforementioned brand loyalty and brand recognition necessary to boost product sales. These products are heavily saturated in terms of retail competition from retailers which specialise in electronic products. It is a likely assessment that the majority of consumers are not shopping at Aldi for these products and the firm’s focus on this internal diversification of product variety is too premature for emerging market environments. Opportunities: Marketing alliances. In today’s high-pressure business world in which exceeding the efforts of competitor activities is paramount to profitability, Aldi maintains the potential to build strategic alliances, in relation to marketing, with many of its existing, virtually unknown family of brands offered in Aldi stores. Some of these distributors, for example, may have well-developed supply chain strategies or the desire to build stronger brand awareness of their food products in order to expand their distribution strategies. Aldi’s current positive relations with a wide variety of demographics gives them competitive edge for helping the food brands become well-familiar and well-trusted brands in international marketplaces whilst utilising the marketing and supply chain talents of its distributors to make both Aldi and its manufacturers of food goods stand out competitively. Further multinational expansion. Emerging markets, such as India, Pakistan and China, do not have a wide variety of grocery stores available to local consumers, who many are still buying their own produce, meats and other food items from local street vendors or even purchasing items through bartering agreements. Aldi’s low-cost model and its many different brands, if developed in emerging marketplaces with significant exchange rates for new business development, could benefit local consumers in these markets and further expand the Aldi name across the globe. Threats: Heavy supermarket competition. In well-developed economies, such as the UK, the supermarket marketplace is saturated by heavy competition from leading retailers such as Tesco and Wal-Mart. These retail brands are well-familiar to Westernised cultures which give them an edge in customer recognition toward value and superior product offerings. In order to Aldi to compete in the long-term, the business must focus on outperforming this competition through aggressive marketing campaigns and by reinforcing why shopping at Aldi can be superior to larger retail organisations. Current market instability. Across the globe, current economic conditions have left many retail organisations unable to ensure an adequate profit margin based on corporate revenue expectations. Aldi plans to open another 75 stores across the world in 2009 as part of their strategic expansion plans, however there is no guarantee that consumers in these different market environments are going to be lured by the current marketing strategies of the company. The company must conduct market research about what specifically drives these local customers, values and lifestyles prior to positioning each division of Aldi to meet the needs of consumers. It seems that Aldi currently uses the same marketing strategies in the UK, the United States and Germany as well as in its new markets. These strategies will not necessarily achieve short- or long-term success in difficult market environments where consumers are new to this type of shopping experience. Growth analysis of Aldi If Aldi Supermarkets were considered a brand which maintained a specific life cycle of eight to 10 years, based on current marketing efforts and branding strategies, Aldi is currently in the growth stage of development. As previously identified, the business has experienced a 25 percent increase in sales across the entire company portfolio, which is virtually unparalleled for already-established supermarkets across the globe. Whilst other companies are losing market share or having difficulty in gaining consumer patronage due to diminished, global household income levels, Aldi is currently an interesting concept store in the minds of consumers and still maintains excitement each time the company takes on new product varieties or expands further as a multinational business entity. Since the company’s launch, it seems to have created the necessary buzz to get people to try out the new shopping model and has found this success. As its growth rates continue, cash availability grows stronger for further global expansion and builds a company which can emerge highly profitable against other competition in similar market environments. Eventually, Aldi will experience declines as it moves out of growth and into maturity, which will require the business to examine both its product varieties and its marketing strategies (at that time) to slow the process of eventual business decline which occurs when a company reaches the maturity stage of development. Strategic Options Aldi is currently dedicated to the procurement of local produce, from local agricultural facilities and farmers, as part of its commitment to local corporate responsibility and the provision of economic assistance of local produce distributors. Aldi should strategically capitalise on this additional strength through collaborative efforts with these agricultural distributors to firmly position the business as a leader in community involvement and the provision of economic wealth to local regions. Because Aldi is not, yet, a well-established brand with a significant amount of consumer loyalty, these partnership arrangements and dual-focused marketing strategies will further give different markets a more respected view of Aldi as a community leader and not just as a discount or no frills organisation. Further, Aldi maintains the ability to further diversify its business portfolio in not just supermarket store concepts but in other areas of retail such as Aldi gift baskets which can be delivered to a variety of consumers online for home delivery. Because Aldi maintains agreements with different food vendors which specialise in frozen and fresh food items, the business has already established the tools necessary to create such a new strategic option for the business. The construction of a website which would offer these gift baskets, at premium prices and by using the company’s specialty brands as a selling point, the Aldi Gift Basket company could radically change the scope of how the company performs its business. There is a growing shift in gift basket delivery and consumer demand for these specialty items is growing, which is evident by the many online retailers who offer various wine/cheese baskets or fruit-by-design offerings at reasonable pricing. With a small amount of financial investment and by partnering with emerging food brands currently servicing Aldi customers, unique food baskets could be created and sold to upscale consumers or during special holiday seasons. The new Aldi Gift Basket company can offer a wide variety of these items, using their current distribution network and through agreements with the local postal service and companies like Federal Express or DHL, can revamp the Aldi brand image and also strengthen its cash position. Additionally, Aldi maintains the ability to acquire new businesses, such as purchasing different agricultural entities which manufacture frozen fish products or canned fruits/vegetables, to further strengthen the company’s portfolio. Having an Aldi-owned manufacturing facility would give the company significant flexibility in creating a more widely-recognised food brand, the Aldi food brand, which also specialises in offering customers superior quality canned or frozen foods under the Aldi name. This would allow customers to become further familiarised with Aldi and would give the company the strategic resources necessary to undertake a wide variety of business activities related to manufacturing. From a cash and asset position, Aldi would emerge a leader in both foods retail and in manufacturing, giving them a further strategic edge over other retail companies. The company could later divest this new manufacturing facility for a higher profit or even redevelop the manufacturing facility/facilities to create more than simply food items should the business wish to invest in long-term product development and market presence, such as in fashion clothing or in any other manufacturing capacity. Assessment of competitor reactions If Aldi devotes more resources to creating the impression of community involvement and its dedication to corporate responsibility for local produce and agricultural businesses, competition reaction will likely be similar especially if the business achieves further sales gains, region by region, based on these new promotional strategies. Companies like Tesco and Wal-Mart, just to name two, would likely establish their own marketing which emphasises local produce collaborations or similar community projects. This would be competitive marketing which would serve to undercut Aldi’s efforts as a unique community leader. Should the company adopt the new Gift Basket business, competitor reaction would likely be insignificant, as it would represent a new business model which many larger retailers do not maintain the ability to establish. Since many of Aldi’s food competitors are actually publicly-traded companies on the FTSE and NYSE, they are under continuous pressure to establish business practices and business models which fit shareholder impressions of what drives quality strategy and business decision-making. Competitors would likely not attempt to establish a similar business to erode Aldi’s gift basket market share simply because of their devotion to building shareholder value and boosting stock price. Thus, in the short-term, Aldi’s new gift basket company would be a unique competitive advantage which they could experience for years to come. Aldi’s choice to acquire new manufacturing facilities to build the Aldi name would be something that some competitors simply could not touch due to their higher debt loads and the risks associated with shareholder impressions on the value of such acquisitions. These retailers, which have relied on the brand power of well-known product manufacturers in their stores, cannot link the Wal-Mart and Tesco brand names to many of its products. Competitors would rely on creating their own diverse portfolios to manufacture Wal-Mart brand products (as one example) which is not feasible with their current business model. Thus, Aldi’s efforts in this direction could not be undercut in the short-term. The most appropriate strategic choice Aldi should pursue the new gift basket organisation as a means to diversify the company’s portfolio, strengthen its relationships with its many new families of branded food products, and further build brand loyalty for the Aldi brand name. Since the company has moved away from simply utilising the low-cost differentiation strategy and has built a following with more affluent customers in the process, the Aldi Gift Basket company only makes sense to long-term gain and profitability. Since other retailers do not have their own branded products of this design and scope, and Aldi does not have to answer to shareholder demands for risk-taking in business-decision, this is the most strategically-sound option for building a stronger image for the company. The specialty brand manufacturers already servicing Aldi customers would further find benefit by exposing customers to these specialty brands, in various upscale gift baskets, in order to satisfy relationships between both Aldi and its suppliers. This collaborative approach to selling these products, at a higher price tag in gift baskets, would give Aldi and its competition an opportunity to expand their international reach and make them staple household food product names. The Aldi Gift Basket company would not require a significant investment of cash to make this happen, as such websites can be developed rather inexpensively, and Aldi’s trademark logo would accompany all marketing efforts for these products both in-store, on television, and through viral marketing efforts online. This choice is most appropriate of all strategic options as it has the ability to capitalise on current successes in marketing to the affluent consumer and can turn unknown specialty brands into the foremost leaders in upscale food offerings online. Read More