Aldi UK Essay Sample

Introduction

Aldi is of German origin which began in Essen in 1946. Two brothers Theo and Karl
Albrecht took over their father’s business. They expanded the business to 300 stores
group was split into two legal entities, Aldi Nord (north) and Aldi Sud (South).

Outside Germany Aldi Nord covers France, Benelux, Iberia, and Poland, while Aldi

Sud covers Australia, Slovenia, Switzerland, Austria, Hungary and The UK. World
Wide Aldi has over 8,000 stores, and in the UK has 535 stores and aims to have 1,000
Aldi has been successful by carefully keeping costs down as much as possible. In its
advertising it states that customers can save at least 40% on their food shopping bill
compared to the major UK supermarkets. There is no doubt that its business model has
been very successful, and it is a phenomenon and a major threat to the market shares
of its competitors.

The External Marketing Environment

Aldi stores tend to be much smaller than most supermarkets using 1,000 square feet
( though new ones may be an average of 1,250 square feet to allow for a larger range of
goods) compared to supermarkets of 15,000 square feet and for some hypermarkets 120,000
square feet. This has made it much easier for Aldi to find the space and gain planning
permission for new stores compared to its larger rivals, there being less impact on local
communities.

In economic terms the downturn in the economy since 2008, with the consequent squeeze

On incomes and living standards has helped Aldi. Many consumers in an effort to economise
have tried Aldi, and their market share is 5%. As the economy has improved there is no
reason to suggest that the newer customers will not continue to shop at Aldi. There is
evidence to suggest that the socio economic mix of Aldi customers has changed. In 2008

9% of Aldi customers were in the AB socio economic bracket. By 2013 this had more than

doubled to 20%. www.Kantarmedia ( 2013,pp1-2 )

In technological terms Aldi has by installing the appropriate technology been able to accept

Payment by debit card, which has been more convenient for customers, and helped drive
sales. As has been mentioned in the introduction the fact that stores are much smaller
than the major supermarkets makes it easier in a legal and environmental sense to gain
planning permission for new stores, with little hostility on environmental grounds from
local communities

We can look at the main competition for Aldi being the four main supermarket chains of

Asda, Sainsbury’s, Tesco and Morrisons. There is no doubt that they have been losing
market share to Aldi, and all are taking steps to counter this in their own way. In addition

Lidl, another German discounter, has a similar business model to Aldi.

SWOT Analysis
Aldi has a very successful business model worldwide and within the UK. Their strengths
lie in being ultra diligent in their determination to keep costs to a minimum; one good
example is that they will locate in a low rent and rates area of a town. They sell fewer
products, whereas their supermarket rivals will stock far more,with much lying on the
shelves for long periods of time. Shopping at Aldi is a no frills experience, with boxes of
goods simply opened up and stacked. All their staff are expected to be flexible. All this
helps to keep costs down, and therefore prices.

However the no frills approach could also be seen as a weakness, making shopping not a

particularly pleasant experience. The restricted choice of goods, mainly Aldi own brand
may put off some potential customers who feel they cannot purchase all the goods they
require. They have recently expanded their range to include organic food, which appeals
mainly to the AB socio economic groups. If their prices go up for these and they promote
more upmarket luxury goods, they could be in danger of confusing their business model
or alienating the C- E socio economic group, who could be picked up by other
competitors.

Aldi has stated its intention to have at least 1,000 stores in the UK by 2021, as it sees the

opportunity to increase market share. Traditionally consumers would go to Aldi after their
main supermarket shop to purchase certain discounted goods. The recession seems to
have changed this with more consumers doing the majority of their shopping at
discounters. The opportunity for Aldi is to retain those shoppers as the economy and
incomes rise We have seen how they are expanding the size of their new stores by 25% to
offer more choice of goods, and they are offering organic products and upmarket luxury
items to retain the higher spending AB socio economic groups. The opportunity for
expansion in a physical and market share is certainly there for Aldi.

The main threat to Aldi is that the major supermarkets are now taking their loss of market

share seriously and are working to win it back. Customers have been going to Aldi to buy

Aldi’s own brand goods. What supermarkets have been doing is developing their own

label goods. They have always done this. However we can see for example Tesco, who
while having their own brand, have developed a value brand, which is of lower quality,
but matches the prices charged by Aldi. This then saves the shopper making an additional
trip to Aldi after their supermarket shop. The success of this approach remains to be seen,
as Aldi maintain their products match the quality of the well known and popular brands,
which they emphasise in their marketing campaigns..

Porter’s Five Forces

In the first three forces of horizontal competition, we can view the attempt of the
supermarkets to promote their own brand and “value” brand as a direct challenge to the
Aldi’s model of selling its own brand products. It remains to be seen how Aldi is affected.

Price is important, but if Aldi’s products are seen as being similar in quality to that of

popular brands they may well not lose market share back to the major supermarkets. But
their competitors are going to continue to offer stiff competition. The supermarket

Morrisons has been suffering falling sales, which cost the job of its CEO, has recently

launched a card which compensates the customer if goods could have been bought
cheaper at Aldi. Thus we can see that Aldi is now facing serious threats to its market
share. There does not seem to be any obvious threat from new entrants, as there is stiff
competition in the market and downward pressure on prices.

In terms of Porter’s two “vertical “competition forces of suppliers bargaining power, and

customer bargaining power, the power lies in the hands of the customer, who can and will
change shopping habits according to prices. However suppliers are in a weak position, as

Aldi, and the major supermarkets have immense buying power, and can drive down the

prices paid to suppliers. the power appears to be in the hands of the retailers.

Competitor Analysis

The main competitors in terms of supermarkets are Sainsbury’s, Tesco, Morrisons and
Asda. The four major supermarkets have a total market share of 73%, (January 2015)
We can view the four major supermarkets as being in the “squeezed middle” of the
market. They have lost market share to the top end Waitrose, while they have also lost
out to discouthers Aldi and Lidl, who between them have raised their market share from 4
4.5% to 8.3% from 2007 to 2015.

The traditional outlook among the major supermarkets has been bigger is better, some

have bought major tranches of land in towns and cities for future developments of stores.

However, perhaps partly due to the example of their rival Aldi, they appear to be pulling

back from that model, and are opening smaller stores within towns, of a similar size to

Aldi are also following Aldi’s example by promoting their own labels, including “value”

labels to match the discounter on price.

Market Trends

There is the view that though 2014 was focused on price, as the economy improves and
incomes begin to recover the emphasis for 2015 is more likely to be in differentiation,
for Aldi, and for its competitors. However it seems that shopping habits have been
changed by discounters such as Aldi, and it is to be expected that they will continue to
increase market share. Aldi certainly believes this will happen as they intend to almost
double their stores in the UK by 2021.

However Aldi could be in danger of diminishing its competitive edge by moving from its

core somewhat austere business model. By increasing the size of its product range to
accepting credit cards, which add an extra cost to the retailer, more difficult for one who
already offers discounts, it could find it difficult to offer the same value to its customers i
if costs and therefore prices have to rise.

The trend in the market is likely to be not to just compete on price, but to differentiate on

what is the most convenient shopping experience. This can include shopping online and
having it delivered to self-service checkouts to reduce waiting especially for those
customers who do not have full shopping trolleys. The introduction of new technology
provides a challenge for Aldi, as if they compete in this way it increases costs at the risk
of undermining their business model.

Therefore while price will remain important there could be forms of non- price

competition and differentiation which could provide a threat to Aldi’s plans for increased
market share and expansion.

When they began in the UK there target market was C2 – DE socio economic groups.

However they began to entice the AB’s with luxury goods at non luxury prices, and
organic food However some may be enticed back to the four major supermarkets with
greater differentiation and a more convenient and easier shopping experience.

Customer Analysis and Segmentation

There is no doubt that Aldi has broadened its customer base. From attracting The C2 –E
socio economic groups it has worked hard at attract the higher income AB groups. It sold
caviar and champagne at its stores over the Christmas period 2014! Many of the AB’s
found theirway to Aldi during the longest lasting recession since the Great Depression of
the 1930's, when very few people were seeing rises in their pay while the cost of petrol
gas and electricity climbed upwards. Now that they have found Aldi they are unlikely to
leave though it does not mean that they do all of their shopping there, many of Aldi’s
customers continue to use other supermarkets. Aldi’s range is still restricted compared to
the major supermarkets This is not a criticism, that is an inherent part of their business
plan. and enables them to offer discounted prices on the goods they do sell compared to
the supermarkets.

Competitive Advantage

In the UK food retailing is a very competitive sector. However it has become more so
since the economic crash of 2008, from which we are still recovering. Needless to say
people want good quality food, but at the best price possible. The competitive advantage
that Aldi enjoys is that it offers its customers discounts compared to the major
supermarkets from 15% to 50%, while still offering high quality products.

For Aldi to enable those discounts to be possible they ensure they have the lowest

possible costs in each part of their business. Unlike their competitors they do not offer
promotions or services beyond the basic of providing their goods for sale without any
trimmings or displays. What it does is concentrate on providing discounts compared to its
rivals, in low cost areas of towns and cities, having a limited amount of goods for
sale, which means not tying up finance in hundreds of product lines which may or may
not sell. Profits are made which are reinvested to provide for further expansion.

What Aldi does is use Lean Production, which means getting as much output for as little

input as possible, .By reducing or removing waste it saves both time, labour and money.

Aldi seeks continuous improvement, and all employees are encouraged to consider ways

that can help in this aim. Just in time production is used, which in Aldi’s case means
buying new stock only when it is required. There is also time based management which
aims to reduce the amount of time wasted. This requires a fully flexible workforce. There
is also Total Quality Management where all employees have a commitment to top quality
in the calibre of their work.

An example of Aldi using time management would be in their opening hours. Aldi opens

competitors are open 24 hours a day. This means that Aldi’s sales are over a shorter
period of time. This means lower power costs, and lower wage costs, as you do not have
employees working during quiet times.

Aldi trains its staff to be multi tasked, therefore when someone is stacking shelves during

busy periods they can operate the tills. This provides a good service to the customer by
not having to wait overlong for service. Despite being a heavy discounter Aldi pays some
of the best rates in the grocery business and attracts hard working and motivated
employees.

Aldi’s business model works and provides it with a competitive advantage which can be

evidenced by its expansion and ever increasing profits. It could be argued that it’s
competition in the form of the big four supermarkets find it hard to compete because they
are too big. Though it seems they are learning from Aldi, not opening huge supermarkets
and opening more smaller “local” stores. It may be a long time before Aldi has to worry
about its competitive advantage.

Positioning

As we have seen earlier there are basically two choices when it comes to positioning in th
the marketplace Either differentiation or low cost. With Aldi low cost means a restricted
choice of products, which means rapid turnover of stock and bargaining power with
suppliers. They also keep costs down by trading in the low cost areas of towns. They also
offer little in the form of services to customers who do not seem to mind for the trade- off
of low prices.

However Aldi recently has been trying to alter its position in the market by offering a

larger range of goods at the luxury end of the spectrum, as well as organic food to attract
middle class customers. However the danger for them is if they go too far down that road,
and their efficient cost model no longer applies, they could be seen as little different from
the major supermarkets except that they would be seen to have worse service. Thus they
would lose their present position in the market of low cost, which has been such a
successful formula for them.

On the other hand we can see that the four big supermarkets are trying to imitate Aldi’s

methods by emphasising their own low cost own label products. But the problem for
them is that Aldi’s strength lies in producing a high quality product at a discounted price.

The Marketing Mix

The marketing mix will vary between firms. In Aldi’s case they focus on putting forward
considerably lower prices. Therefore Aldi’s marketing mix concentrates on;

Price: Aldi offers quality products at a much lower price than its competitors. This is

what sets Aldi apart from its major competitive rivals

Place: Aldi uses low cost but easily accessible locations. Stores are constantly being

opened as part of their expansion plans.

Product; high quality products at discounted prices.

Promotion; uses a combination of below and above the line promotion. Concentrates on
its "Swap and Save” and “ Like Brands” campaigns.

Conclusion

Aldi has enjoyed astonishing success from its humble beginnings as a small family
firm in Essen, Germany in 1946 to a firm which owns thousands of stores worldwide.

Though there are actually two Aldis, as the two brothers split the business up in 1960 into

North and South. We in the UK are covered by the south business. Incidentally the two A

Albrecht brothers became the richest men in Germany.

The business model of Aldi is based on a number of key factors. The golden rule is one of
keeping costs to the minimum. This is done by having a restricted number of products so
that money is not being held in stock, which is essentially “ dead “ money until it is sold;
if it is sold. This method provides quick stock turnover, and also gives the firm buying
power with suppliers.

The firm also seeks out low cost areas in which to situate its stores, this helps to keep

fixed costs down. Unlike some competitors who open 24 hours a day, they stick to 8am to

8pm Monday to Saturday, !0am – 4pm on Sundays. This ensures the stores are only open

during busy periods and avoids paying energy bills and wages when there are few
customers around..

Aldi takes pride in that although it may be a discounter it offers quality products to rival

the famous brands, and it can do this because it controls costs using lean production
techniques and “ Just in Time” replenishment of stock, in order that excess stock has not
been bought.

Although the major supermarkets are fighting back with their own label goods, it looks as

if Aldi has a very good business model with much further expansion ahead.

References

The Economist (2015) Aldi Group
www. Kantarmedia.com ( Dec, 2013)
Thannassoulis J.( 2009) Supermarket Profitability Investigation
Porter M.E.( 2008) “ The Five competitive Forces That Shape Strategy
Harvard Business Review
Planet Retail .com (Dec 2014) 5 Predictions For 2015
BBC News ( 2014) Five WAys Aldi Cracked The Supermarket Game
Telegraph (Jan 13 2015) Half of UK households shopping at Aldi or Lidl
Yahoo Finance ( Oct 28 2014) My first Time At Aldi
Telegraph (Sep 30) Aldi; A history of the low cost supermarket
Yahoo Finance (Dec 222012) How Aldi makes money and stays cheap
Financial Times ( Sep 29 2014) Middle class swell profits at Aldi
Retail Week (Aug 6 2010)1 0 ways Aldi changed retailing
Management Today (Oct 15 2014) Why Tesco can't compete with Aldi
Sunday Times (Oct 19 2014) Inside the Aldi discount machine
Sky News.com (Sep29 2014) Budget chain Aldi sees profit boom in
Britain
Forbes Blog ( Feb 9 2015) Aldi gets its business growth plans right
Retail Times (Sep 20 2014) Discounter Aldi tipped to entet China
Expreess.co.uk ( Apr9 2014) Supermarket Aldi has hit record sales
Daily Mail (Feb 17 2014) Aldi edges out Waitrose as our favourite
supermarket.
Retail Gazette (Feb16 2015) Aldi and Lidl now account for over 10% of
all grocery sales
.
.