Download - Aldi Retail
Aldi - A Low-cost Retail
Giant’s DistinctiveBusiness Practices
About Aldi• Global discount supermarket chain• Established in Germany in 1913.• Two separate groups:– Aldi Nord– Aldi Sud
• About 9235 stores throughout the world i.e. in Australia, Europe and USA.
• 40% market share among grocery retailers.
German Retail Market• Valued at about $390 billion or $496
billion.• Third largest retail market.• Dominated by hard discounters.• Biggest Retailers:
• Despite huge size of the market – very low growth rate in early 2000s – almost 1%.
Reasons for slow growth..
• Market Saturation – large no. of stores
• Low retail spending• Extremely price conscious consumers• Restrained consumer spending - 58%
of consumers shopped regularly at hard discount stores.
• Sector accounted for one in four business failures.
Exit Of Wal-mart• German market – major challenge for
foreign retailers.• Seven global retailers, including Wal-mart
were forced out – inability to adapt to the market.
• Main Reasons – Hard discounting and cultural roadblocks
• Other retailers include Gap Inc., Laura Ashley Holdings Plc, Marks and Spencers, HMV Group, Gruppo Coin etc.
Aldi - History
1920/1922 1945 1948 1960 1961 1990 2000 2006
Born to a miner in East
Germany. Mother owned a grocery Store
Took over the store.
Expanded business rapidly.
Incorporated Albrecht Discount
Company with 13 stores in
Germany
300 discount Stores in Germany.International expansion in
Europe, Australia and USA
First supermarket store called Aldi.
Split between two brothers to Aldi Nord and Aldi Sud
Diversified to textiles, hard
goods and electronics.
3000 stores in Germany.
Became one biggest business
enterprises in Europe
7000 stores.Featured into
World’s Richest People.
Accounted for 40% of grocery sales.
Aldi’s Business Strategies
Aldi’s Way of Working
• Business model based on simplicity and efficiency.
• Motto – “ Top quality at incredibly low prices – guaranteed.”
• Both companies followed same strategies and operated on same business model.
• Business model aimed at keeping costs low.
Secrets of Aldi’s Success• Keep it simple• Strive to earn your customer’s trust.• Set your goals and follow them rigorously.• Improve details daily.• Don’t optimize, maximize.• Know where you stand, but don’t waste time on
budgets and figures.• Test now, perfect later.• Be fair to your suppliers and help them improve
their business.• Practice management by trust and control.• Talk in terms that people can understand.• Stay thrifty and frugal.
Product Strategy• Stores carried limited variety of FMCG
products.• Specialized in staple products – food,
beverages, household supplies etc.
• Better control on price and quality of each product.
Aldi700
products
Walmart150,000 products
Traditiona
l Retai
ler25,000
products
Procuring Products
• Floated tenders for each product• Allowed suppliers to bid for them. • One size to simplify shipping and operations. • Buy products in bulk from suppliers reducing
costs.• Carried products easy to handle in operational
terms – save additional operating cost.• Sold only prepackaged meat and bakery
products – avoided selling fresh.
Aldi’s Private Labels• Relied heavily on private labels
– 90% of the products – priced 30% lower than regular brands,
• Private label manufacturers were suppliers to regular brands.
• No spending on fancy packaging.
• Shoppers found little quality difference between regular brands and Aldi’s private labels.
• Good value for money.
• Did not carry more than 2 different brands of 2 products – one size.
• Stock turnover high.• Simplified billing process.• Offered double guarantee on all its
products – refund as well as free replacement.
• Low prices not perceived as low quality.
Weekly Special Buys• Special sales – two days of the
week.• Sold products not usually
available – Appliances, clothes, toys, computers etc.
• Products changed every week and were sold in limited quantities.
• Publicized through fliers and website.
• Strategic alliance with Medion AG.
• Median benefitted from Aldi’s market reach and Aldi freed from complex product development.
Small Stores• Limited assortment required
small sales area.• Small stores of 15,000
square feet.• Retail space expensive in
Germany – limited variety and small stores, a success.
• Located at shopping centers and retail properties.
• Same size and similar layout increased familiarity.
• Due to small size, Aldi’s sales per square meter were around €8,650, against an average of €4,000 for traditional supermarkets.
• Aldi incurred lower staffing and maintenance costs
• Customers liked the small size of the stores - could get in and out much faster than large stores.
No Frills Setup• No unecessary decorations.• No fancy layouts or product
displays.• Saved time-consuming
activities of setting up product displays and stacking shelves.
• Easier to replenish stock. • Food products like flour,
fruits, and vegetables were sold loose.
• Did not provide grocery bags to customers.
• Aldi did not employ greeters and baggers at its stores
• Low-cost way to manage the use of shopping carts.
• Limited store hours.• No listed complaint or query number.• All complaints and enquiries had to
be made in person to the manager on duty at the store.
No Advertising• Minimum advertising• Communication through weekly newsletter –
distributed in stores or through direct mails.• Newspaper advertisements.• In UK & US,–Weekly newspaper inserts and TV ads.– Reference to products that won awards in group
test by popular magazines like Women’s Own etc.
• In Australia,– Ads in local newpapers and distribution of
leaflet, direct mails etc.
Newspaper Ads
Newsletters
Social media or online ads
Simplified Operations
Personnel Planning
• Simple operational setup – minimum employees - low wage bill.
• Average three employees per store – 1 store manager and 2 assistants
• Multitasking required – Unloading stock, keeping store clean, attending customers, billing etc.
• Average salary twice than other supermarkets.• Personnel costs – 3% of sales.• Limited working hours.
Billing Process
• Limited assortment – easier billing process.
• Before barcodes were introduced – memorized prices or would look up in price registers
• Introduction of barcodes - longer ones – easy to scan.
• Cashiers kept change to be returned while the customer is still taking out money
Organization Structure
• Aldi’s organization structure helped control operational costs.
• Aldi’s flat structure meant that operational complications were eliminated.
• Managing directors were familiar with the nuances of the business and could take effective decisions.
Regions
Managing Director
Board of Directors
Stores
Geographic area – 50
to 80 stores
Takes important decisions
concerning region.
Decisions about
company’s future
strategy and growth.
Organization structure
Inventory Management• Aldi had ‘bare bones’ approach to inventory
management. • High inventory turnover rate, supported by a well-
developed logistics system. • Regional logistics centers, in regular contact with the
vendors to ensure that stocks were replenished at the right time.
• Regional center supplied to all the stores within a 50 kilometer radius.
• Shipping expenses up to the distribution centers borne by the suppliers.
• About 5% of the goods were shipped directly to the stores by suppliers.
• Rest to distribution centers - immediately cross-docked to lower inventory holding costs.
Vendor Management
• Took care in selecting vendors, developing and maintaining close ties with them.
• No multiple vendors for any product.• Entered into a strategic alliance with that
vendor to procure the required stocks at considerably reduced prices.
• Aldi’s careful attention to costs worked to the company’s advantage.
• Operating margin – 9.3%; Walmart – 5.9%
International Expansion
• Aldi entered overseas markets in 1967.• It purchased the Hofer chain of supermarkets in
Austria. • Expanded rapidly across Europe, as well as to
Australia and the US. • Expansion was mostly financed from internal cash
accruals, thus Aldi reportedly had very low debt.• Aldi Süd - Australia, UK, Slovenia, Switzerland, US• Aldi Nord - Belgium, Denmark, France,
Luxembourg, Netherlands, Portugal, Spain. • Both companies operated in Germany with
territorial demarcations.
• Aldi followed the same strategy as its German operations in its international markets with some minor differences.
• It was forced to stock certain brands due to its popularity and demand.
• In Australia, Aldi had to stock the Vegemite23 sandwich spread and Nescafe, which was very popular in the country.
• In Australia, the UK, and the US, Aldi sold pre-packaged fruits and vegetables, which made it easy to pick them.
Aldi’s Failures
• Aldi’s discount model was not a uniform success in all the countries.
• Failed in Ireland as consumers did not like its no-frills business model.
• Irish customers were reportedly:– not as price conscious as their counterparts in
other countries – preferred stores which offered a wide selection
of products– Stores with the merchandise attractively laid
out.
Future Plans• Aldi’s growth has slowed down –
saturation of German market.• More than 80% Germans live within
20 minutes of an Aldi store.• Low scope for exploring new
segments.• Competitors expanding rapidly in
Europe.• Global retail industry trend –
complete shopping experience to customers.
Thank You….