Aldi Case Study

Introduction

The global discount retailer industry is a high competitive market. More than ever, supermarket need to offer its consumers value for their money. ALDI, the German based private owned discount supermarket understood that consumers wants to buy everyday groceries of the highest possible quality at low price. This essay tries to explain ALDI’s expansion to the North America and which part of their solid business model that they needed to adapt in US in order to use their competitive advantage.

ALDI’s business model

ALDI’s business model is based on simplicity and efficiency. Aldi has designed a business that is so efficient that it needs fewer workers than the average grocery stores without bargaining with the quality. The value proposition for the company is their limited assortment, private label brands, basic consumer needs and last but not least low sales price without compromising the quality of their products.

The target customer for ALDI is the traditional value-conscious shopper: location near other supermarkets (so people can price and product differentiate). ALDI has a very strict supplier relationship, no long term contracts, simple sanctions, quality requirements understood and last price cut is not forced. If the supplier does not agree with the price that ALDI is offering, then ALDI can switch to another supplier chain. ALDI’s adapted almost all of their business model to North America beside their textile section due the fact that clothing is less expensive in the US than Germany.

Porter’s Generic Strategies

A firm’s generic strategy describe, how it positions itself to compete in the market it operates. ALDI generates competitive advantage by being a great cost leader and a bit of benefit leader at the same time, because they offer product at low cost without compromising the quality (see figure below).

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Figur 1 - Economics of Strategy, Besanko et. al 2006

They key word here is asceticism and their German discipline through decision-making. They believe in strictly sharpening its offering by only providing the minimum number of products necessary to meet the requirements of its consumers. ALDI is champions of minimalism. By reducing choice they save the consumers time and shrink their anxiety. This allow the consumers to save time. Like Liz Ruggles has stated in the Bloomberg article “The customer doesn’t have to walk in the store and have so many options and take time to decide. We’ve done that work for them”. By focusing on local brand instead of international brands, they manage to concentrate its full buying-power on 900-1300 most commonly purchased grocery items at the lowest price as possible. They made that possible by focusing on volume purchasing and giving them massive bargaining-power with suppliers. More than 90% of ALDI’s products are their own exclusive brands. In order to ensure that their product meet or exceed the quality and taste of the national brands ALDI has a Test Kitchen.^[1] ALDI has no hidden cost and streamlined approach that prevents non-essential services, banking, check cashing and even bagging clerks. Everything is packaged and everything is self-service. No shelving means no stockboys to hire, carts must be paid by deposit and returned by shopper to eliminate staff cost. All this is a part of ALDI business model that they have successfully incorporated in North America.