Global Decision Making: Aldi, The Dark Horse Discounter

Recommendations for Aldi Business Strategy

Aldi Company Ltd.

Dear [Mr./Mrs./Ms./Dr. The last name]:

Enclosed, please find the proposal for recommendations that Aldi Company should implement to realize a sustainable competitive edge and profitable growth. The report builds its premise from the previous issues that Aldi encountered revolving around its business operations like sales and marketing, as well as the challenges it faced in its bid to expand globally.

Some of the suggested strategies include strategic alliances, a competitive pricing model, joint venturing, and licensing. These strategies will prove to be effective in leading the company in its initiative to expand its operations into the global marketplace. Furthermore, it will necessitate the government to reinforce its marketing strategy through the digital market to eliminate the challenges of advertising that the company has experienced over the years.

If any additional information is required or if I can answer and provide feedback and clarification, please let me know by contacting me through (Phone number) or email (insert email). Thank you in advance for your attention

Regards,

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Sender’s Name

Executive Summary

Even though Aldi recorded estimated sales of $73 billion in 2012 from its over 10 000 stores with operations across 17 nations, Germany’s privately-held Aldi has remained one of the world’s least-known discount grocers. The low returns in the financial year owed partly due to Aldi’s penchant for secrecy, which stemmed from the founders’ inefficient decision-making process, which took a centralized approach in addition to the company’s limited advertising. Aldi faces intense competition from other retail stores in the industry, which tend to offer similar services as those of Aldi, particularly discounted prices. The stiff competition within the industry in which companies such as Walmart and Warehouse clubhouses like Costco and BJs compete to obtain relative larger market share, customer base, and competitive edge over other companies. However, despite the competition, Aldi developed and implemented a unique operating model, specifically in its marketing, that ultimately distinguishes it from its competitors regarding quality and price. In simple terms, the marketing concept that the company implements makes it nearly impossible for the competitors to match the quality of its services and the price of its products. In its bid to expand its operations in the United Kingdom, Aldi encountered challenges involving brand loyalty. This paper delves into examining the challenges Walmart faced in its initiative to expand its operations in the international market. In so doing, it focuses on analyzing the discount retail industry in the United States, by the contrast between the activities offered by Walmart and how effective Aldi’s business strategies will reduce the competition from Aldi.

Introduction

Aldi’s History

Since its inception in 1948, Aldi has rapidly grown to become one of the leading discount retail companies across the United States. The company’s founders-German brothers, Karl, and Theo Albrecht decided to expand their mother’s Essen grocery store and began selling essential items at low prices. A core element of Aldi’s business model has been its venture in private label brands across its stores, which ranges from the LaMissa hot chocolate mix to Frisco Dent toothpaste (Van den Steen & Lane, 2014). Additionally, the business model focused on exercising total quality control over the privately labeled items through conducting daily lab tests and sampling. Nonetheless, as the economy recovered, whereas other grocers in the German market focused on increasing product selection, Aldi entirely concentrated on expanding the limited product range. In essence, the business acknowledged the need to maintain lower prices for its products compared to its rivals.

Aldi’s Operations

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Likewise, Aldi faces intense competition from other retail stores in the industry, which tend to offer similar services as those of Aldi, particularly discounted prices. The stiff competition within the industry in which companies such as Walmart and Warehouse clubhouses like Costco and BJs compete to obtain relative larger market share, customer base, and competitive edge over other companies (Van den Steen & Lane, 2014). However, despite the competition, Aldi developed and implemented a unique operating model, specifically in its marketing, that ultimately distinguishes it from its competitors about quality and price. In simple terms, the marketing concept that the company implements makes it nearly impossible for the competitors to match the quality of its services and the cost of its products (Van den Steen & Lane, 2014). In its bid to expand its operations in the United Kingdom, Aldi encountered challenges involving brand loyalty. This required the company’s executives to institute procedures that aimed at reducing its heavy dependence on privately labeled products. On the other hand, the company sought to find a relentless competitor in the UK local discount chain, Kwik Save, in whereby the firm pledged to match Aldi’s prices. Moreover, Kwik Save purchased nearly 100 existing retail stores in an attempt to limit potential locations for Aldi’s expansion (Van den Steen & Lane, 2014).

Aldi Situational Analysis

Aldi’s Competitive Advantage

Aldi implements various operations techniques that give it a competitive advantage over its rivals. Among the operations strategies, the company adopts include the design of products, the excellent choice of technology including the Enterprise Resource Planning System, resource allocations as well as stores layout design. In a bid to expand its business operations internationally, the company’s Chief Executive Officer saw the need to transform the layout of the company’s stores to make them appealing to the customers. Additionally, the layout was designed in a way that allowed the customers to easily access the products (Van den Steen & Lane, 2014). In its store layout designs, the firm adopted effective space management techniques and strategic floor plans such as signage, lighting, and fixtures. Consequently, these mechanisms have played a vital role in boosting customer flow as well as to understand the customers’ purchasing behavior while interacting with the commodities.

Comparison with Walmart’s Competitive Edge

In contrast to Aldi, Walmart’s capabilities and resources have been the source of the company’s competitive edge. However, technology, market structure, and the dynamic nature of customer’s preferences and tastes are increasingly influencing the firm’s competitive advantage. As the leading public corporation that provides a variety of products under one roof, the company has maintained its competitive edge through competitive pricing (Ma, 2010). It offers brands to its customers at relatively lower prices compared to its competitors due to the lower costs of business operation the company incurs. Moreover, Wal-Mart shares the value of low cost with its consumers by ensuring that it sells the brands at lower prices. In comparison, Walmart’s competitors have been unable to imitate the price-cut strategy due to the high cost of economies of scale required in realizing competitive pricing (Ma, 2010). Consequently, the pricing factor stands outs for Walmart since it increases the company’s customer base since they choose to shop at the business more often than Walmart’s competitors.

Another core competency in Walmart’s business that gives it a competitive edge over Aldi is its superior logistics system. Despite the suppliers’ bargaining power in the United States retail market being low, Walmart purchases its products in bulk, which forces the suppliers to lower the prices to its advantage. Additionally, alongside the larger dealers, small suppliers are insignificant in affecting the company’s logistic decisions. This implies that they involuntary offer their products at lower prices to ensure that they do not risk losing business (Ma, 2010). On the other hand, in its logistics agreement, Walmart mandates the suppliers to abide by the terms and rules it sets strictly. In other words, this strategy gives the company an immense bargaining power which is also boosted by its comparatively larger financial capacity (Ma, 2010). Nevertheless, similar to Aldi, Walmart’s competitive advantage over the years originates from its lower prices, higher bargaining power of suppliers, and exemplary customer service, which has enabled it increased its returns as well as customer loyalty base.

Currently, Aldi is ambitious to enter emerging markets across the United States by establishing over 650 new stores (Van den Steen & Lane, 2014). This move is coupled with its efforts to expand from 80 to 13o new stores annually, its investments in new facilities, equipment, and lands in addition to extending the firm’s geographical coverage across the region. Nonetheless, as Aldi concentrates on realizing these goals, its executives must recognize the idea that Walmart poses constant threats to Aldi’s business success. This is evident from exhibit 6 in appendix 1 that illustrates how Walmart’s revenues in the U.S stood at nearly USD 264 billion, compared to Aldi’s USD 7.3 billion. As a result of the stiff competition from Walmart, Aldi’s executives should be concerned about locating its retail stores away from Walmart’s.

Strategic Improvements

Strategic Alliance

Over the years, most multinational corporations have sought to employ strategic alliances as an effective strategy to penetrate foreign markets. The strategic alliance technique involves an international company entering into a cooperative agreement with a local alliance company through modes like minority equity participation, joint ventures, and shared research (Chamber of Commerce of Metropolitan Montreal, 2017). Among the objectives of Aldi’s strategic alliance with local partners such as Kroger and Costco would play a vital role in enhancing the company’s outreach in the United States. However, this strategic alliance should be created for a short-term period until Aldi realizes its marketing objectives. In so doing, Aldi would focus on implementing cost leadership and differentiation marketing strategies that would exclusively create awareness of its products and services in the global market.

Joint Venture

In joint venturing, two companies usually combine their resources to increase the sale of their services and products. With the rise of globalization, countries like the United States are increasingly establishing requirements for foreign businesses to partner with local corporations if they desire to expand their businesses into the host countries (Barnat, 2018). Even though joint venturing is beneficial to the foreign company since it offers the foreign business with a local partner that is experienced in the market, most joint ventures risk collapsing due to the ineffective management and inappropriate allocation of revenues (Chamber of Commerce of Metropolitan Montreal, 2017). In comparison to other techniques of market entry, studies have shown that joint venturing provides the international company with netter control over the venture’s operations as well as adequate access to the knowledge of the dynamics of the local market. On the other hand, unlike Walmart’s strategy, joint venturing would allow Aldi to increase its accessibility to networks of business relations. Hence the business would be less exposed to the risks of expropriation.

Licensing

Licensing method allows companies to enter into contractual agreements with foreign companies (licensees) that would enable the local companies to produce and sell the international firm’s products legally. In licensing, the local firm either purchases the license outrights, pays royalties over a designated period (which represents a proportion of the revenue earned), or pays a regular licensing fee. This mode of entry is considered less costly and the fastest way for a foreign company to enter a market (Chamber of Commerce of Metropolitan Montreal, 2017). Similarly, because little capital investment is required on the part of the licensor, the strategy is advantageous since it provides a very substantial amount of Return on Investment. However, the management team should also consider establishing an effective value chain system that would ultimately ensure that the licensing strategy does not provide absolute control over the products, foreign sales, and marketing (Banker et al., 2014). As such, potential returns from marketing and production operations may be lost. Therefore, to reduce competition from Walmart, it would be a prerequisite for Aldi to implement the licensing model that would seek to increase its customer base, especially in emerging markets.

Recommendations

Differentiation Strategy

Aldi should implement a differentiation approach that revolves around various value drivers, such as complements, customer service, and product features. About the inbound operation, a company that uses the differentiation approach realizes an efficient value chain by ensuring that they source quality raw materials that improve the superiority of finished goods (Gereffi & Fernandez-Stark, 2011). Similarly, the company should devote its efforts towards creating efficient supply chain processes across the production system as well as implementing steps to realize the effective handling of inputs to reduce wastes and damage. Aldi’s differentiation approach should also be geared towards achieving the Generation 3 stores (G3 stores) layouts that exceed the regular store by over 20 percent(Gereffi & Fernandez-Stark, 2011). The G3 stores will have significant success in helping the company gain a competitive edge over its competitors. Thus Aldi will increase its sales and profitability by two folds. Apart from its layout, Aldi’s stores distinguish themselves from other stores by enhancing consistency in speed, friendliness, product value, and cleanliness in all its stores.

Concierge Customer Strategy

Given the current competitive and fast-paced global economy, exceptional service delivery is no longer a source of competitive edge, but rather a necessity for an organization seeking to satisfy customers. Unsatisfied customers can negatively affect the business because they would prefer doing business with other companies. Customer retention is crucial to Aldi’s business success (Coffman et al., 2015). In its value chain strategy, the company implements ERP systems to realize exceptional service delivery. Moreover, the company will recognize a concierge customer approach through effective communication, positive interaction between its dedicated employees and customers as well as building strong relations.

Conclusion

Since its inception in 1948, Aldi has rapidly grown to become one of the leading discount retail companies across the United States. Even though Aldi recorded an increase in sales from its stores with operations across the world, Germany’s privately-held Aldi has remained one of the world’s least-known discount grocers. The low returns in the financial year owed partly due to Aldi’s penchant for secrecy, which stemmed from the founders’ inefficient decision-making process based on a centralized approach in addition to the company’s limited advertising. Some of the strategic improvements that Aldi’s management team should practice include strategic alliance, joint venturing, and licensing. The company should also employ a differentiation approach and a concierge customer model to enhance its strategic position in the retail industry.

References

Banker, R., Mashruwala, R., & Tripathy, A. (2014). Does a differentiation strategy lead to more sustainable financial performance than a cost leadership strategy? Management Decision, 52(5), 872-896.

Barnat, R. (2018). Strategic goals and objectives. Retrieved from http://www.strategy-formulation.24xls.com/en210

Chamber of Commerce of Metropolitan Montreal (2017). Joint Ventures and Partnering. Retrieved from http://www.infoentrepreneurs.org/en/guides/joint-ventures-and-partnering/

Coffman, S., Doolen, J., & Llasus, L. (2015). Program development and evaluation of the concierge model of simulation. On-Line Journal of Nursing Informatics, 19(2).

Gereffi, G., & Fernandez-Stark, K. (2011). Global value chain analysis: a primer. Center on Globalization, Governance & Competitiveness (CGGC), Duke University, North Carolina, USA.

Ma, H. (2010). Competitive advantage and firm performance. Competitiveness Review: An International Business Journal, 10(2), 15-32.

Van den Steen, E., & Lane, D. (2014). Aldi: The dark horse discounter. Harvard Business School

Global Decision Making: Aldi, The Dark Horse Discounter

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