PORTER’S FIVE FORCES ANALYSIS, ALDI ORGANIZATION

PORTER’S FIVE FORCES ANALYSIS, ALDI ORGANIZATION

Introduction

Albrecht Discounts which is commonly referred to as ALDI is a Germany based retail giant operating globally. It has two sections, Northern and Southern sections based on their operations. The idea of its inception is dated back to 1913 but came to limelight in 1990 in the UK. Currently, it operates as a chain of more than 500 stores worldwide. It operates in an environment full of other retailing giants and therefore prone to severe (Pioch, Gerhard, Fernie, & Arnold, 2009). It has been taking the competitive advantage over the rest of the giants through the strategy of cost leadership and its primary focus of ensuring that its customers achieve great worth of their money. It mainly deals with stationery, grocery, and other cheap household products. As it’s the case with most of its competitors, ALDI has not implemented the policy of minimum purchase hence allowing its clients to always shop at will. As its consumers wish to save money during recession periods, ALDI has implemented a business model that presents them with an opportunity to do so on weekly food shopping while still acquiring healthy food (Pioch, Gerhard, Fernie, & Arnold, 2009).

Porter Five Forces Model analysis of ALDI organization

Within the sectors ALDI organization has ventured in as its business operation areas, there is a fierce competitive rivalry from the rest of the retailing giants. Below is a comprehensive Five Forces analysis of the organization (Dobbs 2014).

Competition in the Industry- High

Within its operating industry, retail industry; the competition has been fierce as all the plays offer almost all their products at nearly same prices as the rest of the competitors within the industry (Dobbs 2014). Coles, Woolworth and Wal-Mart are its main competitors. All of them have been focusing on cost as their primary competitive advantage in the industry. The comparisons in pricing goods have been the main routine activity to the extent that a difference of few cents results to huge impacts. Market campaigns have been kept active to snatch market share from rivals in the industry. Again, despite the increasing costs of advertising and marketing, the prices of the products have always been low (Dobbs 2014). ALDI has implemented fixed cost minimization principle just like its main competitors. Therefore, the overall challenge of competition for ALDI has remained very high.

Threats of Entrance into the industry- Medium

            Substantial capital investments and establishments are required for new firms aspiring to enter into this industry hence raising the entry barriers. To open new stores, establish brands and reaching stock economies of scale also requires investment and time. As such, this has made small players in the industry to end often up being victims of acquisitions and mergers (Dobbs 2014). However, local farmers selling homegrown products like vegetables and eggs or local supermarkets can take advantage of ALDI’s share of market in both small and medium size markets and can reduce sales and profits of the organization. The threats of new entrance can, therefore, be considered as medium.

Suppliers Bargaining Power – low

            Retail industry is congested with dealers who are willing to supply similar products at uniform low prices even than the current market prices extended to giants like ALDI in the industry. In my trust, this gives the retailers the power to bargain for favorable terms and discounts from those suppliers. Hence the suppliers being left in a position of no influence to the market prices of the goods they supply (Arnold 2012). Therefore, ALDI suppliers don’t have enough bargaining power on their supplies.

Buyers Bargaining Power-High

The retail sector where ALDI is operating revolves around offering goods to buyers at the lowest prices possible in order to attract them. Each player is always reducing its product prices to attract more customers than the rest of the competitors. This has given the buyers superior bargaining power (Arnold 2012). Again, these businesses are located near each other, enabling consumers to switch from one seller to another quickly. Most of these stores have adopted the system of offering loyalty schemes with discounts to their return clients. ALDI does not provide those schemes and therefore not in any way can raise its prices to influence market prices of its products. As a result, consumers have acquired high bargaining powers over the organization.

The Substitute threats – High

            ALDI sells goods which are not in any case unique because all its competitors, as well as the local supermarkets, deal with exact products. Again, most of the goods they sell are brands sold everywhere (Arnold 2012).  The other giants have also been laying great stress to the organization regarding marketing, price reductions, and advertising. As such, this makes it very easy for substitution. The goods sold by the organization can also be accessed in many other retail stores with ease. Therefore, the substitution threat is high for ALDI.

Conclusion

            ALDI operates in an industry which is highly competitive as indicated in both macro and micro perspectives. Although new entrance into the industry is low, there is a need for the organization to explore the changing customer buying trends and other interactive measures which can lead to customer loyalty because all other forces have shown fierce battle against the organization progress. Currently, the buying patterns have moved into 24-hour shopping, self-service and online marketing which should be incorporated in the organization’s long-term strategy for competitive advantages.

References

Arnold, S. J. (2012). Lessons learned from the world’s best retailers. International Journal of        Retail & Distribution Management, 30(11), 562-570.

45. Dobbs, M. (2014). Guidelines for applying Porter’s five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), 32-45.

Pioch, E., Gerhard, U., Fernie, J., & Arnold, S. J. (2009). Consumer acceptance and market          success: Wal-Mart in the UK and Germany. International journal of retail & distribution          management, 37(3),    205-225.

(Pioch, Gerhard, Fernie, & Arnold, 2009).