Strategic Analysis of ALDI Essay

1. IntroductionAlbrecht Discount Inc., glob solelyy known as Aldi, is a German based family owned global send a behavior chain of super feed merchandises. Aldi constitutes of devil indep stopent groups, that atomic play 18 Aldi Nord (North) and Aldi Sud (South) legally and frugalally independent but family related (Aldi Sud bank line, 2013). It is the merchandise leader in the assiduity of global marketplace selling and owns and operates chain of discount grocery stores in Europe, Australia and United States. Its stores sell and supply general merchandise and food including meat products, fresh meat, frozen and refrigerated foods,sweets and snacks, dairy farm and bakery products, b invariablyages and pantry items in addition to home c ar and personal c ar products (Report Linker, 2013).In the pitch Aldi Inc.s strategic analysis is carried out to identify and evaluate its strategies against its business environment to critically dismember whether the strategies pursue d by Aldi be effective in maintaining its market leader position or non. In doing so environmental analysis of international grocery retail industriousness is carried out to bring much or less the opportunities and threats the industry is facing and trick up analysis is carried out to shed light on Aldis strengths and weaknesses and opportunities and threats the industry is facing on the whole. Aldis strategies atomic number 18 then evaluated against the SWOT to analyze the effectiveness of its strategies in maintaining its market position.2. Brief Background on AldiAldi Inc., was founded by Karl Albrecht and Theo Albrecht in 1913 in Essen and started trading in bakery products, aft(prenominal)ward in 1914 Karl Albrechts wife Anna Albrecht opened the first grocery store. In 1919 they acquired a commercial and residential building in Essen and en full-grown the grocery store. 1945 the br a nonher(prenominal)s took all over the family business and opened much stores and by the end of 1948 they were four Albrecht stores. In 1954 Albrecht expanded further more and opened its stores outside Essen and branch enlargement took ordain with 77 stores with center of attention business as food self service. In 1961 two legally stop groups were established known as Aldi Sud and Aldi Nord yet the family remained connected. 1962 first ALDI Albrecht Discount branched was opened in the discount principle and entire branch network was changed into ALDI format.Gradually internationalized its business by first entering in Austria with acquisition of Hofer retail chain, then further expanded in Germ both, entered in the United States, UK, Ireland, Australia, Switzerland, Slovenia and Hungary, in that gild (Aldi Sud Facts and Figures, 2013). Aldi Group is active in nine European countries and in European market is wholeness of the conduct retail companies and a well known retail chain all over the world. Aldi Sud is into retail food trade and comp fulls of 31 comp anies located in Southern and Western Germany and Aldi Nord operates its own branch network of 2500 outlets in the northern and eastern Germany (Aldi SudBusiness, 2013 Aldi Nord, 2013). Aldi Group has more than 10000 stores worldwide with annual turnover of 75bn yet its core market is Germany (Fitzgerald, 2013). Aldi stores are known for their efficiency, no frills stores, humble take aims of staff, few big(p) imperfection names and pitiful-down opening hours (Fitzgerald, 2013).Their main core competency is cut toll by dint of with(predicate) woo cutting, selling punk and low quality products(Grocery.com, 2013) and its mission is simply smarter shop (Aldi US, 2013). Aldis big rivals include TESCO, Morrisons, Sainsbury, Asda, Carrefour and Lidl (Sky News, 2013 butler and Bowers, 2013). The Albrechts has expanded into unsanded territories but remains a closely guarded company and never disclose its lettuce margins citing commercial sensitivity and do not cope much inform ation with separate branches managers (Fitzgerald, 2013). Aldi has to triple its staff and check outs to cater to the extra one jillion customers coming to its 500 stores in UK. The firm shunned premium big brands for its cut price own versions of premium ranges to attract new customers looking for cheaper products (Steiner, 2013). The retail market is seeing intense rivalry and big retail supermarkets are losing market share to discount stores and up market grocers such as Aldi all over Europe and other international markets.3. Market realization of AldiIt is an intensely family owned private company. Both Aldi Sud and Aldi Nord operate in retail markets however Aldi Nord mainly in Europe whereas Aldi Sud operates in the United States and Australia among other international locations. It has Aldi stores are located in Germany, Austria, Australia, Denmark, France, Belgium, Greece, Ireland, Hungary, Netherlands, Luxemburg, Poland, Slovenia, Portugal, Spain, Switzerland, United states operating(a) in 36 states and United Kingdom (Grocer.com, 2013). Its customers are mainly do it yourself shoppers and softwood hunters (Grocer.com, 2013). Aldi in 2013 has outshined its biggest rivals in UK with doubling in annual profits and sales increase of 40.6% be a cut price grocer and holds 3.7% of market share in UK (Steiner, 2013 Sky news, 2013). It earned profit of 157.9 million in 2012 from 70.5 million in 2011 and sales increased from 2.7 billion in 2011 to 3.8 billion in 2012.It opened 34 new stores that were crucial in its strong performance in 2012 (Steiner, 2013). Aldi Ireland revenues increased by 30.7% in 2012 outstripping its German rival Lidl,opened 3 more stores, in addition to 40 stores in Ireland that are world refurbished or extended. Together Lidl and Aldi control 12.5% of Irish grocery market (Fitzgerald, 2013). Aldi United states annual revenue is $68,700 million (U.S) with 1400 stores in 36 states employing 11,000 employees (Grocer.com. 2013). A ldi SUD in Germany consists of 31 independent companies, with more than 1820 branches, employing more than 33,600 employees (Aldi Facts and Figures, 2013). Aldi Nord operates in Eastern, Western and blue Germany with around 2500 outlets (Aldi Nord, 2013)4. Environmental AnalysisInternational grocery retailing industry is facing intense competition and become a real battleground, retailing giants are offering plenty of price discounts to attract customers, that is naughtily impacting their suppliers and pressure to regulate the sector is growing (Fitzgerald, 2013). The following section analyzes in detail the opportunities and threats the retail grocery industry is facing through PESTEL Analysis.4.1 PESTEL Analysis4.1.1 Political factorsLegislators of European countries are being pressurized to regulate the retail market because intense competition and price cut is negatively impacting the manufacturers and suppliers (Fitzgerald, 2013). Retail companies are being impeach of paying the lowest price to their suppliers, which is harming their business seriously, and are on the brink of collapse. Political campaigns are being carried out and interest groups are asking customers not to buy products their because of that (Osborne, 2012).4.1.2 Economical factorsEconomic slowdown in developed countries and Euro zone crises has affected the industry greatly as customers with less income to dispense are labored to shop for cheaper and retailers owned goods swallowing their brand and switching from expensive brands. High flying retail giants are sprightliness the pinch as there was considerable drop in their sales and profits and more and more customers are switching to discount stores and up market grocers(Butler and Bowers, 2013). Cash strapped households due to shrinking in their budgets as a result of high inflation that is not proportional to wage rises are flocking to discount stores (Sky News, 2013). The downstairs graph shows consumer retail expenditure five year issue rate of UK (Verdict, 2009).Figure 1 match consumer retail expenditure of UK- five year growth rate (Verdict, 2009) Burgeoning population, rise in immigration, developed nations get-go to emerge from recession and economic recoveries, falling in unemployment rates, urbanization leading to renewal of growth in retail industry. Disposable income, GDP and consumer spending are the macroeconomic factors that affect retail industry at a time (Reuters, 2012). Asia pacific is dominating the industry as it driving the increase in global retail trade, representing 35% of the global retail market and will grow highest among all other regions between 2012 and 2017 (Reuters, 2013).4.1.3 Social and cultural factorsConsumers are becoming more and more affectionately responsible and considering change magnitudely the social impact of their purchases and livelihood mainly those retailers who are to a fault socially responsible and assert sustainable practices. Consumers are avoi ding retailers who they think are irresponsible, encourage sweat shops, exploit suppliers, and outsource manufacturing and carryout unethical practices. Consumer preferences are changing more rapidly than ever in the first place and retailers are struggling to cope up with their changing preferences. Economic recession is giving rise to generational differences, as whole generation experiencing recession are using money more guardedly and less credit cards (Mack, 2013).4.1.4 Technology factorsTechnology is changing the way consumers shop retail products and the way retail businesses operate in bad and good ways. Online retail shopping has increased in manifolds on with creating more awareness among consumers, leading to price comparisons to find the best deal across the world. It is presenting both hazard and threat as technology is helping in boosting retail stores performance but also forcing them to align to new changesbrought forward by technology or else give way to compet itors who are doing so (Mock, 2013). expert growth such as mobile commerce has provided opportunity for retailers to better interact with customers and give them more convenience and better service (Reuters, 2013). RFD Radio Frequency Identification Device has facilitated end to end introduce of ingredients and better stock control through business intelligence tools (PWC, 2013).4.1.5 Environmental FactorsRetail chains are being pressurized to be more socially responsible and adopt sustainable practices as their low price strategies are affecting the suppliers and the environment as a whole. Retailers are also accused of harming the environment as they are blamed for increased consumption of food products and causing global food insecurity and also for increased used of harmful plastic material for packaging. They are also accused of indulging in unethical practices to drive the products prices down and not caring for the environment (UNEP, 2003). To minimize this negative trend r etail chains rich person to sustainable materials for packaging and carrying and in turn position that be on consumers (Osborne, 2012).4.1.6 reasoned factorsTax issues such as VAT, excise duties, environmental and property taxes, HR taxes, cross border legal proceeding tax issues, corporation taxes and compliance with laws and legislations and increasing costs of corporate social responsibility are presenting challenges to retail industry and increasing their cost of operations. Accounting regulations like adopting of IFRS and passing of Sarbanes Oxley legislation on demand of stakeholders heightened the restrictive pressures on the retail and consumer industry (PWC, 2013).4.2 Key Trends affecting the industryConsumers are switching from up market retail chains to low price retail chains (Butler and Bowers, 2013). monetary value inflation of retail products putting more pressure on retailers to decrease its impact on customers and cut down on profit margins (Butler and Bowers, 2013). E commerce and M commerce are increasing leading to increase in online retail (Mack, 2013) Customers are more aware and comparing prices online to gain best deal (Mack, 2013) Burgeoning population, urbanization, economic recovery are renewing growthin retail sector (Reuters, 2013). Consumers preferences are changing more rapidly than before (Mack, 2013)Consumers are seeking more convenience and using other mode of payments like credit card, debit card etc. (Osborne, 2012 Mack, 2013), New consuming habits such as value shopping in FMCG products and clothing, highlife shopping in furniture and technology (PWC, 2013). Trends towards retailers being more socially responsible and sustainable retailing (PWC, 2013). Consumers supporting local suppliers and against outsourcing (Fitzgerald, 2013) Customer polarization that is have are shopping in up market stores, have not shopping more in low price stores, driving the growth of the industry (Sky News, 2013). orbiculate retail trad e growth is driven by Asia Pacific markets and will see highest growth rate.5. SWOT Analysis5.1 StrengthsHighly efficient stores, staff levels are kept low, operates with only(prenominal) few big brand names and opening hours are fairly modest (Fitzgerald, 2013). High brand value and large extended network of branches covering major developed markets in the world. Continuous expansion in new markets to cater to increased footfall of customers. Basic packaging and limited publicizing to keep costs low. appeal profit derived from economies of scale (Fitzgerald, 2013) Own cheap highlife brands giving stiff competition to expensive luxury brands (Fitzgerald, 2013) Increase in sales mainly coming from new stores (Butler and Bowers, 2013) Discount pricing are imposingly cheaper attracting shoppers away from bigger retail giants such as Tesco, Sainsbury Cherry pick bargains offered by Aldi increasing the number of shoppers (Butler and Bowers, 2013) Robust growth over the years (Fitzger ald, 2013)Good for buying staples (Ferruza, 2011)5.2 WeaknessesIn England Aldi does not accept payments through credit card restricting customers who want to pay through credit cards (Osborne, 2012) Chargescustomers for a immune carrier bag (Osborne, 2012)Low staff levels not able to handle increased customer footfall genius damaged because of recent supplymeat scandal and employee spying accusations (Snoops, 2013 Stuart, 2013 The Guardian, 2013). Serious limitation of product selection only 2800 products varieties are offered while other supermarket offer 30000 and shopping cart has to be rented for a quarter, (returned later after cart is kept back) (Grocery.com Ferruza, 2013) slight glamorous store , interior ambience of stores is not so great, stores are like warehouses, does not decorate shelves, spends very less in packaging, stocking and transportation (Grocery.com, 2013) Stocks low quality products (Ferruzza, 2011).Less glamorous stores, ambience not attractive in stores , its like warehouse style store, no frills Stocks low quality productsLimited product selectionLow level of staffCharges for carrier bags and shopping cartsDoes not accept payment through credit cardsReputation damaged due to horse meat scandal and employee spying Sells mostlyown brands label and limits the number of outside brands Very low advertising and store promotion and only in-house advertisingOpportunitiesEconomic recovery in development markets, burgeoning population, urbanization renewing growth Technology such as m-commerce and e-commerce increasing sales Customer polarization increasing discount retailers saleEconomic slowdown in the past, inflation and high unemployment rate forcing customers to buy cheaper products Global retail trade growth is high in Asia pacific region and driving the market Price inflation moving customers to discount storesThreatsCustomers inclination towards sustainability, corporate social responsibility and preference to local suppliers be th e cost efficiency of discount stores Taxation, and heightened regulationsTechnology creating operational complexitiesConsumer changing consuming habits and preferences threatening the industry6. Identification and evaluation of the Strategies pursued by AldiAldis competitive strategy is to gain competitive advantage over its rivals through efficiency. Its competitive strategy is low cost leadership that it derives from economies of scale, cost efficiency, low staff level, low quality products, limited product selection and high bargaining power with suppliers (Fitzgerald, 2013 Butler and Bowers, 2013 Steiner, 2013). Its strategy to compass its mission of simple smarter shopping it has use the following strategies in view of its changing business environment.6.1 Strategies implemented by ALDIConstant rolling out new stores with increased size between 10,000 and 15,000 sq.ft in all countries it is operating (Fitzgerald, 2013). Backward vertical integration, producing cheaper luxury products to attract consumers who areswitching from expensive luxury brands (Grocery.com Fitzgerald, 2013). return and expansion of be stores (Fitzgerald, 2013). Started using advertising campaigns to attract more up-market customers to promote its own luxury brand labels deviating from its past strategies (Butler and Bowers, 2013). Increased checkout points and staff level in its store to cater to extra one million customers coming to its stores all over Europe (Steiner, 2013).Delivering high value to customers who are looking for cheaper deals through efficiency in transportation, presentation and packaging (Steiner, 2013). Online sales and apps for attracting internet savvy consumer and engaging customers through social networks (Aldi App, 2013). Sustainable sourcing and reducing environmental impact through recycling and minimum packaging (Aldi Nord, 2013).6.2 Critical valuation of the StrategiesIn view of Aldi Inc.s SWOT and the strategies it has implemented it can be said t hat Aldis strategies are in sync with its changing business environment and taking advantage of its strengths and minimizing its weaknesses. By expanding its store sizes, renovating and redecorating its existing stores and opening new stores of bigger sizes it has tried to minimize its weakness of less glamorous warehouse pillowcase store. And by opening more stores consistently over the years it is taking advantage of burgeoning population that is resulting in increase of customer footfall (Fitzgerald, 2013). It has also taken care of its weakness of low staff level and increased staff level and checkouts to cater to increased customer footfall (Steiner, 2013). It has started rolling out advertising campaigns for promotions to attract luxury customers and elevated its market position by retailing luxury products and changing its composition of a retailer of low quality products (Butler and Bowers, 2013).Aldi is gradually moving from discount store principle to satisfactory stor e principle, opening stores in affluent locations, offering luxury products, delivering both value and quality to pass its consumer base (Skynews, 2013). Through vertical backward integration it has taken advantage of the opportunity presented by the consumer transmutation from expensive luxury products to comparatively cheaper luxury products by producing its own luxury label offering them at less price. Broaden its customer base by opening stores in affluentlocations and changing its positioning from a discount store to a convenient store, this is to take advantage of opportunity presented by economic recoveries of developed countries. It has sustained its cost efficiency competitive advantage by lessening costs on packaging, transportation and offering cherry deals. Aldi apps facilitate m-commerce, and it also sells online and interacts with customers using social networks, thus it is taking advantage of opportunities presented by digital media technology.It has minimized threa t presented by environmental factors by adopting recycling and has become more socially responsible by adopting sustainable practices for sourcing to minimize the threat presented by customers inclination towards sustainability. However Aldi has not fully taken advantages of other opportunities such as taking advantage of growing Asia Pacific market, it is operating only in Australia and has not yet entered Asian countries where high growth is expected and many governments have opened foreign direct investment in retailing. Price inflation of products and heightened laws and regulations will threaten its cost leadership strategy and in future might increase its operational costs and it may not be able to sustain its competitive strategy for huge however it has not taken any measures to address these threats. Increasing staff level will increase its labor costs adding to its operational costs further.7. ConclusionAldi Inc. is evolving and implementing strategies to take advantage of opportunities and thwart threats presented by its environment by exploiting its strengths and reducing or eliminating its weaknesses. It has resulted in success as Aldi has experienced great success in 2013 with increased profit and sales compared to other supermarket chains however it may not be able to sustain its competitive advantage for long because prices and costs are increasing and profit margins are decreasing with retail market being thoroughgoing(a) in developed countries, it has to expand its operations into new markets for sustaining growth and maintaining market leader position.8. ReferencesAldi App, (2013), Smart Phone, Aldi App, Aldi Us, operational athttps//www.aldi.us/en/services/smartphone-app/, Accessed 25 November, 2013. Aldi Nord, (2013), Business, Aldi Nord, easy at http//www.aldi-nord.de/unternehmen.html, Accessed 28 November, 2013. Aldi Sud Business, (2013), Aldi Sud Business, Aldi Sud, uncommitted at https//unternehmen.aldi-sued.de/de/ueber-aldi-sued/u nternehmen/, Accessed 24 November, 2013. 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