Management report ALDI Sud in UK

Introduction

The economic crisis in 2008 brought a lot of business changes especially in customer behaviour within the supermarket sector in the United Kingdom (UK). Due to the economic development more and more customers turn to low price alternatives like hard discounters such as Aldi. The consciousness of the customer has changed from selection by perceived quality to the greatest perceived value for money. As a result of this new mental attitude which can be recognized trough all areas of the everyday life such as leisure time, communication and travelling, companies like easyjet, Premier inn and Orange celebrate a great success as value marketers. Within the supermarket sector discounters like Aldi were first to pick up these trends and offer low price products and added services like Aldi Travel, Aldi photo service and Aldi flowers.

The following business report is concerned with the strategy, capabilities and possibilities of Aldi Sd in the UK. It analyses the external environment with its strategic dynamic at micro and macro level and the relevant internal factors of the company. The facts will be summed up in a conclusion and lead to a further recommendation of the main strategic issues. The marketing instruments used to identify the main facts are a Porters 5 forces, a PESTEL analysis, a competitor analysis and a SWOT analysis.

External Analysis

Operating environment

As a result of the recent financial crisis in 2008 it major changes can be recognized that there are major changes in consumer behaviour in the retail industry since over the last 2 two years. Due to this development consumers have a stronger consideration as to how they spend their money and compare the value for money of the products they are going to buy. This can especially be identified in the supermarket sector with its fast moving consumer goods. One major trend is that consumers turn to own brand alternatives instead of buying established brands. The customers realize that the quality of own label brands is similar to the quality of familiar brands and often major brands produce these trademarks at the same quality level as their actual product.

Hard discounters such as Aldi, Lidl and Netto gain profit from this development. The phenomenon of customers switching to these discounters is the so called Aldi-effect. Discounters have made substantial progress in the UK grocery sector but one must keep in mind that the customer behaviour can change as fast as it appeared. Additionally established supermarket chains like Tesco already react to this trend with their own range of discounted brands. The growth in availability of low price products gives consumers a choice between established brands and a range of highly credible, easily available, low price alternatives. Furthermore the image of the hard discounter changed within the last few years. In the past they were widely derided for selling poor food to poor people. Today people from all walks of life are buying at hard discounters and feel no longer ashamed of it. Now the hard discounters have the chance of taking advantage of these changing consumer attitudes and turn it into long term loyalty and success.

Despite only having 6% of the market share of the British grocery market the data for the discounters of the last two years is impressing and expandable: Aldi has recently reported like-for-like sales growth of 22% in the UK, 20% of the customers in the UK have visited a discounter for the first time within the last 12 month, 76% of shoppers buy goods from these chains solely because of the price and only 20% did so for reasons related to quality. This habit is not typical for the UK consumer, who normally prefers buying familiar brands, whereas a company such as Aldi stocks few well-known products.

Porters 5 Fforces help to gain an insight into the main influential factors of the supermarket sector in which Aldi is operating.

Porters 5 Forces

Aldi has a strong negotiation power towards its suppliers and has established high barriers to entry due to its long-term experience and acceptance in the market. The operating environment is highly competitive and there are a number of substitute stores and their own brand products customers can turn to. This gives the buyer some power which is relativised by its increasing price sensitivity and doesn't allow the consumer to shop anywhere anymore.

Future market trends

The future trends in the food area are based on comfort food, nostalgia, scratch cooking and home baking. In Addition to that, the trend of organic food and healthy eating will continue. Consumers want to save money as well as feel good about themselves and the food they consume. Moreover, today's consumer's background knowledge is increasing and it inquires the origin, manufacturing and the sustainability of the product. Another trend that will extend is the way groceries are ordered. More and more consumers will shop remotely for example by ordering online. Specialty foods in all categories will still be in demand, and they will continue to command premium prices.

PESTEL analysis

The following PESTEL analysis demonstrates the influence of the relevant environmental categories for Aldi Sd in the UK supermarket sector considering the changing consumer behaviour.

Competitor analysis

Aldi's three major competitors within the UK supermarket sector are Lidl, Asda and Tesco. The significance of the Competitive Analysis analysis is based on market share, similarity of products and similarity of business practices.

Aldi's main competitor, nationally and internationally, is Lidl. Lidl is as well as Aldi, a German discount retailer with a similar no-frills concept. This concept is based on puristic but cost efficient stores and a rather small but still high quality array of products. Both companies have been trying to grow within the British market for several years. Aldi started operating in 1990 and Lidl followed in 1994. But Aldi''s market share could not grow more than 3% and Lidl has a market share of 2,4%. Currently there are about 396 Aldi stores and about 500 Lidl stores. But in the years to come both retailers are going to expand. Aldi is going to invest in the next five years to raise the number of stores from 396 to 1.500. Although both retailers have the similar no-frills concept, one can identify some differences. Aldi is focussing on only 900 products and Lidl has about 1600 products in their stores. Moreover, Lidl''s range of products includes 200 branded products, while Aldi stocks just a few branded products.

Another competitor but different to Lidl is Asda. Asda is a grocery and general merchandise retailer in the UK. It operates 300 stores and has a market share of 17,2%. In contrast to Aldi''s no-frills concept Asda has a number of bakers, butchers and greengrocers in its stores and offers its customer frills like a loyalty card. Additionally Asda stocks more products than Aldi but stocks about 20 percent fewer lines than its other competitors. Asda also offers own-branded products. The private label trade name is Asda Smart Price. Asda''s marketing promotions are solely based on price and it is promoting itself under the slogan Britain's Lowest Priced Supermarket. As a result of its price based promotion, but even so offering more customer service and an appealing store layout Asda can be seen as a real rival of Aldi.

The third major competitor is Tesco. Tesco is an international grocery and general merchandising retail chain, which is based in the UK. Furthermore, Tesco is the largest British retailer with a market share of 31,4%.

Changing consumer habits and reinforced focussing on the price are the main reasons why the supermarket Tesco with its variety of branded products is becoming a major competitor to the no-frills discounter Aldi. To tackle the so-called Aldi-effect where customers switch to no-frills discounters, Tesco is developing a new range of own-brand products.

Internal Analysis

Aldi - The Company

The Aldi Group consists of the company divisions Aldi Nord, built up by Theo Albrecht, and Aldi Sd, built up by Karl Albrecht, two brothers who split due to a disagreement on whether to sell Cigarettes in their stores or not. In Germany, where the company was founded, the brothers have established an Aldi-equator assigning what market area belongs to whom. The Aldi-Brothers have extended this segmentation of markets to an international level, appointing countries to either the Nord or Sd business branch.

Location for Business

The Aldi group operates about 8.,078 individual stores worldwide, 3.,445 of them located in Germany, Australia, Austria, Greece, Hungary, Ireland, Slovenia, Switzerland, USA and United Kingdom belong to Aldi Sd.

The Management

After the retirement of Karl Albrecht, Hartmuth Wiesemann is now CEO of Aldi Sd. The new managing director of Aldi UK in 2009 is Armin Barger replacing Paul Foley. The further hierarchy is built up on a local and regional basis which allows a flat hierarchy and quick promotion prospects (Detailed information about Aldi''s culture, vision, values, beliefs and goals).

Aldi Consumer in the UK

The Aldi patron is price sensitive. He/She is looking for special offers and likes to compare brands and offers in advertising. The Aldi patron likes to read the newspaper, is typically between the ages of 29 and 50, occupies a slightly religious and family orientated attitude and is either low or very well educated. This is the result of a general market research on consumers and their choice of shopping venues.

Before and still during the 1990s the UK consumers were unaccustomed to the small range of mostly own-branded grocery-goods offered in discount stores. Aldi recognized this specialty and adapted its offering in the UK to suit its new audience, increasing the range of fast moving consumer goods with a focus on fresh produce and fair trade products. Aldi also changed its product design in order to meet the needs of the customer. One result of this action is that the number of ABC1 consumers entering the UK Aldi outlets has risen by 17% in 2008. These and the middleclass consumers are the actual target audience of Aldi.

Additionally in 2005, Aldi launched a premium, private label named "Specially Selected" which has already won several awards in the UK`s Quality Food Awards.

Aldi Advertisment in the UK

The advertisement policy in the Aldi business model is simple: No or low advertisement. The UK market is special in this concern. Here Aldi produces TV Ads in addition to the traditional weekly special offer flyer. Additional publicity is created through media press in Newspapers.

New to the Aldi promotion is also to involve a testimonial. In this case TV chef Phil Vickery, who is not only promoting Aldi, but is also advising the company on their food range and is the leading figure of a children's-cook podcast on the internet sponsored by Aldi.

Web Service

The UK Aldi website is very similar to the German Aldi Sd website in look and structure. The sServices provided are detailed information on individual products, warranty details of the non-food offers, a digital shopping-list creator with name, picture and price of the product which can be printed and details on the weekly special offers available. Other value added services offered online are a flower delivery service, a travel booking service and a picture developing service.

Aldi Sd Strategies in the UK

Aldi's product strategy is to provide a limited range, just 1200, of fast moving consumer goods which its customers shop for on a regular basis and which can be stapled in its stores.

The business concept Aldi pursues within its strategy is a "no-frills-concept". In order to offer the low prices the staff policy is to have no more than five employees in a store at one time, the customer is charged for the carrier bags at the cashier, trolleys are available on refundable payment and a Aldi is strong in negotiation power towards the distributor due to the high quantity ordered. Another major key concept is the implementation and further development of the own-brand-product-range.

Aldi's short-term priorities are to continue the reliance on the discount format and to integrate further "'iconic' iconic" Aldi brands into their range.

Furthermore Aldi wants to increase the number of outlets in the United Kingdom from now 396 to 1.500 within the next five years by opening a new store every week.

Aldi Strategic Options

The SWOT analysis defines the key drivers of the market development and the company's own strengths and opportunities within the market.

Despite operating in a highly competitive market Aldi is able to assert itself with the low prices and the strong business model with its own-brand-product-range.

Aldi is still a niche player in many international markets, as well as in the UK. But the company can react to that by responding to the specialities of the UK customer needs, e.g. by enhanced advertisement and the planned expansion in the UK market.

SWOT analysis

Strength

  • Simple consumer proposition based on price
  • product range management, logistics
  • Keeping costs low/low prices
  • In-store availability
  • Good household offers (everyday goods)
  • Decentralised structure
  • Portfolio modernisation
  • Corporate business model worldwide
  • Limited range of SKUs (Stock keeping Units)
  • Strong Own-Brand product range

Weakness

  • Still niche player in many international markets
  • Adaptability of Aldi Nord vs. Aldi Sd
  • Strong dedication to core business model in majority of markets
  • Customer service
  • Low customer loyalty in UK

Opportunity

  • Ratio food/non-food stock
  • E-market
  • Global sourcing
  • UK expansion
  • Range adaptation
  • Relationships with branded manufacturers
  • Develop town centre offering
  • Further development of Phil Vickery as testimonial
  • Increasing awareness of own-brand products

Threat

  • Competitors increasing
  • Lost international first-mover advantage to Lidl
  • Price competition
  • Other global retailers' discount formats
  • Soft discounters
  • Retailer consolidation
  • Changing demographics
  • Increasing manpower cost

Conclusion

Ones man's meat is the other man's poison.

Aldi's meat is good and cheap and the changing attitude and the increasing price sensitivity customers have developed during these difficult economic times make Aldi a winner of the economic downturn.

As part of the supermarket sector Aldi is facing a rapidly changing business environment with strong competitor pressure from discounters such as Lidl and Asda on the one hand and long-term established big supermarket chains like Tesco on the other.

The ability to adapt to the changing environment, by continuously reviewing the pursued strategy and developing it further, is crucial for the growth of a competitive advantage for Aldi. The decentralized and low hierarchy is very beneficial when it comes to implementing strategy changes, especially in short term.

Aldi is still a youngster in the UK supermarket sector but the strengths of the company, which in a big part arise from its long-year experience in other international markets, and the opportunities the UK market still bears, which Aldi is capable to take advantage of due to its expertise, are good conditions for Aldi to grow and, in the long run, strengthen its market position in the UK supermarket business.

Recommendation

Having analysed the market environment, the competitor situation and the company's strengths and weaknesses, as well as its opportunities and threats within the market, several recommendations can be deduced in order to strengthen Aldi Sd's market position in the UK supermarket sector.

Recommendation in core strategy

Aldi has the possibility to take advantage of the changing consumer attitude in order to achieve a long term customer loyalty, which is not given in the current situation, and become a long term successful competitor in the supermarket environment.

One action to accomplish these goals is to reward the customers with payback points for their purchase, which can be printed on double sided receipts and be converted when shopping at and Aldi store within the next two weeks. The double sided receipts adapt to the no-frills concept and help the environment by saving paper.

Another action can be to change the interior design of the outlets and make it more appealing to the customers. For example by making it lighter, adding more colour and locating it near neighbourhood middle to upper class neighbourhood.

However Aldi needs to be careful not to stride away too far from its original no-frills business concept in order to still being able to differentiate itself from competitors and to profit from the long term experience Aldi has gained pursuing this strategy.

Recommendation in Food range

As the detailed look at the future trends in the supermarket sector has brought up, the consumer demand of speciality foods is increasing. Aldi can gain profit from this trend by expanding its private premium label "Specially Selected".

Moreover Aldi needs to emphasize the high quality of its product range documented by several food awards and product tests. They should focus on communicating this advantage throughout their promotion and further adapt it to the product design.

It is also recommendable to continue to follow the strategy of the own-brand-product range.

Recommendation in promotion

The new approach of Aldi to involve TV chef Phil Vickery as testimonial bears much potential and the relationship needs to be deepened. One way of profiting from this connection is to create an Aldi cookery book promoting Aldi products presented by Phil Vickery.

Aldi should also keep up the TV advertisement in the UK and complement the weekly offer flyer by a "every fortnight a new experience" topic, e.g. an "Italian week" with a promotion on Italian products and short-time new product offers.

Organisational recommendation

Aldi has a very good reputation as employer. This became clear when 22.000 applications came in for 30 available trainee positions. To take advantage of this strength Aldi should continue offering trainings and further development of for their staff. This will contribute to a higher motivation and will be of advantage when it comes to implementing short-term strategy changes.

In addition to that Aldi is able to grow future managers in its own business.

Power of Suppliers

Normally suppliers have a strong voice in negotiating the terms of trade. In the supermarket sector however and especially concerning Aldi, the retailer has the stronger negotiation power. Due to the high quantity of purchase Aldi can negotiate very good prices and pass these on to its customers. If the supplier is unwilling to accept Aldi's offer it will be left with a smaller market to supply.

Power of Substitutes

In the supermarket sector there is a great number of substitutes the customer can choose to take advantage of. Not all of them are discounters such as Aldi, but chains like Lidl, Asda and Tesco too increase their range of own-brand-products which are becoming a popular substitute for the more expensive brand-products.

Power of Buyers

Customers have become very price sensitive in times of the economic downturn and will move to other supermarkets if it seems too expensive. Aldi as a discounter is in a good position because it offers a good product quality to low prices and is aware of the Fair Trade trend. However the reception of discounter in the minds of the consumer is still developing.

Barriers to Entry

The supermarket sector has managed to build up great barriers to entry. Newcomers will experience great difficulty finding a cheap and reliable supplier. The costs of market entry are very high since the supply chain is not high developed and the long-time market occupiers have the advantage of differentiation and offering value added services.

Competitive rivalry

The competition in the supermarket sector is high. Discounters like Lidl and Asda as well as Aldi have a strong market position. Big chains like Tesco are increasing the number of value added services and low price products to meet the expectations of the consumer.

Corporate Attitude

Culture - What is Aldi's identity?

Through the low hierarchy Aldi can focus on delivering quality and value to its customer. Aldi aims for simple operations and a high staff motivation for the company and the customers. It pursues a culture of satisfaction, self confidence and pride.

Vision - What should Aldi aspire?

Aldi wants to provide high quality goods at the lowest price possible.

Values - Against what criteria should Aldi's actions be judged?

Aldi is a member of the BSCI, the business social compliance initiative, and committed to their regulations and their code of conduct.

Beliefs - What does Aldi take for given?

Aldi believes in SIMPLICITY - QUALITY - AVAILABILITY of its products and services.

Goals - How does Aldi judge progress in performance?

Aldi provides its customers with fantastic quality products at the lowest price possible. It sells those products, which are popular to its customer and makes sure that its products are made of the best ingredients and represent the greatest value for money.

BSCI Code of Conduct

The BSCI regulations and their code of conduct especially prohibit:

  • Child labour/Forced labour and unlawful disciplinary measures
  • Discrimination of any kind
  • Excessive working hours
  • Poor health and safety provisions
  • Non-payment of minimum wage
  • Infringements on freedom of association and collective bargaining rights

References

  • Brandes, D.; 2006; Die elf Geheimnisse des ALDI-Erfolgs
  • Johnson, G.; Scholes, K.; Whittington, R.; 2009; Fundamentals of Strategy
  • Krafft, M.; Mantrala, M. K; 2006; Retailing in the 21st century: Current and future trends
  • Riekhof, H.-C.; 2008; Retail Business in Deutschland

Electronic papers

  • Bord Bia Services; 2008; Germany Market Overview
  • Datamonitor Business Information Center; 2008; Aldi Group Company Profile
  • Datamonitor Market Watch: Global Round-Up; 2009; Food Industry Update
  • Marketing Magazine; 2009; Aldi Brand Health Check

Warc articles

  • Company Profile: Aldi (Germany); September 2009
  • Discounters face challenges in UK; July 2009
  • Lessons from the value marketers; January 2009
  • How will discount retailers fare in hard times; June 2008
  • Shoppers stay loyal to UK retailers; October 2009
  • Shoppers' behaviour in recession can have long-term implications; September 2009

Internet

  • www.aldi.co.uk
  • www.aldi-sued.de
  • www.asda.co.uk
  • www.businessweek.com; October 2008

Aldi and Lidl Head Upmarket in Britain

  • www.ibxeurope.com; September 2008

Aldi and Lidl booming in the british retail market

  • www.independant.co.uk; June 2008

Lidl and Aldi see sales soar amid economic downturn

  • www.newswiretoday.com; November 2008

Food Trend Experts Predict the Big Food Trends in 2009

  • http://blog.nielsen.com; January 2009

"Supermarket Guru" Phil Lempert's 2009 Retail Outlook

  • www.retail-week.com
  • www.tesco.co.uk
  • www.tns-infratest.com

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