Aldi’s Strategy Analysis: Strategy Formulation
Deliberate and Emergent Approaches
First of all, it is essential to note that the company’s current business model was the result of emergent strategy formulation. According to Rice (2019), Aldi’s roots can be traced back to Essen, where the mother of Karl and Theo Albrecht ran a small grocery store. During and after the war, the shop stocked a very small range of supplies, and still, the business generated enough profits for the brothers to open a chain of small shops (Rice, 2019). Based on the customers’ response, the brothers concluded that the limited range was an excellent strategy that kept the costs low without damaging sales. One of the core characteristics of the emergent approach to strategy formulation is that it is based on experiments and their outcomes (Collis, 2016). While the limited range of products was due to external circumstances and could hardly be considered an experiment, the clarification of Aldi’s business model based on results fit the emergent framework.
There are also some more recent examples of emergent strategies in the article. According to Rice (2019), there is a significant difference between older Aldi stores and the new, refurbished stores. The differences include store layout, environment, and even product range. For example, new stores are well-lit and offer more shelf space for fresh and chilled food to appeal to upmarket customers (Rice, 2019). From the viewpoint of the emergent approach to strategy formulation, these changes are the experiments designed to contribute to Aldi’s future strategy.
Secondly, the case also shows the prevalence of deliberate strategy formulation in Aldi’s history of development in the UK. Indeed, based on the information provided, it appears that Aldi followed the same principles and strategies in the new market as it did back in Germany. For instance, the company did not market its first stores, and the store environment was not adjusted to the habits of British customers (Rice, 2019). A deliberate strategy is based on executive decisions, and thus defines the business model and ensures that the company’s operations follow it closely (Collis, 2016). The initial history of Aldi in the UK can thus be seen as an example of a deliberate strategy.
An essential conclusion that can be drawn from the case is that Aldi followed the strategy formulated deliberately with very few changes until now. The range of products offered is among the core components of Aldi’s strategy. Although it has grown from 600 to 2,000 stock-keeping units over the past ten years, this is still not a major development. As explained by Rice (2019), most big supermarkets have 25,000 or more SKUs. Operations, pricing, and supply chain management strategies used by Aldi also remained consistent with its deliberate strategy. For example, Aldi continues to work with local manufacturers to produce own-label goods that mimic branded products in other supermarket chains.
On the whole, the case shows that for Aldi, the deliberate approach to strategy formulation has been more prevalent than emergent strategies. The latter were used along the line of Aldi’s development in the UK, but had little impact on the company’s overall business model and strategic positioning, even locally. This balance has been most beneficial for the company for two reasons. On the one hand, it was based on the existing model used by Aldi in Germany. The company’s success in Germany formed the foundation for the present deliberate strategy, thus enabling it to gain market share in the UK in the long term. On the other hand, Aldi’s deliberate strategy is the primary source of differentiation from other supermarket chains in the UK.
Additionally, Aldi’s deliberate strategy is closely connected to the initial vision of the company’s founders. Brandes and Brandes (2015) explain that the Albrecht brothers founded the company based on the principles of simplicity and cost-effectiveness, and wanted their strategy to be the long-term basis for Aldi’s success. The fact that the company remains privately owned means that it is less pressured into generating profits. Other supermarket chains, such as TESCO, use potentially harmful strategies to achieve profits for shareholders (Davey, 2016). Since Aldi’s goals are different, the balance between deliberate and emergent approaches to strategy formulation has been appropriate for the most part.
Future Recommendations
Although the existing balance has been working effectively for Aldi since the company’s foundation, there are opportunities for improvement. To survive and continue developing in the future, the company must shift the balance slightly towards emergent strategy formulation rather than keeping a rigid course. Aldi operates in a high-paced market environment, which is subject to the influence of numerous external forces, including political, technological, and socio-cultural. This environment creates the need for continuous adaptation to growing the market share.
One of the best ways of anticipating changes in the retail market environment and adapting to them is by studying customer behaviors and preferences. As explained in the case, the lack of a loyalty program in Aldi decreases the company’s capacity for customer analytics (Rice, 2019). Collecting and using information about customers’ behaviors from frontline workers as part of the emergent approach to strategy formulation would be beneficial. For Aldi, this could be an opportunity to engage in emergent strategy planning based on the insights gathered from its stores. Frontline workers see customers every day and interact with them, meaning that they can notice changes or trends in the market faster than top managers.
To promote the development of the recommended balance between organizational strategies and plans, the company would require consistent, two-way communication between store managers and senior management. If possible, short employee surveys could be developed for employees to note their observations and pass them to store managers. The results could be analyzed as part of strategic planning efforts, and new strategies could be tried out in specific stores as part of emergent strategy formulation. Besides communication support, the implementation of this recommendation would also require some technical and financial support. Still, the resources used for implementation would be minor compared to those required for significant strategic changes, and the benefits would outweigh the costs.
Aldi Management Structure: Issues and Responses
Aldi Company’s Past Issues
The most important macro-environmental factor affecting Aldi in the past was the economy. Since British people, on average, had a higher income than other Europeans, their interest in discount stores was limited at the time of Aldi’s opening (Rice, 2019). As a result, competition became a significant issue for Aldi because British customers were satisfied with the offerings of existing supermarket chains. To earn customers’ attention and divert them from competitors, the company had to differentiate itself from other chains while changing customers’ attitudes and perceptions about discount store shopping. After the recession, the economic environment changed rapidly. In this context, a critical challenge for Aldi, as well as for other UK supermarkets, was cost management. According to Hodson, Egol, and Blischok (2012), the vast majority of customers in the food retail sector, which is the primary focus of supermarkets, sought discounts and bought cheaper alternatives when available. Although keeping low prices has always been a significant part of Aldi’s business model, the pressure for cost management still posed a challenge for the company.
The most important industry issue faced by Aldi in the past was competition. It is a crucial issue in the food retail sector since this industry is characterized by a large number of players, each offering distinctive benefits to customers. Supermarket chains, such as TESCO, Sainsbury’s, and Morrisons, have always been the key competitors for Aldi. Since Aldi’s expansion to the UK meant that the company was entering an entirely new market populated by established supermarket chains, it faced the challenge of drawing customers away from its competitors (Rice, 2019). The direct link between competition and profits in the food retail sector, as well as Aldi’s former position in the UK market, made competition the core issue in Aldi’s past development.
About industry issues, supply chain management has always been an essential concern for Aldi. Failure to find the right suppliers and manage inventory appropriately threatens supermarkets’ performance and ability to function in a highly competitive environment. For Aldi, supply chain management has been even more crucial since the company sought to offer products similar to those from famous brands at a lower price. The two problems associated with this goal were finding the right suppliers to manufacture and deliver products and ensuring compliance with legal requirements. For instance, Rice (2019) notes that some suppliers refused to trade with Aldi at all, and some products had to be sought from other manufacturers. Hence, supply chain management, while being a significant concern in the food retail industry in general, posed even more challenges for Aldi because of its business model.
The third industry issue that was relevant to Aldi was labor. Supermarkets rely on cheap labor for their daily operations, and thus they need to attract skilled staff or train new employees to withstand competition. Labor prices, in turn, are a significant part of a supermarkets’ cost structure, meaning that inefficient labor use poses a threat to businesses in this industry. As a result, Aldi needed to develop a human resources strategy that would support its operations while remaining inexpensive.
Aldi Business Strategy – Evaluation of Responses
On the whole, Aldi’s responses to the past issues identified above were effective. To respond to economic factors affecting supermarket shopping, Aldi used a differentiation strategy that made it stand out from competitors. The primary component of this strategy was, of course, product prices (Rice, 2019). By offering products similar to those of famous brands at low prices, Aldi gained the attention of customers, even those who had not considered discount store shopping as an option previously. Differentiation based on low prices proved to be a useful strategy in the aftermath of the 2008 economic crisis. The company’s way of addressing costs has been beneficial, too. Brandes and Brandes (2015) show that limiting the range of brands offered and the variety of products enabled Aldi to control its costs through economies of scale while selling goods from its brand helped to ensure that the low costs had little to no effect on product quality. These steps contributed to the company’s success in cost management.
About supply chain management, the company has managed to establish a robust supply chain in the United Kingdom and made compromises to enhance the range of items offered in stores. For example, it found suppliers of cornflakes in France when British manufacturers refused to trade with Aldi (Rice, 2019). The increased range of products in Aldi stores shows that the company has been successful at establishing and developing its supply chain. Moreover, the use of just-in-time has helped to improve inventory management, which is an important concern for supermarkets (Rice, 2019). The human resources strategy used by Aldi, namely, the diversification of store employees’ duties, contributed to the company’s response to labor issues. While employees required more inductive training, it enabled them to switch between different tasks based on the situation, thus decreasing the number of employees needed in stores (Rice, 2019). Supported by high hourly wages, this strategy has enabled Aldi to use human resources effectively.
Aldi Company’s Current Issues
A particular macroeconomic factor that could affect Aldi’s future development is technological advancement. Until now, the company has been reluctant to introduce major new technologies, such as online shopping and mobile apps (Rice, 2019). However, future technological development might affect customers’ expectations of in-store experience and shopping in general. Addressing technology and using innovation as part of its future strategy could help Aldi to maintain and improve its market position.
About industry issues, competition has affected Aldi’s strategy before, and it remains a significant threat to the company now. Although the company has been successful at fighting competition using long-term strategies, the competitive landscape could change due to socio-cultural, technological, and other macroenvironmental forces. For instance, many customers now are concerned with businesses’ corporate social responsibility and choose to buy products and use services from ethical companies. This could affect the future position of Aldi since these concerns have not been addressed explicitly (Rice, 2019). Therefore, technological advancement, socio-cultural trends, and competition are the key issues that should be reflected in the company’s future strategy.
Aldi Business Model & Strategic Capability
Porter’s Value Chain
Assessing the strategic capability of a company requires a thorough understanding of its value chain. Porter’s value chain analysis is a helpful tool since it shows how companies create values for customers through both primary and supporting processes (Razak & Vattikoti, 2018). Primary activities include the operations required for a business to deliver its products to customers, including inbound logistics, production, outbound logistics, marketing and sales, and service. Supporting activities are required for the company’s overall functioning and include firm infrastructure, human resource management, technology development, and procurement.
Based on Aldi’s current strategy and business model, the company creates value based on rigorous cost control. Hence, all processes in the company are aimed at cost reduction, whether they directly lower the costs or not. For instance, the company’s human resources strategy is to offer higher wages to staff while keeping their range of duties broad, resulting in cost savings. The use of marketing and customer service is minimal due to the contribution of these processes to costs, and more attention is paid to logistics since it has a direct effect on costs and sales. Additionally, the supporting processes in place at Aldi have a shared goal of sustaining the company’s business model and competitive advantage. To thrive, Aldi must maintain a robust supply chain through procurement and have sufficient, qualified staff to fulfill their duties on all organizational levels. Finally, primary activities are also aimed at improving efficiency and reducing waste. While this helps the company to control the costs, it also ensures that customers can get the products they need when they shop at Aldi.
In Aldi’s case, production activities are minimal, and thus, the linkage between inbound and outbound logistics is of crucial importance to Aldi’s strategic capability. According to Rice (2019), the company uses a just-in-time approach to manage its inventory, which helps to maintain the link between inbound and outbound logistics. Just-in-time is a technique to reduce the inventory to a minimum by purchasing goods based on need rather than on schedule (Wild, 2018). This helps businesses to reduce the costs of storing stock and decrease lead times, thus improving their cost-efficiency (Wild, 2018). The effect of the linkage between inbound and inbound logistics on Aldi’s strategic capability is evident since it has a direct influence on costs, waste, and the availability of products in stores.
Another essential linkage is that between procurement and firm infrastructure. Over the decades of its existence, Aldi has been able to successfully identify and contract with manufacturers and suppliers required for fulfilling its strategy. Effective procurement is crucial for value creation in supermarkets as it has a direct effect on costs and product range (Smith & Thanassoulis, 2015). During its expansion in the UK, the company was able to use procurement effectively to mimic popular branded products, thus responding to the customers’ preferences. To collect information about products, their popularity, and possible ways of sourcing similar products at a lower price, the company has established a separate department focused on product testing and development (Rice, 2019). The linkage between the supporting activities related to procurement and firm infrastructure helps to realize the company’s business model. Hence, it also has a critical influence on strategic capability and value creation through the direct process of developing low-priced products and their respective supply chains.
Overall, the value chain used by Aldi contributes to its strategic capability by creating value for customers and sustaining its business model. The primary goal of activities in Aldi’s value chain is to decrease the costs since the primary source of Aldi’s value for customers are the low prices. The linkages between firm structure and procurement, as well as between inbound and outbound logistics, have the most significant impact on Aldi’s value creation. On the one hand, they allow keeping the costs at a minimum through effective supply chain and operations management. On the other hand, they ensure Aldi’s flexibility in responding to customers’ needs and preferences.
Aldi Strategic Management: VRIO Framework
Based on the VRIO framework, the nature of a company’s competitive advantage depends on four factors: value, rarity, imitability, and exploitation by the organization. To determine the sustainability of Aldi’s strategic capability in the long term, it is essential to analyze both the nature of Aldi’s current competitive position and the company’s capacity for maintaining it in the future. As the analysis will show, while Aldi’s offering is not unique, its strategic capability is sustainable due to the company’s specific practices, including supply chain management.
The value of Aldi’s offering is based primarily on the prices of products offered by Aldi. The price is the key factor distinguishing Aldi from its competitors, and it is embedded into the customers’ experience with the company. Rice (2019) describes the impact of low prices on customer experience and satisfaction as “the thrill at the till” (para. 17). The key to sustaining this value, for Aldi, is in supply chain management. As shown in the previous section, procurement and logistics have a direct influence on the company’s costs, and thus affect whether or not the company can maintain a competitive advantage in the future. Given the history of Aldi’s success in these areas, it is likely that the company will be able to negotiate with suppliers and manufacturers and support just-in-time operations in the future.
The rarity and low imitability of Aldi’s offer in the market are also beneficial for its current competitive position. Despite Lidl’s use of Aldi’s business model, other supermarkets offer products at considerably higher prices (Rice, 2019). Maintaining rarity, in this case, would require Aldi to continually increase the cost-efficiency of operations while monitoring the market for price-based competition closely. Aldi has the capacity for both processes and uses the principles of continuous improvement and market analytics already (Rice, 2019). For other supermarket chains, imitating Aldi’s offering would require considerable investments and restructuring, and the risk of failure is high since they will lose the advantage of the wide product range. Hence, it is likely that Aldi will maintain the rarity of its offer in the future, making its strategic capability highly sustainable.
Finally, the use of competitive advantage by Aldi is highly appropriate to the situation. Aldi has managed to sustain its low prices during its time in the UK market through various strategies, including negotiation with suppliers and prioritization of investment needs. Additionally, the company uses few other techniques to improve sales, thus capitalizing on low prices as the primary source of value. This strategy is evident to customers and improves their perception of the company (Rice, 2019). Given Aldi’s value chain specifics and the previous experience of the company, it is likely to maintain this aspect of strategic capability in the future.
Aldi Strategy Analysis
Porter’s Generic Strategy Framework
Porter’s Generic Strategy Framework consists of four strategies based on competitive advantage and scope. The broad scope and distinctive products characterize the differentiation strategies, whereas narrow-scope strategies include cost focus and differentiation focus. For Aldi, cost leadership has been the primary strategy throughout its development. The products offered by Aldi differ from those in other supermarkets based on their price, whereas other product qualities remain similar. The competitive scope is broad due to the nature of the supermarket industry sector. The customers Aldi serves differ in terms of demographic characteristics and income, thus forming a broad target for the company.
The effectiveness of the cost leadership strategy depends highly on its execution by a particular company. According to the University of Cambridge (2016), “the sources of cost advantage […] may include the pursuit of economies of scale, proprietary technology, preferential access to raw materials and other factors” (para. 2). Aldi’s business model enables it to benefit from economies of scale and access to manufacturers who can produce products similar to those of famous brands at a lower cost. This makes Aldi’s chosen strategy both effective and sustainable in the long term since the company is likely to use its existing approaches to procurement in the future.
Aldi Company: Ansoff Matrix
The Ansoff Matrix consists of four growth strategies, distinguished based on the nature of products and markets used for growth. Aldi’s case is unique because products are essentially new, despite mimicking those produced by popular brands (Rice, 2019). Additionally, the company’s global strategy included penetrating new markets. This means that Aldi’s strategy falls into the category of diversification, whereby new products are introduced into new markets to achieve growth (Gurcaylilar-Yenidogan, & Aksoy, 2018). The success of this strategy depends on the company’s capability to develop products that could interest consumers in a new market.
In the UK, as well as in Germany, Aldi was able to apply this strategy effectively for two reasons. On the one hand, the company used products that were already popular in these markets to create own-brand products with the same characteristics. As explained by Rice (2019), even the packaging of Aldi’s own-brand products is similar to the ones from well-established brands, making it easier for customers to recognize specific products. On the other hand, Aldi has an excellent capacity for procurement, which enabled it to create own-brand products that could be manufactured at a low cost. These factors justify the use of the diversification strategy and explain its success both in the UK and in Germany.
Approach to Internationalisation
On the whole, Aldi’s approach to internationalization has been appropriate. First of all, the company used the same model in the UK and other markets as it did in Germany. This meant that the internationalization process followed the path that Aldi has already implemented in Germany. Using a different business model or amending it significantly would have been more challenging for Aldi since the company would have had to develop new operations and processes. The use of an existing model also allowed Aldi to yield the benefits provided by it in a new market. The analysis presented in the paper shows that Aldi’s approach to product development, supply chain management, and sales have a significant influence on the company’s ability to control product prices. The application of a familiar model that has not been used in the UK extensively created a significant advantage for Aldi, distinguishing it from existing competitors and creating a path for long-term success.
Secondly, the company tailored the products offered in stores to the needs of its customers. For example, Aldi created own-brand versions of popular chocolate bars, including Mars and Snickers, called Titan and Racer (Rice, 2019). These products were already popular among the customers in the UK market, meaning that they would be successful if offered at a lower price. The development of completely new products would have threatened Aldi’s success, as it is likely that new products would not have gained the same attention from customers. By providing customers with lower-priced versions of their favorite products, Aldi was able to avoid competition based on other product features, thus succeeding in the highly competitive food retail market. Hence, Aldi’s approach to product development in the context of internationalization has been highly beneficial for the company.
Thirdly, the approach Aldi applied for international expansion was also appropriate for the firm’s structure. Being a private company, Aldi experiences less pressure to earn profits fast than its main competitors in the international markets (Rice, 2019). This means that the company could afford to wait longer for profits instead of using strategies for fast market penetration. The long-term internationalization strategy that relied on low prices instead of high-scale marketing campaigns and innovations contributed to the company’s image and drove more customers into Aldi’s UK stores over time.
Lastly, it is also essential to note that, despite the eventual success of Aldi’s initial positioning, the company has developed its offering in the new market over the years. For instance, the range of products in stores increased substantially over the years, and the store layout has also been amended to suit the tastes of upmarket customers in new locations (Rice, 2019). While Aldi’s business model was at the core of its success in the UK, these developments enabled further market growth. Thus, the main components of Aldi’s internationalization strategy were appropriate for its expansion efforts.
Aldi’s Strategic Management: Conclusion
Based on the analysis, it is still possible that Aldi’s strategies will require amendment for future internationalization and market share growth in existing markets. This is mainly due to the technological and sociocultural factors shaping the needs and expectations of customers both in existing markets and in other markets that Aldi could target in the future. The challenges posed by these factors can be solved if Aldi utilizes its existing capabilities while developing new ones, such as improved customer analytics and technological innovation. This would enable the company to remain cost-effective while achieving greater success in the UK and other countries.
Aldi’s Mission Statement
Aldi’s mission emphasizes providing high-quality products at affordable prices, ensuring customer satisfaction, and creating a collaborative environment. The company focuses on simplicity, efficiency, and responsibility to achieve long-term success and growth in the retail industry.
References
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