The purpose of this report is to evaluate the strategy of Aldi grocery stores in Australia based upon the “Aldi in Australia” case study in response to the challenges faced by the company and the total grocery industry. This evaluation is done by using a strategic analysis of environment and the industry as well as the company, present strategic choices and recommended new strategic initiatives and areas for improving strategy implementation using Macro-environment analysis, Industry analysis and Internal analysis.
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Aldi the German based retail store was established in 1948 by two determined brothers Theo & Karl and today has turned in to one of the world’s biggest global food retailers owning more than 7000 stores worldwide. Aldi started business in Australia in 2001 and has grown rapidly over the years. Aldi follows a worldwide policy of ‘providing people the highest quality products at low prices’ and that has been the strategy behind Aldi’s success. (Aldi Australia, 2008) But in the recent past Aldi in Australia face several challenges which they had to overcome in order gain the much needed competitive advantage.
In this report, the Macro environmental analysis has been analyzed using thePESTEL analysisand the industry analysis has been carried out through Porters five forces analysis, strategic grouping modelandperceived value analysis. For the internal analysis, value chain analysisand Barney’s frameworkhave been applied to highlight the resources and the capabilities of the company. Further a SWOT analysis was performed to identify the company strengths and weaknesses as well as identify the opportunities and threats from the external environment.
In the final part of the report, theunproductive strategic decisions have identified and suggested the recommendations to overcome the challenges faced by Aldi in Australiaand to achieve the competitiveadvantage in the future.
Table of Contents
The following report is based on the case study ‘Aldi in Australia’ and the main purpose is to identify the critical challenges that ‘Aldi’ currently faces in Australia. Aldi the German based retail store was established in 1948 by two determined brothers Theo & Karl and today has turned in to one of the world’s biggest global food retailer owning more than 7000 stores worldwide. Aldi started business in Australia in 2001 and has grown rapidly over the years. Aldi follows a worldwide policy of ‘providing people the highest quality products at low prices’ and that has been the strategy behind Aldi’s success.
The current challenges that Aldi might have to face have been identified below and as to the consultancy service several strategic management solutions for the current critical challenges that Aldi faces has been suggested after a in depth internal as well as external analysis.Macro environmental analysis has been analyzed using the PESTEL analysis and the industry analysis has been carried out through Porters five forces analysis, strategic grouping modelandperceived value analysis. For the internal analysis, value chain analysis and Barney’s framework have been applied to highlight the resources and the capabilities of the company. Further a SWOT analysis was performed to identify the company strengths and weaknesses as well as identify the opportunities and threats from the external environment. After the in depth analysis several recommendations has been provided for strategic management in the future for Aldi to over come the challenges.
1.1 Challenges that Aldi in Australia faces
As to the case study there are two main critical challenges that Aldi might face in the near future has been identified.
Maintain the lower price good quality strategy further because of the tense competition.
Entry of major global players into the market.
Apart from the above mentioned challenges they might have several other issues such as limited assortment strategy, changing consumer needs and limited usage of technology which they needs to look into in serious terms to gain the much needed competitive advantage.
2.0 Macro Environment
Macro environment includes the general influences that affect an industry. Those general influences are economic, political, technological, legal, socio cultural, demographic, sustainability and international trends.
Macro environmental analysis for the Aldi in Australia has been carried out using the PESTEL analysis, identifying major trends affecting the future growth of grocery market and the future predicted rate of change in the industry ( faster or slower than average industry growth rates).
2.1 PESTEL analysis
PESTEL analysis illustrates the six main elements which influence business operation in various situations in the macro analysis. This analysis has been carried out under several elements namely, political-legal, economical, socio-cultural, technological and ecological environments in relation with the case study.
2.1.1 Political – Legal environment
Change in government tax policy – As the governing political parties changes the taxation policies according to their agendas it could be considered as an uncertain factor.
Food standard code established by FSANZ- Establishing standards on food and beverage industry affect the grocery industry in many ways it creates a barriers to new entrants and give close supervision.
Government policy to protect home country products – As the government intervenes with protectionism measures like tariffs to protect Australian products and brands and that may have an impact for Aldi’s future growth in Australia.
Australian employment policy – According to the investment policy any international firm can carry out operations if they are providing employment to the Australians. (Aussiehome, 2010)
Industry protectionism & support through AFGC – As the Australian food & grocery council combines all the packaged food, drinks and the grocery products manufactures it would be very much effective to have the industry going positively. (AFGC, 2010)
Growing concerns for packaged food – As the concerns are high on the packaged grocery industry the legal requirements would also be high and the government will have a much closer intervention through policies & procedures in the future to provide best quality products.
2.1.2 Economical environment
Australia is ranked as the sixth fastest growing new economy traders and that has attracted worldwide investments in to Australia.
Australian economic growth rate is 2.7% according to the Australian department of foreign trade. Also the current unemployment rate is at 4.9% and it is predicted to be increased. ( Trading economics, 2010)
High fuel prices will definitely have a direct impact on the low price strategy and as to the competitiveness of the market it would have a negative impact to Aldi.
In the past few months Australian dollar being strong without much fluctuations could be considered as a positive economic factor for Aldi.
Average disposable house hold income and possible increase in interest rate would also have a greater impact.
2.1.3 Social-cultural environment
Increased demand for the packaged grocery items in the recentpast as to the changing life style patterns of the Australian population.
Higher preference for the home made products and brands.
The population could be considered as very diverse population and as the number is increasing it could create some opportunities.
Low spending culture along with the market trends and health conscious culture.
Australians are more eco-friendly as well as concerned about ethics and practices such procedures so the organizations that follows such procedures will be benefited.
2.1.4 Technological environment
Online shopping systems could be upgraded in the grocery industry in Australia.
New packaging innovations could be done in order to upgrade the quality of the products and at the same time to differentiate the products/brands.
Advertising through internet and emails could be practiced more often using viral marketing could be a vital in the competitive industry.
Provide other technological facilities that would be helpful while shopping to add some unique features.
2.1.5 Ecological environment
Australian are more eco-friendly despite being a very diverse nation.
Increasing worldwide concerns over environmental pollution should force the relevant authorities to change the laws in Australia.
People as well as number of organizations saying no to polythene bags or has reduce the usage in the recent past.
3.0 Industry Analysis
Industry analysis includes the factors within the industry that affect both profitability and the competitive position of organizations with in it. “Industry” is a group of organizations or business units that produces similar or close substitutes. Here the analysis part, “industry” stands for the organization, competitors, strategic groups, customers, suppliers,substitutes and potential new entrants.
3.1 Porter’s five forces
3.1.1 Threats of new entrants
Threats of new entrants could be considered as high as the grocery industry is very much easy to duplicate as if one competitor’s strategy could be easily copied and implemented better by another in the market. Even though there are some concerns in legal requirements when entering to Australia for business as the case study stated except for the current competition that Aldi has from several major firms they should be expecting some challenge from several global competitors such as Wal-Mart, Tesco and their direct competitors from Europe Lidl which all are eyeing to start business in Australia and therefore Aldi has to be prepared for the competition which might rise because of new entrants to the market.
3.1.2 Threat of substitution
Threat of substitutes could be considered as high as there are number of competitors globally and also in Australia that gives identically similar products to the customers. The switching cost could be low as if customers are not satisfied they could switch to another similar product which is on the market and this could be based upon customer dissatisfaction or regarding price as people are very much price sensitive they tend to switch because the product qualities are similar. Aldi could have a slighter edge over other competitors as people’s mind set about Aldi is ‘low price, good quality.’
3.1.3 Bargaining power of suppliers
Bargaining power of suppliers could be considered as low as in the industry they are number of suppliers which offers similar services and to a global chain like Aldi there would be number of options and therefore they could go for the supplier with the cheapest price as it will help them to lower their product prices. Backward integration of large retailers like Aldi has lower the bargaining power of suppliers more.
3.1.4 Bargaining power of buyers
Bargaining power of buyers could be considered as moderate as there are number of buyers in the market and number of product options are available to the customers the switching cost is very low therefore buyers easily tend to switch from one brand to another. But as people are very much price oriented Aldi has an advantage as they have already set the minds of buyers as ‘highest quality at cheapest rate.’
3.1.5 Competitive rivalry
Competitive rivalry could be considered as high as there are number of major players already in the market that provide services in the same manner as Aldi does. Also there could be more competition from several global giants in the near future which will make life tough for Aldi. As the products the strategies could also be similar and as the product pricing as well as the quality are somewhat similar among the competitors the existing competition could be even higher.
The threat of new entrants is high, the threat of substitutes is also high. The bargaining power of supplier is low, the bargaining power of buyer is moderate and the competitive rivalry is high. Therefore the industry profitability could be considered as low-moderate in the Australian grocery industry.(Refer Appendix – 1)
3.2 Strategic group model
Strategic groups are the competitors with in an industry that compete closely against each other. There are groups consist with competitors competing along similar strategic dimensions.In accordance to the Aldi in Australia case study there are several major competitors such as Woolworths, Coles-Myer, IGAall has a similar strategy where as other organizations in the industry have either a different strategy or different target product market. (Hubbard,G.,Rice,,J.,&Beamish,P.(2008)pg86)(Refer Appendix – 2)
3.3 Perceived value analysis
Perceived value analysis helps to identify the positions of each competitor in the industry through customer perception. As to an annual research carried out in Australia Aldi has been the proven top of the mind brand as well as has the most satisfied customer base in the industry beating other major players comprehensively. (Refer Appendix – 3)
4.0 Internal Analysis
An internal analysis should be conducted in-order to identify the strengths and weaknesses of an organization. It also assist the firm to find-out its resources and capabilities in-order to utilize those resources to the best potential. Value chain analysisand VRIO model has been used to analyze the internal aspect.
4.1 Value chain analysis
Value Chain by Michel porter describes the activities that take place in a business and relates them to analysis of the competitive strengths of the business. It consist primary activities and support activities.(Thompson, 2001)
Primary activities: Directly concerned with creating & delivering a product. This includes;inbound logistics, operations, out bound logistics, marketing/sales and services.
Support activities: They increase the effectiveness and efficiency of the activities. This consists of procurement, technology development, human resource management and infrastructure.
When gaining a competitive advantage, through the Value chain, a company has to differentiate itself through performing the value chain activities better than the competitors. In order to add value to the customer, the value obtained by the activities should exceed the cost of running them. Aldi grocery stores value chain has been discussed in depth. (Refer Appendix – 4)
4.2 Key capabilities that gains competitive advantage (Barney’s Framework)
According to the case study Aldi would enjoy sustained competitive advantage through capabilities such as valuable, rare, difficult to imitate and lack of substitutes. The value chain of Aldi is based on minimizing costs at all levels while maintaining ‘high quality at low price.’ The organizational culture, people as well as the infrastructure could be considered as competencies that Aldi has to gain the competitive advantage. (Refer Appendix – 5)
5.0 SWOT Analysis
SWOT analysis has been carried out in accordance with Aldi in Australia case study to identify the internal Strengths & Weaknesses that would impact the Aldi grocery stores and also to identify the Opportunities & Threats in the external environment that would impact Aldi.
Strong base in Germany for number of year along with the strong brand image.
Increasing reputation of quality & international recognition.
The simple organizational culture and the unique organizational operational system.
Higher control over their products as they have their own products & brands.
Limited number of quality products at a relatively low price than competitors.
Wide range of owned brand products helps to gain cost efficiency.
Fewer well trained staff and less number of working hours could be cost effective.
Even though low spending on advertising, Aldi has gained third place in Germany.
Having good relationship with the Customers as well as the Suppliers.
Continues research & analysis on lesser demand products & replacing them.
Maintain the quality standards that they have set to have the edge over competitors.
Higher buying power and costs control of its products.
Savings in terms of the customers as well as the company through cost cutting.
Regular product testing & sampling in stores by mangers to maintain the standards.
Limited product range could be a weakness as lack of product differentiation.
Low brand name loyalty as some manufactures refuse to associate their name.
Manual systems usage in day to day activities reduces the efficiency levels.
Very much limited usage of technology in operations compared with competitors.
Depending on few well trained staff could also be considered as a weakness.
Less advertising and public relations to stay customer oriented.
Low borrow ability from market as they mostly have owned product brands.
Capitalize on the lowest cost positioning.
Expanding into other markets such as house brands which are very attractive.
Spending more on advertising will attract more as customers.
Diversification methods could be carried out as competitors to earn more profits.
Increase market penetration.
Implement new systems to maintain the quality standards.
Cater to diverse Australian population and modern market trends.
Value of Euro/dollar is greater than the Australian dollar.
Globalization will attract major competitors in the near future.
As to the competitive environment the competitive advantage could be temporary.
Organization culture could resist such massive expansion or it could affect the culture.
Number of differentiation strategies carried out by the competitors.
As to the low spending culture would force them to stick t the low price strategy.
Limited usage of technology as competitors’ are moving forward effectively.
Even though the limited assortment strategy has been successful for Aldi up to now it is important to differentiate the product offering to combat competition and incur greater profit and to be successful in the long run.
Aldi should focus on their new strategy of moving into other regions through store roll-out program as they have already planned and it will help them to be competitive as well as to earn profits in the long run.
Maintain the ‘highest quality lower price’ strategy as it could be considered as the sustainable competitive advantage for Aldi over other competitors.
Even though usage of technology is not in the core values of Aldi it is necessary to make use of the technology, strategizing in order to be more competitive, diverse and to be unique.
Even though Aldi remains the top of the mind grocery store in many parts in Australia they should look forward to advertising and publicity in order to attract more customers and remind the existing client tail about the ‘low price highest quality strategy.
Aldi should look forward to institutional marketing where they should establish stores inside hospitals and commercial buildings where it reaches a larger audience. If Aldi initiates this strategy they could attract more customers in the future.
This report has critically discussed the current strategies of Aldi in Australia and several challenges that they might face in the future. The recommendations have been made after in depth analysis of the internal and external environments that Aldi competes in.
The macro environmental analysis has been analyzed using thePESTEL analysis and the industry analysis has been carried out through Porters five forces analysis, strategic grouping modelandperceived value analysis. For the internal analysis, value chain analysis and Barney’s framework have been applied to highlight the resources and the capabilities of the company. Further a SWOT analysis was performed to identify the company strengths and weaknesses as well as identify the opportunities and threats from the external environment.
Aldi should reconsider their strategy and take the given recommendation in to consideration in order to gain the much needed competitive advantage to become successful in the long run.
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Appendix – 1
Porter’s five forcesC:UsersChalaniDesktopAchalasm case – 1Porter-5-forces-model.jpg
Retrieved from Mindtools (2010)
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