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EXECUTIVE SUMMARY

This report gives a comprehensive analysis of the nature of ALDI’s marketing strategy since it began and strategic marketing options for ALDI moving forward. The report first focusses introduction and background of ALDI supermarket. Under background information, the paper outlines the year of ALDI’s creation, its operational characteristics, its entry into Australian market and its major branches, ALDI North and ALDI South. The paper then covers marketing strategy of the retailer, starting with the marketing strategy that it has used since its opening. The identified marketing strategy used by the organization is cost leadership. Here, the paper covers four key elements that make up the low cost strategy used by ALDI. They include price change policy, limited product range, focus and provision of exclusively branded products. The paper then proceeds and covers strategic marketing options for ALDI moving forward. Under this section, the paper briefly presents Porter’s five forces that relate to the current performance of ALDI in the market. These include bargaining power of the customers, threat of new entrant, threat of substitute product, competitive rivalry within retail industry, and bargaining power of suppliers. The paper then proceeds to propose that ALDI should focus on expansion and balancing of its marketing mix as a strategy for future growth.

Introduction

In this increasingly competitive market, consumers have a wide range of choices of where to source their products. For firms to maintain their relevance and meet their business objectives, they have to be creative and find unique ways of satisfying their consumers adequately. To create a competitive advantage, every business outlet must have a unique strategy with clear goals to ensure an effective promotional activity. ALDI is an international company known for providing high quality products to its consumers at exceptional prices. The current strategy that is widely used by the company to control most of the retail market is cost leadership (Voigt et al., 2017).

Company Background

ALDI was established in Germany in 1913 and entered the Australian market in 2001 (Voigt et al., 2017). It was the first grocery store to introduce the concept of discount retailing within the Australian market. ALDI’s mission has consistently been to operate discount supermarkets by offering great quality products at lower prices. ALDI is German’s largest retailer and operates as ALDI North and ALDI South. In Australia it operates as ALDI South and forms a perfect exemplification of the most efficiently operated retailer. The organization operates as a value for money retailer whose focus is price leadership.

ALDI’s structure has three major characteristics. According to Metzger (2014), the first characteristic is its flexibility based on formalization of key elements and clear reporting lines which allow consensus decision making and quick information flow. The second is decentralization. Since its warehouses can only support seventy stores, several other warehouses get opened every time the existing stores are filled. The third characteristic is minimization of organization’s functions. ALDI focuses on cost minimization and core business value. It has no legal, information and technology, public relations or human resource departments (Metzger, 2014). Minimal variety of goods and efficient processes within the company has enabled it to attain a competitive advantage over the markets it operates within.

Marketing Analysis

The Nature of Aldi’s Marketing Strategy since it began

Since its creation, ALDI has operated on one main strategy, cost leadership. Under this strategy, ALDI has been able to provide high quality products at low prices thus promoting its immense growth. There are a number of examples of cost leadership strategy implementation used by the organization. The first one is its approach of buying land on the outskirts of cities, employing slim staff, and building of cheap warehouses. Secondly, it stocks narrow range of products about 700 different products while a standard supermarket usually stocks between 25000 and 30,000 different products (Chung, 2015). Thirdly, ALDI stores employ four to five people while a standard supermarket employs at least fifteen people.

There are four key elements that make up the low cost strategy used by ALDI. They include price change policy, limited product range, focus and provision of exclusively branded products (Chung, 2015). The focus of ALDI on exclusively branded products form the cornerstone of its price leadership. The organization forms various partnerships with big manufacturers to produce its own brand of goods. As such, their products remain unique in the market and cannot be easily substituted by its competitors.

Secondly, ALDI uses a small range of products to ensure it reduces operational cost thus the overall product cost. In terms of product characteristics, the organization only stocks products that have successful properties in terms of variation and size. It does this by determining successful characteristics of the product with regard to market preference. It then seek suppliers who can provide it with such products at a competitive market price. Therefore, the products provided by the supermarket are offered on the most popular variation and sizes (Michalakeas et al, 2015). By stocking only the most popular products in their preferred sizes, ALDI significantly reduces overall cost.

Thirdly, ALDI’s cost leadership strategy uses a strict focus on its core business operation (Michalakeas et al, 2015). The organization does not follow practices of expanding retail services to include online shopping, pharmaceuticals and petrol as practiced by its major competitors. At times, when it deviates from its core services and conduct surprise buying of electronics and other products, it ensures that such services are only offered within a fixed time period. The ‘surprise buys’ is usually used by the supermarket to conform to its high quality product and low price policy (Michalakeas et al, 2015).

Fourthly, ALDI uses its price change policy to ensure it maintains its cost leadership strategy. This policy enables ALDI to be the first retailer to pass lower costs to its customers and the last to pass increased prices when operational costs increases (Jenkins & Williamson, 2015). Such changes are pointed out to customers through notes that are placed on the cartons from the store. In summary, ALDI has shown that its focus on a simple, efficient and lean business is critical in maintaining its discount rates to the customers. The retailer standardizes and simplifies most of its operations to keep operational costs as low as possible. It then transfers such operational savings on to the customers by offering low priced quality products (Jenkins & Williamson, 2015).

Strategic Marketing Options for Aldi moving forward

After sixteen years of operation in Australia, ALDI’s growth rate is slowly leveling out. This is because other incoming supermarkets have taken up the challenge of pricing. It is thus imperative for ALDI to ensure that its prices remain lower than its competitors’ and ensure its products maintains high quality reputation (Dagevos, 2016). This is critical since competition in the food industry is projected to increase due to economic factors that will negatively influence consumer purchasing power and confidence for the next five years. Such factors include increased amounts of household debts, increased interest and unemployment rates and low rates on savings (Voigt et al., 2017).

There are five main competitive forces which jointly determine the intensity of competition and profitability currently faced by ALDI. They give a brief overview of the current status of the competitive market that ALDI operates within. These forces are known as Porter’s 5 forces and they can be linked to the organization’s SWOT analysis. The first one is threat of new entrant. For instance, in Australia, there are new low cost groceries like Wal-Mart and farmers selling their products at cheaper prices to customers (Dagevos, 2016). These new entrants have started to divide ALDI’s customers thus reducing profit share of the supermarket.

The second force is threat of a substitute product. There is little threat from substitute product to ALDI’s products. However, if such a scenario occurs, it may result in major damages to the performance of the retail shop. This is because ALDI deals in everyday products that need to be fresh and in good condition all the time. Therefore, delays in their selling as a result of substitute products can be devastating. Bargaining power of suppliers is the third force. ALDI currently source its products from leading manufactures which act as its raw material suppliers. These manufacturers can decide to sell the raw materials to ALDI at higher prices or monopolize their operations thus affecting the ability of the supermarket to sell its products at low prices (Grewal et al., 2017). At times, these low price suppliers may compromise the quality of the products.

Fourthly, bargaining power of the customers is critical. Before opening new stores in particular locations, ALDI will have to analyze the economic situations of such places to determine the customers’ buying power. Additionally, before fixing a particular price, ALDI will need to determine consumer taste and any available substitute products to ensure successful market penetration.  The last force is competitive rivalry within the retail industry.  For instance in Australia, the main rivals of ALDI are Woolworths and Coles. Such competitors can merge together to increase their economies of scales, thus allowing them to reduce prices dramatically (Grewal et al., 2017). At times they may come up with such an action that can immensely impact ALDI and its operations.

Marketing Mix Strategy

ALDI should focus on marketing mix strategy to ensure its success in the increasingly competitive market. Due to the immense competition in the retail industry today and its projected increase, ALDI needs to focus on expanding and balancing its marketing mix as a strategy to remain dominant in the market. Under product element of the strategy, ALDI must continuously improve the quality of its products. This will allow the supermarket to be better equipped with the projected changes in the industry. If ALDI focusses on quality improvement it will easily take advantage of the cropping opportunities and eliminate threats in the market (Steenkamp, 2017). Also, the retailer can diversify its product line by not only supplying food products but also incorporating cloth line of business. Currently, it sells clothes, electronics and furniture only on special occasions. Including such products as regular sections within the supermarket will ensure that it attracts a wide base of consumers.

Competitive pricing used by ALDI to set its prices is currently used by new entrants in the industry. To maintain its performance in the future, ALDI will have to use both market penetration and competitive pricing strategies. This is because, market penetration pricing will allow ALDI to enter and achieve a greater market share in new locations (Steenkamp, 2017). The competitive pricing will ensure maintenance of the existing customers by driving them towards ALDI’s products. To maintain its low cost product provision in this competitive market, ALDI will have to increase the volume of its products to help it expand its economies of scale. This will increase its savings and help it provide low cost products while remaining profitable in the market.

To ensure its success in the future market, ALDI needs to increase its reach to end users of its products. First, the retailer must increase the number of its distribution centers in countries of its existence. Secondly, it must incorporate public relations and marketing skills as core abilities of the people tasked with supplying of its products. Lastly, ALDI should increase its above-the-line and below-the-line promotions to increase its existing market share. The organization must continuously remind the customers of its key values and quality messages through newspapers, in store posters, advertising in televisions, and printed outlets (Steenkamp, 2017). Also, it can consistently reach customers through social media platforms, emails and offering of awards to top buyers.

Conclusion

Since its creation, ALDI has operated on one main strategy, cost leadership. This strategy has four major elements which include price change policy, limited product range, focus and provision of exclusively branded products. This strategy has enabled the supermarket to capture a huge market share in countries it operates. However, with increased price competitions from other groceries and supermarkets, the company needs to focus on expanding and balancing its marketing mix as a strategy to help it remain profitable in the future.