Aldi - A Low-cost Retail Giants Distinctive Business Practices

About Aldi
Global discount supermarket chain Established in Germany in 1913. Two separate groups: About 9235 stores throughout the world i.e. in Australia, Europe and USA. 40% market share among grocery retailers.
Aldi Nord Aldi Sud

German Retail Market

Valued at about $390 billion or $496 billion. Third largest retail market. Dominated by hard discounters. Biggest Retailers:

Despite huge size of the market very low growth rate in early 2000s almost 1%.

Reasons for slow growth..

Market Saturation large no. of stores Low retail spending Extremely price conscious consumers Restrained consumer spending - 58% of consumers shopped regularly at hard discount stores. Sector accounted for one in four business failures.

Exit Of Wal-mart
German market major challenge for foreign retailers. Seven global retailers, including Wal-mart were forced out inability to adapt to the market. Main Reasons Hard discounting and cultural roadblocks Other retailers include Gap Inc., Laura Ashley Holdings Plc, Marks and Spencers, HMV Group, Gruppo Coin etc.

Aldi - History
Born to a miner in East Germany. Mother owned a grocery Store Incorporated Albrecht Discount Company with 13 stores in Germany First supermarket store called Aldi. Split between two brothers to Aldi Nord and Aldi Sud Became one biggest business enterprises in Europe

1920/1922

1945

1948

1960

1961

1990

2000

2006

Took over the store. Expanded business rapidly.

300 discount Stores in Germany. International expansion in Europe, Australia and USA

Diversified to textiles, hard goods and electronics. 3000 stores in Germany.

7000 stores. Featured into Worlds Richest People. Accounted for 40% of grocery sales.

Aldis Business Strategies

Aldis Way of Working

Business model based on simplicity and efficiency. Motto Top quality at incredibly low prices guaranteed. Both companies followed same strategies and operated on same business model. Business model aimed at keeping costs low.

Keep it simple Strive to earn your customers trust. Set your goals and follow them rigorously. Improve details daily. Dont optimize, maximize. Know where you stand, but dont waste time on budgets and figures. Test now, perfect later. Be fair to your suppliers and help them improve their business. Practice management by trust and control. Talk in terms that people can understand. Stay thrifty and frugal.

Secrets of Aldis Success

Product Strategy
Stores carried limited variety of FMCG products. Specialized in staple products food, beverages, household supplies etc.
Aldi
700 products

Walmart
150,000 products

Traditional Retailer
25,000 products

Better control on price and quality of each product.

Procuring Products
Floated tenders for each product Allowed suppliers to bid for them. One size to simplify shipping and operations. Buy products in bulk from suppliers reducing costs. Carried products easy to handle in operational terms save additional operating cost. Sold only prepackaged meat and bakery products avoided selling fresh.

Aldis Private Labels

Relied heavily on private labels 90% of the products priced 30% lower than regular brands, Private label manufacturers were suppliers to regular brands. No spending on fancy packaging. Shoppers found little quality difference between regular brands and Aldis private labels. Good value for money.

 Did not carry more than 2 different brands of 2 products one size. Stock turnover high. Simplified billing process. Offered double guarantee on all its products refund as well as free replacement. Low prices not perceived as low quality.

Weekly Special Buys

Special sales two days of the week. Sold products not usually available Appliances, clothes, toys, computers etc. Products changed every week and were sold in limited quantities. Publicized through fliers and website. Strategic alliance with Medion AG. Median benefitted from Aldis market reach and Aldi freed from complex product development.

Small Stores
Limited assortment required small sales area. Small stores of 15,000 square feet. Retail space expensive in Germany limited variety and small stores, a success. Located at shopping centers and retail properties. Same size and similar layout increased familiarity.

 Due to small size, Aldis sales per square meter were around 8,650, against an average of 4,000 for traditional supermarkets. Aldi incurred lower staffing and maintenance costs Customers liked the small size of the stores - could get in and out much faster than large stores.

No Frills Setup
No unecessary decorations. No fancy layouts or product displays. Saved time-consuming activities of setting up product displays and stacking shelves. Easier to replenish stock. Food products like flour, fruits, and vegetables were sold loose. Did not provide grocery bags to customers. Aldi did not employ greeters and baggers at its stores

Low-cost way to manage the use of shopping carts. Limited store hours. No listed complaint or query number. All complaints and enquiries had to be made in person to the manager on duty at the store.

No Advertising
Minimum advertising Communication through weekly newsletter distributed in stores or through direct mails. Newspaper advertisements. In UK & US,
Weekly newspaper inserts and TV ads. Reference to products that won awards in group test by popular magazines like Womens Own etc.

In Australia,

Ads in local newpapers and distribution of leaflet, direct mails etc.

Newsletters

Newspaper Ads

Social media or online ads

Simplified Operations

Personnel Planning
Simple operational setup minimum employees - low wage bill. Average three employees per store 1 store manager and 2 assistants Multitasking required Unloading stock, keeping store clean, attending customers, billing etc. Average salary twice than other supermarkets. Personnel costs 3% of sales. Limited working hours.

Billing Process
Limited assortment easier billing process. Before barcodes were introduced memorized prices or would look up in price registers Introduction of barcodes - longer ones easy to scan. Cashiers kept change to be returned while the customer is still taking out money

Organization Structure
Aldis organization structure helped control operational costs. Aldis flat structure meant that operational complications were eliminated. Managing directors were familiar with the nuances of the business and could take effective decisions.

Board of Directors

Decisions about companys future strategy and growth.

Takes important decisions concerning region.

Managing Director

Regions

Geographic area 50 to 80 stores

Stores

Organization structure

Inventory Management
Aldi had bare bones approach to inventory management. High inventory turnover rate, supported by a well-developed logistics system. Regional logistics centers, in regular contact with the vendors to ensure that stocks were replenished at the right time. Regional center supplied to all the stores within a 50 kilometer radius. Shipping expenses up to the distribution centers borne by the suppliers. About 5% of the goods were shipped directly to the stores by suppliers. Rest to distribution centers - immediately cross-docked to lower inventory holding costs.

Vendor Management
Took care in selecting vendors, developing and maintaining close ties with them. No multiple vendors for any product. Entered into a strategic alliance with that vendor to procure the required stocks at considerably reduced prices. Aldis careful attention to costs worked to the companys advantage. Operating margin 9.3%; Walmart 5.9%

International Expansion
Aldi entered overseas markets in 1967. It purchased the Hofer chain of supermarkets in Austria. Expanded rapidly across Europe, as well as to Australia and the US. Expansion was mostly financed from internal cash accruals, thus Aldi reportedly had very low debt. Aldi Sd - Australia, UK, Slovenia, Switzerland, US Aldi Nord - Belgium, Denmark, France, Luxembourg, Netherlands, Portugal, Spain. Both companies operated in Germany with territorial demarcations.

 Aldi followed the same strategy as its German operations in its international markets with some minor differences. It was forced to stock certain brands due to its popularity and demand. In Australia, Aldi had to stock the Vegemite23 sandwich spread and Nescafe, which was very popular in the country. In Australia, the UK, and the US, Aldi sold pre-packaged fruits and vegetables, which made it easy to pick them.

Aldis Failures
Aldis discount model was not a uniform success in all the countries. Failed in Ireland as consumers did not like its no-frills business model. Irish customers were reportedly:
not as price conscious as their counterparts in other countries preferred stores which offered a wide selection of products Stores with the merchandise attractively laid out.

Future Plans
Aldis growth has slowed down saturation of German market. More than 80% Germans live within 20 minutes of an Aldi store. Low scope for exploring new segments. Competitors expanding rapidly in Europe. Global retail industry trend complete shopping experience to customers.

Thank You.