Aldi Australia Case - Part 1
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Aldi Australia Case - Part 1 Aldi Australia Case - Part 1 Document Transcript

  • ALDI IN AUSTRALIA Case Study AnalysisName: Chrishan SmithStudent No.: 10220458Due Date: 19 April, 2010Lecturer’s Name: Mr. T.M. JayasekeraUnit Code: MAN3503Unit Title: Strategic Management
  • EXECUTIVE SUMMARYAldi is a well established German company and is famous for offering high quality productsfor low costs. Aldi entered the Australian market in 2001 and by 2004 it has achieved around2.5% market share.This report includes a PESTLE and Porter’s five forces analysis which identifies theopportunities and threats available within the Macro-environment in Australia and thegrocery industry. Even though the opportunities and threats are balanced to a certain extent,the industry analysis has proven that the existing grocery industry is turning out to be lessprofitable due to the high intensity among the competitors and the bargaining power ofcustomers.All most every firm follow a high quality, low cost strategy. However, Woolworth and Cole-Myer who has captured more than 2/3 of the market share, has a wide product range and anationwide distribution and wide product range. Therefore, it is important for Aldi to findmeans and ways to differentiate themselves and achieve sustainable competitive advantage.By analysing Aldi’s tangible/intangible resources and capabilities, this report has list downstrategic strengths, strategic necessities, and strategic weaknesses under the internal analysiswhich would be an assistance to determine the Sustainable Competitive Advantage factors.In addition, the Value Chain Analysis illustrates that Aldi is focused in creating value byreducing the cost and improving the quality of the products in each of its primary andsecondary activities which is ultimately proven as only strategic necessity.Therefore, it is important to read through this analysis before developing any future strategiesfor Aldi. Page | 1
  • TABLE OF CONTENTSEXECUTIVE SUMMARY ...................................................................................................................... 11.0 OVERVIEW OF ALDI AUSTRALIA .................................................................................................. 32.0 MACRO-ENVIRONMENT ANALYSIS ............................................................................................. 4 2.1 POLITICAL/LEGAL SEGMENT ..................................................................................................... 4 2.2 ECONOMIC SEGMENT .............................................................................................................. 4 2.3 SOCIO-CULTURAL SEGMENT .................................................................................................... 5 2.4 TECHNOLOGICAL SEGMENT ..................................................................................................... 6 2.5 ECOLOGICAL SEGMENT ............................................................................................................ 63.0 INDUSTRY ANALYSIS ................................................................................................................... 7 3.1 PORTER’S FIVE FORCES MODEL ................................................................................................ 74.0 COMPETITOR ANALYSIS .............................................................................................................. 9 4.1 STRATEGIC GROUP ANALYSIS ................................................................................................... 95.0 INTERNAL ANALYSIS .................................................................................................................. 10 5.1 RESOURCES AND CAPABILITIES .............................................................................................. 10 5.2 VALUE CHAIN ANALYSIS ......................................................................................................... 106.0 CONCLUSION ............................................................................................................................. 11REFERENCE...................................................................................................................................... 12APPENDICES .................................................................................................................................... 14 Appendix 1 – Graphs & Tables ..................................................................................................... 14 Appendix 2 - Glossary .................................................................................................................. 16 Appendix 3 – Political Parties in Australia..................................................................................... 17 Appendix 4 – Competitor Analysis ............................................................................................... 18 Appendix 5 – Competitive Implications from Resources ............................................................... 19 Appendix 6 – Value Chain Analysis ............................................................................................... 20 Page | 2
  • 1.0 OVERVIEW OF ALDI AUSTRALIAAldi South opened the first Aldi store in Sydney in January 2001 and by 2004, Aldi owned 44stores in New South Wales which is 5% of total packaged grocery expenditure in NSW, 20 inVictoria which is 2.5% and 08 in Queensland which is 1.4% respectively. The futureprediction of ACNielsen is that Aldi could own more than 300 stores and capture 10% of theAustralian packaged grocery dollar market by 2010. However, there are few majorcompetitors in the market such as Woolworths, Coles-Myer and Foodland Associated whichwould be a threat for Aldi Australia.Therefore it is important to study the current situation within ALDI Australia which wewould consider the year 2004/2005. This document will focus on the external aspects that canaffect Aldi’s performance. The strategies used by ALDI have been successful so far.However, there are still rooms for improvements that needed to be manifested. We will beconducting a Macro-environment analysis by using the PESTEL model to determine thefactors that influence the industry and the firms within it, a comprehensive industry analysisusing the Porter’s five forces model and a competitor analysis using the Strategic groupingmodel.It is important that Aldi differentiate themselves to maintain or increase their market share. Inthis report, we will be conducting a comprehensive Internal Analysis using the Value ChainModel and identify Aldi’s current strengths and weaknesses which will be an assistance todevelop strategies in the future. Page | 3
  • 2.0 MACRO-ENVIRONMENT ANALYSISThe general environment an important aspect to investigate since the effort should result inrecognition of environmental changes, trends, opportunities and threats in the political/legal,economical, socio-cultural, technological, and ecological segments. (Hanson et al, 2008) 2.1 POLITICAL/LEGAL SEGMENTLegal System –Australian’s follows the “Common law” legal system derived from English law. This isrelatively challenging for Aldi since it is German company and they are used to the “TheCode Law”. (Refer appendix 2)Political PartiesThere are two political groups that have a serious chance of forming government in Australiaand both believe in social democracy. (A Quick Guide to Australian Political Parties, n.d.) &(Refer appendix 3)Governments might change or new political parties might be elected, but the concern of themultinational corporation is the continuity of the set of rules or codes of behaviour and thecontinuation of the rule of law regardless of which government is in power. (Cateora et al,2007)Australian Retailers Association (ARA)The ARA has been encouraging, promoting and protecting retailers by providing education,support and mentoring for the past 100 years. The Federal, State and Local Governmentsregularly seek the opinions and views of the ARA when they undertake new projects, act tochange existing law or implement new legislations. (Government Submissions, n.d.) 2.2 ECONOMIC SEGMENTThe case study states that there may be a number of economic factors which would influenceconsumer confidence and consumer spending over the next few years. These factors include  Low national rate of saving, low household rate of saving (refer appendix, figure 1)  Falling house prices  High oil prices and it continues to rise. (refer appendix 1, figure 4) Page | 4
  •  Declining of GDP from 2003 onwards (refer appendix 1, figure 2)  High levels of household debt (refer appendix 1, figure 3)These are likely to have a negative impact on consumer spending patterns. However, thereare few positive economical factors which would beneficial for businesses and have apositive influence on customer spending patterns.  There is a continuous decrease in the unemployment percentage during the past 10years. (refer appendix 1, figure 2)  Declining of the inflation rate during the past 2 years. (refer appendix 1, figure 2) 2.3 SOCIO-CULTURAL SEGMENT  The population is continuing to grow within Australia and currently it is around 20 million. (refer appendix 1, Figure 5) As per the projections of the Australian Bureau of Statistics by 2031 it is expected to grow up to around 25million.  The number of people living alone is projected to increase from 1.8million in 2001 to between 2.8million and 3.7million in 2026 due to ageing population, delayed marriage and increases in divorce and separation. (Australian Bureau of Statistics, 2005) This would create a demand for more household items such as furniture, kitchenware, and gardening items etc.  English is the primary language. Yet their colourful vocabulary, accent, phonetics system and slang can take some time to get used to. (Australia – Culture, Customs and Etiquette n.d.)  Australia is a multicultural society. After World War II there was heavy migration from Europe, especially from Greece, Italy, Germany, the Netherlands, Yugoslavia, Lebanon, and Turkey. Currently there is a heavy migration from the South Asian and South East Asian Countries as well. (Australia – Culture, Customs and Etiquette n.d.)  Australians are very down to earth and value authenticity, sincerity and relationships. (Australia – Culture, Customs and Etiquette n.d.) Page | 5
  • 2.4 TECHNOLOGICAL SEGMENTNew Communication Technologies: The Internet and e-commerce have boosted theinternational competitiveness of Australian businesses. Many Australian firms are now usinginternet technology to expand into new foreign markets. Australia is today well connected,both domestically and internationally, with a modern fiber-optic backbone, satellite coverageand an extensive mobile network. (Department of Foreign Affairs and Trade, n.d.).Australians are more concerned about Quality & Standards – It is important to improvethe efficiency and quality of the products. A non-government organization named “StandardsAustralia” has been charged by the Commonwealth Government to meet Australia’s need forcontemporary, internationally aligned standards and related services. (Standards Australia,n.d.)Focused on Innovations, new businesses and improvements – It is relatively easy andencouraging to start a new business in Australia since most processes are online and it is veryconvenient. The organization, Innovation and Technology, Australia was established by theFederal Government to help the innovators and inventors develop, protect and commercialisenew ideas. (Innovation and Technology, Australia, n.d.) 2.5 ECOLOGICAL SEGMENTAustralia is the driest inhabited continent on earth, with the least amount of water in rivers,the lowest run-off and the smallest area of permanent wetlands of all the continents.Australian soils are highly dependent upon vegetation cover to generate nutrients and forstability. (Department of Foreign Affairs and Trade, n.d.).Australia is one of the most urbanized and coast-dwelling populations in the world. Morethan 80 per cent of Australians live within 100 kilometres of the coast. (Department of ForeignAffairs and Trade, n.d.).Human activity continues to exert pressure on marine environments. Pollution is the mostserious problem and the vast majority of marine pollution is caused by land based activities—soil erosion, fertilizer use, intensive animal production, sewage and other urban industrialdischarges. (Department of Foreign Affairs and Trade, n.d.). Page | 6
  • 3.0 INDUSTRY ANALYSISBased on Porter’s Five Forces Model analysis we would be analyzing the grocery industrywithin Australia. 3.1 PORTER’S FIVE FORCES MODELTHREAT OF NEW ENTRANTS - HIGHAldi is operating within the grocery industry and it is a promising area and with theincreasing population the demand would also continue to increase in the future. In addition,the Australian government is encouraging new businesses and innovations to the market andoften looks towards increasing the competition.However, small scale retail stores would have difficulties entering the market since“Economies of scale” plays a major role in this industry and they would require aconsiderable amount of capital and technology to survive. But as described in the case studylarge scale companies such as Tesco will have very less barriers to enter the Australianmarket.Retail Turnover (excluding vehicle and petrol sales) over the year to June 2004 reached$189billion, the highest level on record and growing at 8% per annum. (AC Nielsen GroceryReport, 2004) which would attract more competitors.BARGAINING POWER OF BUYERS – HIGHAlmost everyone is a potential customer for the grocery industry the demand is relativelyhigh. Since grocery products are low or medium involvement products buyers would bebargaining for the high quality products and greater levels of service for the lowest cost. Ifthey do not get it there is a possibility of customers switching to another company since thereis no high switching cost involved.Most grocery products are undifferentiated or standardized. Therefore, the buyers pose athreat if they were to integrate backward into the seller’s industry. (Hanson et al, 2008)Furthermore, by retailing via the Internet, consumers tend to increase their bargaining power. Page | 7
  • BARGAINING POWER OF SUPPLIERS – LOWIn order to be competitive in the retail industry in Australia a supplier should decrease costand increase the quality of products. The competitive firms focus on reducing cost andtherefore the bargaining power of suppliers is considered to be low.In addition, there are considerable amounts of large companies in the industry with strategiesto improve efficiency and reduce costs. For an example, Woolworth’s “Every Day LowPrice” (EDLP) strategy has involved in reducing prices for many national brands by pushingmanufacturers to cut their prices.THREAT OF SUBSTITUTE PRODUCTS – HIGHLarge scale supermarkets or shopping malls would be the primary threat for retail stores sincethe substitute product range in supermarkets would be far greater. They would not only focuson national brands, but will also offer home brands for a cheaper rate as substitutes. Inaddition, with the advent of new technologies stores or supermarkets would not hesitate tobring forward substitutes for the grocery and other household items available for a lesser costwith greater quality and performance.Fast food outlets such as McDonalds, Subway would also be substitutes for the food items ofthe grocery industry.INTENSITY OF RIVALRY AMONG COMPETITORS – HIGHAs stated in the case study there are many equally balanced companies in the groceryindustry and they compete well in the market by trying to provide the best quality for thelowest cost.According to the Coriolis research in 2000, even though they estimated around 3%-5%changes in the existing firms market share by 2005 (Refer appendix 1, figure 6), the battle haslead to a very minimum percentage change which is around 0-2%Most grocery products are undifferentiated and easy to imitate. Therefore, rivalry intensifiesand the purchasing decisions would be based primarily on price and to a lesser degree,service. Page | 8
  • 4.0 COMPETITOR ANALYSIS 4.1 STRATEGIC GROUP ANALYSISAs illustrated Woolworths and Coles-Myer has more than 2/3 of the total market share. Allthe firms included in this diagram follow a high quality, low cost strategy. However, as it isclearly displayed, Woolworth and Cole-Myer has a wide product range and a nationwidedistribution which have resulted in achieving a large proportion of the market share. IGA hasmanaged to maintain a 13.5% market share because of its wide range of products and theadvantage of entering the market in 1988. Comparing Foodland associates which has around2% market share and Aldi who has around 2.5% market share, Aldi has a better product rangethan Foodland and it continues to grow with its cost leadership strategy. Franklin has around11% market share which is mainly because they have been in the market over 50years and itis recognized as Australia’s original discount grocer.For more details on competitors refer appendix 4 Page | 9
  • 5.0 INTERNAL ANALYSIS 5.1 RESOURCES AND CAPABILITIESBased on the “Competitive Implications from Resources” model (refer appendix 5) there aresome resources and capabilities which acts as strategic necessities and some as strategicstrengths. The strategic strengths are the superior competencies Aldi posses and it has createda sustainable competitive advantage which leads to earn above average returns. (Ex: Lowlabour cost, one of the largest food retailers, high buying power and Uniform pricing system).Strategic necessities (Ex: Provide good quality low cost products, Distribution capability andsize of the store) are the minimum skills required to operate in the market and would leadtowards average returns.The resources and capabilities which lead to “Below average returns” under performanceimplication column are the strategic weaknesses (Ex: Opening hours, Product differentiationand the reputation in providing customer service) 5.2 VALUE CHAIN ANALYSISAldi is a typical “hard discounter” pursuing a Cost Leadership strategy. Based on the ValueChain Analysis (refer appendix 6) it is clear that Aldi is focused in creating value by reducingthe cost and improving the quality of the products in each of its primary and secondaryactivities. Page | 10
  • 6.0 CONCLUSIONConsidering the PESTLE analysis it is clear that there is a balance of threats andopportunities for Aldi within the Australian environment. But most economic factors haveturned against companies by affecting the consumer spending patterns.By analyzing the industry via Porter’s Five Forces model it is clear that the intensity amongcompetitors is very high and there is an emerging threat of substitutes and high bargainingpower of customers which would decrease the market attractiveness and profitability in thefuture.Most competitors in the grocery industry follow a similar strategy which is to provide thehigh quality products for a low cost. Currently Aldi posses the position as cost leader andcontinues to battle to maintain it. Competitors such as Woolworths and Coles-Myer have anationwide distribution strategy and have also started Internet retailing as well. Aldi was alate arriver to the Australian market and therefore posses a disadvantage since already Coles-Myer and Woolworth has captured more than 2/3 of the market share.In addition, the analysis of resources, capabilities and the value chain has lead to identify thestrengths and weaknesses. Even though Aldi is a new entrant to the grocery industry ofAustralia, they possess a few resources and capabilities which would give the sustainablecompetitive advantage. However, there are some weak elements which Aldi should overcomewhen developing new strategies in the future. Page | 11
  • REFERENCEA Quick Guide to Australian Political Parties (n.d.) Retrieved April 13, 2011 fromhttp://www.ldp.org.au/quiz/ozparties.htmlAC Nielsen Grocery Report (2004). Retail spending at record highs, but supermarketslagging behind. Retrieved April 11, 2011 fromhttp://www.acnielsen.com.au/files/GroRptCon04.pdfAustralia – Culture, Customs and Etiquette (n.d.) Retrieved April 12, 2011 fromKwintessential web site: http://www.kwintessential.co.uk/resources/global-etiquette/australia.htmlAustralian Bureau of Statistics. (2001, January 25). Year Book Australia (Cat. No. 1301.0)Retrieved April 12, 2011 fromhttp://www.abs.gov.au/gausstats/abs@.nsf/94713ad445ff1425ca25682000192af2/0b82c2f2654c3694ca2569de002139d9!OpenDocumentAustralian Bureau of Statistics. (2005, July 12). National and state population summarytable. (Cat. No. 4102.0) Retrieved April 12, 2011 fromhttp://www.abs.gov.au/AUSSTATS/abs@.nsf/Previousproducts/8EF24F9FE10EE078CA25703B0080CCAF?opendocumentAustralian Bureau of Statistics. (2010). Australian national accounts: National income,expenditure and product (Cat. No. 5206.0) Retrieved April 12, 2011 fromhttp://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/5206.0Main Features2Dec2010?opendocument&tabname=Summary&prodno=5206.0&issue=Dec 2010&num=&view=Cateora, P. R., Graham, J. L. & Salwan, P. (2007). International Marketing (13th ed.). NewDelhi: McGraw Hill.Coriolis Research (2000, May) Aldi in Australia: What will be the impact? Retrieved April13, 2011 from http://www.coriolisresearch.com/pdfs/coriolis_aldi_in_australia.pdf Page | 12
  • Department of Foreign Affairs and Trade (n.d.). Australias environment at a glance.Retrieved April 13, 2011 from http://www.dfat.gov.au/facts/ict.htmlDepartment of Foreign Affairs and Trade (n.d.). Information and communicationstechnology. Retrieved April 13, 2011 from http://www.dfat.gov.au/facts/ict.htmlGovernment Submissions (n.d.). Retrieved April 12, 2011 from the ARA website:http://www.retail.org.au/index.php/policy/government_submissionsHanson, D., Dowling, P. J., Hitt, M. A., Ireland, R. D. and Hoskisson, R. E. (2008). Strategicmanagement: competitiveness & globalization (3rd ed.) South Melbourne, Vic.: ThomsonLearning Australia.Innovation and Technology, Australia (n.d.). Retrieved April 13, 2011 fromhttp://www.innovation.org.au/Organization of the Petroleum Exporting Countries. (n.d.). OPEC Basket Price, RetrievedApril 13, 2011 from http://www.opec.org/opec_web/en/data_graphs/40.htmStable Economic Fundamentals Limit Downside Risk for Australian Residential PropertyPrices (2005, September) Retrieved April 12, 2011 fromhttp://www2.standardandpoors.com/spf/pdf/fixedincome/09-16-05_AustralianResidentialProperty.pdfStandards Australia (n.d.). Developing Standards. Retrieved April 12, 2011 fromhttp://www.standards.org.au/DevelopingStandards/WhatisaStandard.aspx Page | 13
  • APPENDICES Appendix 1 – Graphs & TablesStandard & Figure 1: Household Saving Ratio – (Australian Bureau of Statistics, 2010) Figure 2: Key Economic Indicators – (Stable Economic Fu…, 2005) Page | 14
  • Figure 3: Household Debt and Household Wealth - (Stable Economic Fu…, 2005) Figure 4: OPEC Basket price - (OPEC, n.d.) Figure 5: Population: National Summary - (Australian Bureau of Statistics, 2005) Page | 15
  • Figure 6: 2000-2005 Australian Grocery Market Share – (Coriolis Research, 2000) Appendix 2 - GlossaryCommon law – The body of law which seeks interpretation through the past decisions ofhigher courts which interpret the same statutes or apply established and customary principlesof law to a similar set of facts.Code Law – The body of law which is based on all-inclusive system of written rules (codesof law). Page | 16
  • Appendix 3 – Political Parties in AustraliaMajor partiesThe Australian Labor Party (ALP) has been traditionally seen as "centre-left" and has historicties with the union movement. However, it was the ALP that introduced free-market reformin the 1980s and is sometimes now considered more "centre" than "left". (A Quick Guide toAustralian Political Parties, n.d.)The Coalition is an alliance between the urban-based Liberal Party and the rural-basedNational Party. These two parties have been traditionally seen as "conservative" or "centre-right" and have historic ties with the business and farming communities. (A Quick Guide toAustralian Political Parties, n.d.)Minor partiesThere are three other parties with federal representation in the Senate. The largest "minor"party over the last 20 years has been the Australian Democrats, which was originally acentrist party but drifted to the left over time. In their place, the Greens have become the thirdforce in Australian politics. They are the most left-wing party in parliament and promotesocial freedoms and government intervention in the economy. They currently have fiveSenators. The other minor party in Parliament is Family First, who had their first Senatorelected in 2004. Family first combines social conservatism with economic centrism andgenerally supports the Coalition. (A Quick Guide to Australian Political Parties, n.d.)Micro partiesAustralia has about a dozen other political parties that represent various other groups. Theconservative right is represented by the Christian Democrats, One Nation, the Shooters andFishers Party, the Democratic Labour Party and the Fishing & Lifestyle Party. These partiesgenerally support Family First and the Coalition. The radical left is represented by theSocialist Alliance and the Socialist Equality Party. These parties generally support the Greensand the ALP. (A Quick Guide to Australian Political Parties, n.d.) Page | 17
  • Appendix 4 – Competitor Analysis Page | 18
  • Appendix 5 – Competitive Implications from Resources Page | 19
  • Appendix 6 – Value Chain Analysis Page | 20
  • Page | 21