1. ALDI IN AUSTRALIA
CASE ANALYSIS - PART 2
Strategy Identification and Implementation
Name: Chrishan Smith
Student No.: 10220458
Due Date: 31 May, 2011
Lecturer’s Name: Mr. T.M. Jayasekera
Unit Code: MAN3503
Unit Title: Strategic Management
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EXECUTIVE SUMMARY
Aldi is known as the world’s lowest cost grocery retailer and acts as a category killer in core
grocery lines and it owns 72 stores in New South Wales, Victoria and Queensland. This
document provides the current business strategy of Aldi, evaluation of the appropriateness of
its current organizational structure, reasons for Aldi Australia to expand globally and
recommendations for Aldi Australia to implement its global strategy.
Aldi Australia is a typical ‘hard discounter’ pursuing a cost leadership strategy (justification
are provided by using Aldi’s value chain). It focuses on selling no-frill goods and services,
but with features that are accepted to the customers (competitive levels of differentiation) at
the lowest cost, relative to that of competitors.
Furthermore, based on the organizational structure analysis, it is determined that Aldi is
currently following “a mix of a Functional and Geographical Divisional Structure with a
decentralized delegating system”. The reasoning for this and its advantages and
disadvantages are provided in detail in this document.
Next the report discusses about expanding Aldi Australia globally. Based on the analysis of
the incentives used in an international strategy and the Porter’s Diamond model we have
determined new opportunities in the global expansion which also provides strategic
competitiveness and above-average returns to Aldi.
Finally the report provides the recommendations for Aldi when implementing a global
strategy which mainly includes becoming a “Best cost provider”, Slight change in the
organizational structure to a “SBU form of a multi-divisional structure” and using a “new
wholly owned subsidiary” type of global entry.
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TABLE OF CONTENTS
EXECUTIVE SUMMARY.............................................................................................................. 1
1.0 INTRODUCTION ..................................................................................................................... 3
2.0 OVERVIEW OF ALDI AUSTRALIA’S CURRENT BUSINESS STRATEGY ..................... 4
2.1 Porter’s Generic Strategy Analysis ........................................................................................... 5
2.1.1 The provision for its justification through the value chain analysis ..................................... 5
3.0 ALDI’S ORGANIZATIONAL STRUCTURE ......................................................................... 7
4.0 EVALUATION – ALDI AUSTRALIA SHOULD EXPAND GLOBALLY............................. 8
4.1 Incentives to use an international strategy................................................................................. 8
4.2 Porter’s Diamond Model .......................................................................................................... 9
5.0 CONCLUSION........................................................................................................................ 10
6.0 RECOMMENDATIONS......................................................................................................... 11
REFERENCES.............................................................................................................................. 13
APPENDICES ............................................................................................................................... 14
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1.0 INTRODUCTION
Aldi is known as the world’s lowest cost grocery retailer and acts as a category killer in core
grocery lines. (Coriolis Research, 2000) Currently it operates in 17 countries which are
considered as separate SBUs (refer appendix 1, figure 6) and we focus on Aldi Australia as
instructed in the case study. This document provides the overall current business strategy of
Aldi Australia and it contains the details as stated in the model in appendix 1, figure 7.
In the first section, the case study illustrates the factors which are considered in a business
level strategy. It answers the questions “who will be served”, “what needs those target market
have that will be satisfy” and “how those needs will be satisfied”. Moving on, I have
discussed about the current organizational structure which Aldi Australia has used along with
the current strategy and its advantages and its appropriateness.
Furthermore, I have discussed on why Aldi Australia should expand globally by considering
the incentives in international strategy and Porter’s Diamond model.
Analysing the above facts I have provided a summarized conclusion explaining the gaps Aldi
would face when implementing a global strategy which would be followed by the
recommendations to minimise the gaps and implement the global strategy which would be a
success in Aldi’s future endeavours.
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2.0 OVERVIEW OF ALDI AUSTRALIA’S CURRENT BUSINESS STRATEGY
This case study states that Aldi Australia is a typical ‘hard discounter’ pursuing a cost
leadership strategy and the following are its main characteristics.
Stocks only about 700 products lines
95% focus on its own brands
Limited National brand presence
Strict focus on price
Focus on most popular every day dry grocery and household items.
Limited in-store fixtures, product often bulk stacked on pallets and cartons
Aldi Australia has a clear business philosophy and guiding principles which is to offer a
limited number of top-quality products at low prices. These products include frozen food,
meat and dairy products, canned food, bakery products, household supplies, health and
beauty products, nappies, cleaning products, household products, a selection of fresh fruits
and vegetables. (Refer appendix 1, figure 1) In addition, Aldi Australia offers a selection of
‘surprise buys’ which change every week and are only available as long as stock last.
As per Karl Albrech, the Co-owner of Aldi, they do not consider the customer as the king and
no-frills added to the goods or services they offer to delight the customers. (Coriolis
Research, 2000) For an example, Aldi saved costs by not providing free shopping bags.
Customers were encouraged to bring their own bags or cardboard boxes or they could
purchase paper or reusable shopping bags at the checkout for a nominal cost.
Even though there is no mention of a specific vision or a mission of Aldi, its’ Pledge (refer
appendix 1, figure 4) elaborates more on their philosophy which focuses on meeting the basic
needs of its customers by providing high quality products by concentrating on five main
principles which are Huge Savings, Excellent Quality, Outstanding value, Superb special
buys and Buy with confidence. In addition to this, we will next look at the how Aldi Australia
has positioned its current business strategy under the Porter’s Generic strategy model.
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2.1 PORTER’S GENERIC STRATEGY ANALYSIS
Michael Porter proposes two generic competitive strategies for outperforming other
organizations in a particular industry: lower cost and differentiation.(Wheelen and Hunger,
2000) As displayed in figure 2 of appendix 1, the two strategies are considered under broad
and narrow market segments which provides us with five strategies. Each business level
strategy helps the organization to establish and exploit a particular competitive advantage
within a particular competitive scope. (Hanson et al, 2008). Distinctive features of these
generic competitive strategies are listed down under appendix 1, figure 3.
Based on the facts stated in the case study and the features that Aldi currently posses, it is
clear that Aldi’s current strategy is a “cost leadership strategy” where they target a broad
market by creating a competitive advantage of low cost. Aldi displays typical qualities of a
cost leader such as selling no-frill goods and services, but with features that are accepted to
the customers (competitive levels of differentiation) at the lowest cost, relative to that of
competitors. (Hanson et al, 2008)
2.1.1 THE PROVISION FOR ITS JUSTIFICATION THROUGH THE VALUE CHAIN ANALYSIS
The above identification of strategy can be justified by analysing the value chain of Aldi
which has been structured in order to minimise costs at all levels. (Refer appendix 1, figure 5)
Successful implementation of the cost leadership strategy requires a consistent focus on
driving costs lower, relative to competitors’ costs. (Hanson et al, 2008)
As displayed in the value chain, inbound logistics is one of the primary activities of an
organization. Since Aldi is handling a limited product range which is around 700, their costs
are minimised when it come to shipping, transportation and warehousing. Also the handling
is easier and the quality of the goods can be controlled more efficiently and effectively. As
displayed in the value chain, within the operations Aldi tests and samples the quality of its
products. This process is done regularly both in-house and independent food laboratories.
Due to the long-term contracts suppliers are bound to supply to Aldi’s specifications which
has made life easy to Aldi when checking for quality standards of the products. They usually
tend to use the cost effective in-house method which involve blind tests by their managers
comparing their own products with those of leading brands. However, retaining the trained
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personnel involved in these activities would be important in order to achieve economies of
scale. Furthermore, Aldi has taken the complete advantage of being the distributor and
controls its cost ruthlessly by focusing on using lower cost transportation carriers and use
effective delivery schedules. (Hanson et al, 2008).
Grocery items are low involvement products and they usually need a very good marketing
support in order to differentiate the product from the competitors. Marketing is a cost for the
organization which expects an increase in sales in the future. This would be either long term
or short term and the cost would be distributed among the products when it comes to pricing.
Since Aldi is following a “cost leadership” strategy they spend a very less amount (0.3% of
the revenue) for marketing and only rely on catalogues, local press advertising and web
updates. The marketing messages are product oriented and focused on the price and new
surprise buys. Furthermore, Aldi spends very less on the development of sophisticated
statistics, nothing on public relations and its Managers are discouraged from conducting
interviews on Aldi themes. With consideration to the place of marketing, Aldi follows a
selective distribution method where they use only a 1200 square metres in size, bright,
modern stores with wide aisles. The goods are no-frill and pre-packed with essential and
acceptable features The goods are displayed in specially designed cartons that can be stocked
directly on to shelves or wheeled into any place by using pallets which saves on the labour
cost to stock shelves, improve workflow and productivity. In comparison to the other
supermarket in Australia, Aldi typically has a less number of employees (4 or 5) per shop and
they are not even specialised in bakers or butchers. This results only a 6% revenue allocation
for labour cost. Furthermore, Aldi has focused on the limited opened hours, which is 19hours
less per week than the other supermarkets which is additional saving under labour cost. In
addition, they have cut down their services to the customer such as charging a $2.00 deposit
is to use a shopping trolley in Aldi, which is refunded when the customers return the trolley
and as a result Aldi doesn’t need to employ people to collect and return trolleys
Based on the above discussion it is successfully justified that Aldi Australia’s current strategy
is a “cost leadership strategy. Next it is important to evaluate the appropriateness of their
organizational structure on its current business strategy.
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3.0 ALDI’S ORGANIZATIONAL STRUCTURE
Strategy and structure have a reciprocal relationship. Therefore, when changing strategies, the
firm should simultaneously consider the structure that will be needed to support the use of the
new strategy. By matching each strategy with a structure will provide the stability needed to
use current competitive advantages as well as the flexibility required to develop future
advantages. (Hanson et al, 2008)
As per the case study, Aldi’s current business strategy is supported by a decentralized
organization structure. It is flat and lean where there is very few staff involvement. (refer
appendix 2, figure 1) For an example, Aldi Headquarters in Germany itself employees fewer
than 150 staff. Furthermore, there are no planning department and no central functions such
as Marketing, Human Resources, Controlling, Information Systems or Public relations. This
is an important aspect for a firm which is following a cost leadership strategy since
maintaining such central functions and departments are costly and there are no revenue
generated from those departments.
Aldi follows the “Harzburger model” which outlines three issues that should be delegated:
the task, the necessary competencies to enable task implementation and the responsibility for
implementation and results. The tasks are delegated to the managers who are in charge of
implementation and they will be responsible for their implementation as well as the results.
As a result of the Harzburger model, all managers have clearly defined job descriptions
specifying the goals, responsibilities and authority of their position. These are mainly focused
on avoiding unnecessary costs wherever possible.
Based on the above facts and the hierarchy of Aldi, we could determine that Aldi is currently
following “a mix of a Functional and Geographical Divisional Structure with a
decentralized delegating system” where there is a limited staff, with functional line
managers who have usually been employed in different parts of the organization including
the shops and the warehouses and the Area Managers have been well trained about the
structure, procedural elements of retail management including store operations and trading
rights, administration, logistics and property management. Here the operations are the main
function and the process engineering with relation to cutting cost is emphasized, rather than
new product R&D. Refer appendix 2, figure 2 for advantages and disadvantages of the
current organizational structure of Aldi.
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4.0 EVALUATION – ALDI AUSTRALIA SHOULD EXPAND GLOBALLY
One of the primary reasons for implementing an international strategy is that international
markets yield potential new opportunities. It is also a source of strategic competitiveness and
above-average returns. (refer appendix 3, figure 1) (Hanson et al, 2008)
4.1 INCENTIVES TO USE AN INTERNATIONAL STRATEGY
Aldi has already been established in 17 countries and they use the same strategies in every
country which is the cost leadership strategy. The expand is successful so far and there are
several reasons to support it. Even though Aldi was launched in Germany, people in foreign
countries who heard about it or visited it would also have demanded for a low cost grocery
store in their own countries. However, as the services become standard and with the increase
of competition there would be a time when every store reaches its maturity stage. Therefore,
considering the demand of the foreign countries and the low manufacturing costs Aldi would
need to pursue an international diversification to extend its product life cycle and increase
market size.
Aldi could also expand to countries that would be their suppliers, with the intention of
acquiring raw material, skills, labour and resources for a lesser cost and use it efficiently. For
an example, Australia is full of minerals and there is a huge advantage of receiving these at
the domestic rate. (Hanson et al, 2008)
The demand for low cost groceries appears to become more similar globally. Therefore, by
expanding globally Aldi could achieve economies of scale, particularly in their
manufacturing operations. With this way Aldi could standardize its products across the
country borders and use the same or similar production facilities, thereby coordinating critical
resource functions, it is more likely to achieve optimal economies of scale. Furthermore as an
added advantage Aldi may also be able to exploit core competencies in international markets
through resource and knowledge sharing across countries which would create a synergy in
operations. (Hanson et al, 2008)
Even though Aldi is successful in their own ways of doing things, due to the increase of
globalization Aldi’s competitors are considered at a worldwide scale. The use of online
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shopping, achieving efficiency and convenience through emerging technology and
communication would influence Aldi to step in and adjust to the global market or they would
be left behind.
4.2 PORTER’S DIAMOND MODEL
Porter’s Diamond Model (refer appendix 3, figure 2) describes the factors contributing to the
advantage of firms in a dominant global industry and associated with a specific home country
or regional environment. (Hanson et al, 2008)
The first dimension in Porter’s model is factors of production. As explained previously, it is important
to acquire resources such as capital land, natural resources, labour and transportation etc. In some
countries these are scarce or costly and since Aldi has already established themselves in 17 countries
and by expanding the operations more globally and creating a synergy and coordination among
themselves, they would have a comparative advantage in relation to factors of production.
The second dimension of Porter’s model is Demand conditions. It is important to identify that the
efficiency Aldi currently posses, is able to lead to domination of the industry in other
countries. Even though, Aldi have managed to achieve the cost leader in Australia within a
very short time there are still opportunities for global expansion since the Australian market
is demanding for low cost and it is a strong trend setting country which creates specialized
demands.
The third dimension is Related and supporting industries. 80% of Aldi Australia’s goods are
Australian made and the production is done by well-known brand manufacturers. However,
these manufacturers seem reluctant to be openly associated with Aldi fearing that they may
jeopardize their relationship with other retailers. Therefore, by expanding globally and
creating opportunities for the suppliers, will losen up this fear since Aldi will providing more
business to them.
The fourth one would be Firm strategy, structure and rivalry. Most of the time a firm’s
strategy, structure and rivalry changes from country to country. The rivalry is at an intensive
stage since there is a threat from the existing competitors and as well as the ones are to come
to the market. This would force Aldi to lower the cost more and therefore innovate, improve
and expand globally to keep up with their pricing strategy and continue to grow.
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5.0 CONCLUSION
As per the analysis, Aldi Australia’s current strategy is a “cost leadership strategy. Even
though they have a customer oriented strategy, they do not consider the customer as the king
and therefore, no-frills added to the goods or services they offer to delight the customers.
However, Aldi’s focus is to meet the basic needs of its customers by providing high quality
products by concentrating on five main principles which are Huge Savings, Excellent
Quality, Outstanding value, Superb special buys and Buy with confidence. Aldi has also
managed to maintain their cost leadership strategy by minimising costs at all levels in the
value chain. For an example, there are no planning department and no central functions such
as Marketing, Human Resources, Controlling, Information Systems or Public relations.
Furthermore, based on the analysis it is determined that Aldi is currently following a mix of a
Functional and Geographical Divisional organization structure with a decentralized
delegating system which is closely associated with Harzburger model.
Finally, after considering the incentives available for Aldi and the application of the Porter’s
Diamond Model it is recommended that Aldi would need to pursue an international
diversification to extend its product life cycle, increase market share, achieve strategic
competitiveness and above-average returns.
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6.0 RECOMMENDATIONS
Aldi is recommended to follow a Global corporate level international strategy. Due to the
range of products they sell which are mainly grocery products, Aldi could easily standardize
the product across geographical borders. This way there would be a control over the products
sold at any Aldi store in the world and it would be easy to achieve economies of scale and
provide the opportunity of offering products at a lower price. This will also enable efficiency
in the Aldi value chain.
Based on Aldi’s current corporate strategy, they give the individual country units the
authority to develop their own business-level strategies and they would be responsible for the
results as well. When implementing a global strategy this approach should be changed to a
corporate strategy which dictates the business-level strategies in order to standardize Aldi’s
products and sharing of resources across countries. (Hanson et al, 2008) In addition, it is wise
to follow the double loop learning when implementing the developed strategies. (refer appendix 4,
figure 1)
None of the five business-level strategies shown in appendix 1 figure 2 is inherently or
universally superior to one another. (Hanson et al, 2008). In this situation even though Aldi
has managed to become the cost leader, it has a tight competition from the competitors where
they add more value and differentiation to the product while reducing the cost. Therefore,
when going global I recommend Aldi to follow a “Best cost provider strategy” (integrated
cost leadership/differentiation strategy) in order to gain competitive advantage and above
average returns. By adapting a Best cost provider strategy, Aldi should be in a better position
to adapt quickly to environmental changes, learn new skills and technologies more quickly
and effectively leverage its core competencies while competing against its rivals. (Hanson et
al, 2008)
If Aldi is implementing its global strategy, they should change their structure from a
decentralized structure to centralized structure such as the “Strategic business unit form of a
multi-divisional structure” (refer appendix 4, figure 2) which would provide a better control
by the home office. But at the same time maintaining a lean structure would be important to
maintain their expenses.
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It is recommended that Aldi should use the “new wholly owned subsidiary” type of global
entry. Even though it is complex, risky, costly and time consuming Aldi would still have the
maximum control of it. Since there are no middleman or agents involved Aldi would earn the
full benefit of the profits. Why I recommend this entry type is that, Aldi has been successfully
using this strategy for 17 countries and have been a success. Their current main competitive
advantages (refer appendix 4, figure 4) would remain if they act independently and the risk is
reduced since they have tried and became a success 17 times. Financially Aldi is a stable
company and was one of the best corporate brands in Germany in 2004. Therefore, it is wise
to spend some extra cash than risking the possibility of damaging image by Licensing or
creating strategic alliances and acquisitions.
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REFERENCES
Coriolis Research (2000, May) Aldi in Australia: What will be the impact? Retrieved April
13, 2011 from http://www.coriolisresearch.com/pdfs/coriolis_aldi_in_australia.pdf
Grocery food Nutrition shopping (n.d.) Retrieved May 28, 2011 from www.grocery.com/aldi-
foods/
Hanson, D., Dowling, P. J., Hitt, M. A., Ireland, R. D. and Hoskisson, R. E. (2008). Strategic
management: competitiveness & globalization (3rd
ed.) South Melbourne, Vic.: Thomson
Learning Australia.
Harzburg Model (n.d.) Retrieved May 29, 2011 from
http://translate.google.lk/translate?hl=en&sl=de&tl=en&u=http%3A%2F%2Fwww.wirtschaft
slexikon24.net%2Fd%2Fharzburger-modell%2Fharzburger-modell.htm
Hitt, M. A., Ireland, R.D. & Hoskisson, R. E. (2009) Strategic Management: Competitive and
Globalization, Concept and Cases (8th
ed.) USA: Southern Western Cengage Learning
Information on Aldi (n.d.) Retrieved May 26, 2011 from the Aldi Website:
http://www.aldi.com/
QuickMBA: Strategic Management (n.d.) Retrieved May 17, 2011 from
http://www.quickmba.com/strategy/generic.shtml
Thompson, A.A., & Strickland, A.J. (2001). Strategic management(12
th
ed.). Boston:
McGraw-Hill Irwin.
Wheelen, T.L., & Hunger, J.D. (2000). Strategic management and business policy (7th
ed.).
MA: Addison Wesley.
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APPENDICES
Appendix 1
Figure 1: Sample Aldi Brands - (Coriolis Research, 2000)
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Figure 2: Porter’s Generic Strategies – (QuickMBA: Strategic Management, n.d.)
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Distinctive Features of the Generic Competitive Strategies
Type of Feature Low-Cost
Provider
Broad
Differentiation
Best-Cost
Provider
Focused Low-Cost
and Focused
Differentiation
Strategic target A broad cross-
section of the
market
A broad cross-
section of the
market
Value-
conscious
buyers
A narrow market
niche where buyer
needs and
preferences are
distinctively
different from the
rest of the market
Basis of competitive
advantage
Lower costs than
competitors
An ability to
offer buyers
something
different from
competitors
More value
for the money
Lower cost in
serving the niche
(focused low cost)
or special attributes
that appeal to the
tastes or
requirements of
niche members
(focused
differentiation)
Product line A good basic
product with few
frills (acceptable
quality and
limited selection)
Many product
variations, wide
selection, strong
emphasis on
differentiating
features
Good-to-
excellent
attributes,
several-to-
many upscale
features
Features and
attributes that
appeal to the tastes
and/or special
needs of the target
segment
Production emphasis A continuous
search for cost
reduction
without
sacrificing
accept-able
quality and
essential features
Creation of
value for
buyers; strive
for product
superiority
Incorporation
of upscale
features and
attributes at
low cost
Tailor-made for the
tastes and
requirements of
niche members
Marketing emphasis Try to make a
virtue out of
product features
that lead to low
cost
Build in
whatever
features buyers
are willing to
pay for Charge a
premium price
to cover costs of
differentiating
features
Either
underprice
rival brands
with
comparable
features – to
build a
reputation for
delivering the
best value
Communicate how
the focuser’s
product attributes
and capabilities aim
at catering to niche
member tastes
and/or specialized
requirements
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Sustaining the strategy Offer economical
prices/good
value
Aim at
contributing to a
sustainable cost
advantage – the
key is to man-age
costs down, year
after year, in
every area of the
business
Communicate
the points of
difference in
credible ways
Stress constant
improvement
and use
innovation to
stay ahead of
imitative
competitors
Concentrate on
a few key
differentiating
features; tout
them to create a
reputation and
brand image
Develop
unique
expertise in
simultaneousl
y managing
costs down
and upscaling
features and
attributes
Remain totally
dedicated to serving
the niche better
than other
competitors; don’t
blunt the firm’s
image and efforts by
entering other
segments or adding
other product
categories to widen
market appeal
Figure 4: Aldi’s Pledge
Figure 3: Source - (Thompson & Strickland, 2001)
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Figure 5: Value Chain for Aldi Australia
Figure 6: Aldi’s Current International locations – (Information on Aldi, n.d.)
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Figure 7: Identifying Strategy for a single business company– (Thompson and Strickland, 2001)
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Appendix 2
Figure 1: Aldi’s Current International locations – (Information on Aldi, n.d.)
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Figure 2: Product Life Cycle of Aldi Australia - http://www.learnmarketing.net/productlifecycle.htm
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Appendix 3
Figure 1: Opportunities and outcomes of international strategy (Hanson et al, 2008)
Figure 2: Michael Porter’s Diamond Model
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Figure 2: SBU form of the multi-divisional structure – (Hitt et al, 2009)
Figure 3: International Corporate Level Strategies – (Hanson et al, 2008)
