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London School of Commerce
MASTER OF BUSINESS ADMINISTRATION
MODULE TITLE: - MARKETING MANAGEMENT
ASSIGNMENT on ALDI
BY
Md Shahreer Alam
MBA Semester 1
Sincerely,
Md. Shahreer Alam
MBA Semester 1
TABLE OF CONTENTS
1. Executive summery
2. Introduction
3. Business Background
4. Main Body
a. Answer to the questions no 1
b. Answer to the questions no 2
c. Answer to the questions no 3
d. Answer to the questions no 4
5. Conclusion
6. Personal Point of View:
7. Bibliography
EXECUTIVE SUMMARY
Effective response strategies has been difficult to design, given the absence of realistic,
objective information on discounters. The deliberately low visibility of big players within the
discount segment has contributed to this and hindered efforts to generate a valuable
appreciation of the mechanisms of the discount channel. An intentionally low media profile,
unobtainability of published results and lack of support from industry bodies and service
providers have made the discounter segment virtually impenetrable.
Undoubtedly, the size and scope of any exercise to realize discounters is a difficult one that
requires dealing with an enormous amount of information. ALDI, for many a discount retailing
leader, has an influential display in the market and clearly indicating of where the discount
channel is heading with the width of strategies it stereotypically employs in the markets where
it exists.
How does ALDI provide consistent low price, high quality product to its customer & 'higher
salary' compared to other competitors in the market have made many people curious across the
globe especially ALDIs business strategy that will further expressed in the report as well.
By analyzing the performance of ALDI in countries where it comprise nearly 4.8% from 3.7%
of previous year retail sales, shown a clear picture of their preferred strategies. The report uses
key area of operation such as Lean Thinking, Third Party Transportation Support, Target
Segment, continuous category and quality development, pricing policies and assortment
strategies to shed light on a section of the retail market that has thus far been obscured by a lack
of insightful information.
Finally report will state the conclusion in a nutshell with a few recommendations for continuous
improvement of ALDIs' processing.
Introduction
The retail market has changed significantly in the last few years and consumer expects
convenience, transparency and value for money in these days. After the recession, consumer
become more price sensitive and for discounted retailers gained a significant boom in their
market share because of this trend.
Because of technological development, potential consumer can compare prices and surf through
product reviews with their smart phone, search for the best deals, shop anytime, anywhere. The
best performing retailers in this environment are those who have a high attention to their
customer trends and apply that understanding over a variation on price, product or convenience.
However ALDI separates itself from rivals by its competitive pricing approach without
compromising the quality of its products. In some cases ALDIs products are 30% cheaper than
those offered by its competitors. ALDI can ensure this because the business operates so
efficiently.
For ALDI, operating efficiently involves reducing costs in all areas. Some of the key areas
where ALDI is able to minimize costs are by saving time, space, effort and energy. ALDIs is
doing this successfully to run its business and increase market share by using the principles of
lean thinking.
Background
ALDI Einkauf GmbH & Co, which is abbreviated as ALDI (also an acronym for Albrecht
Discounts) is a Germany based retail giant with operations around the world. ALDI is also
Germanys biggest retailer and is divided in terms of operations as ALDI Nord and ALDI Sd
(ALDI North and South). Although incepted in 1913 by the mother of Karl and Theo Albretch,
it was by the late 30s when the brothers ventured into the family business, the organization
started growing. After the war ended in 1945, the brothers expanded the business rapidly. In
1948, soon after the German currency reform, the Albrechts incorporated their grocery business
as the Albrecht Discount Company. At this time, the company had 13 stores in the Ruhr Area of
Germany. Karl and the late Theo are the richest Germans owing to ALDIs shares still being
held mostly by them. ALDI maneuvers predominantly as a hard discount; value for money
retailer concentrating on cost leadership.
Moreover, the organization
concentrates within the realm of
essential items like low-priced,
limited variety of fast moving
domestic products. They follow
an efficient process, combined
with minimal variation of
product has resulted competitive
advantage for the organization.
Typically, ALDI stores carried
only around 700 different products, compared to around 25,000 products carried by a traditional
retailer and almost 150,000 carried by a Wal-Mart Supercenter. In addition to being low cost, a
major factor with ALDI is that, it has a no frills policy which means that there is minimal
filling of shelves and minimal customer service.
In terms of the strategy, ALDI has a strategy of minimizing costs in such a way that the
customer would be persuaded to repeat-purchase behavior. On further analysis shows, the
organization prefers to differentiate itself from other major retailers including the likes of Tesco,
ASDA, Walmart, and Woolworths and thereby showing a differentiating strategy. For example,
ALDI illustrates of a scenario wherein the organization has and supplies products which are
rather inexpensive, non-branded German and European quality product with competitive
pric,e which is in contrast to Woolworths and Tesco. This pointed that the organization has
characteristics of both a cost leadership strategy and that of a differentiation strategy.
Answer to Question no 1:
Lean principles and techniques are a
continuous process that constantly enables
companies to improve the way in which it
meets its business objectives. Its a
management process which seeks to use the
smallest possible amount of resources for the
biggest gain. It can be successfully applied in
This is
an
area
of
opportunity for the Retail
sector
where
smart
retailers can attract and
retain more
customers,
thereby
increasing
revenues, while at the
same time reducing their
costs and improving the
customers
buying
experience.
the retail sectors which will improve operational flows. Lean retail encourages manufacturers to
produce standard products in accordance with the created demand of their consumers. The 5
principles of lean are:
1. Define value from the customer perspective
2. Identify the value stream
3. Make the process flow
4. Pull from the customer
5. Head toward perfection
Now a days, retail markets are with a characteristics of strong rivalry, shorter PLC, longer
product development time and high sensitivity of demand. To become cheaper, today's retailers
operate purposefully to lower prices and release themselves from holding extra stocks.
Elements of lean thinking are: defining value identification of value streams and the removal
of waste organizing around flow responding to pull through the supply chain the
pursuit of perfection (Piercy & Morgan, 1997). Toyota Production System is now applied not
only in the manufacturing industry but in other industries too, including insurance companies,
hospitals, airline maintenance organizations, state agencies, the retail industry and many others
(Behrouz, 2011).
Manufacturers and retailers are different, but they have similarities too. Even amongst retailers,
there are definitely major differences between the product types and service types that they
offer, and the modes of delivery. For example, consider the differences between hair-dressers,
supermarkets, clothing stores, hardware stores, news agents, post-offices, restaurants, and car
dealerships. Lots of differencesbut there are so many commonalities also.
Basically, they all have customers, sales and
marketing, purchasing, finance and accounting,
payroll, the
need
to
hire
and train
workers, quality issues, delivery timetables and
systems, and so on. For all companies, a
customer is a customer, wherever they are, at
every step of the supply chain; and a process is
a process. So, theres always a room for
improvement in any business. Some hospitals
and banks are now turning to the manufacturing
sector to proactively learn about Lean approaches, and learning new tricks, so theres a chance
for the broader retail segment to learn some new tricks.
There will be no doubt that some people will think that their retail business is so different that,
Lean Thinking principles wont be applicable on them. And hence they are just missing the
part of being early adopters of Lean Thinking in the retail industry to make the break-from-thepack (Oren Harari, 2006).
Lean Thinking and Retail focus on the logistics, including warehousing and wholesaling, rather
than what happens at the retail customer interface. But none the less, Lean Thinking principles
and practices do apply directly to Retail. Much of the business excellence or operational
excellence literature in the retail sector focuses on Sales and Marketing and IT (Information
Technology) systems, electronic processing, etcetera. Very little is available when it comes to
pure and simple process flow and quality of the day to day business, where real people are
involved.
Is Lean Thinking applicable to Retail system?
Lean
is
a
A key principle of Lean Thinking is to provide value to
systematic
the customer, where value is defined by the customer,
of
those elements of the product or service that the customer approach
waste
believes they legitimately should be paying forwithout eliminating
paying for unnecessary process waste. Further, this so every step adds
value should be provided at the rate that the customer requires it, when the customer requires it,
where the customer wants it, in a smooth, uninterrupted flow.
For example, if a customer wants to buy a carton of juice, and he/she is an equal distance from
a local supermarket and from a local convenience store, with the only difference being that the
juice at the supermarket, like ALDI, is cheaper. Where the customer will go to make their
purchase?
Or for second instance, If customer is in a rush, its very
possible that he/she will choose the convenience store, and
pay a premium, because at that moment, time is more
valuable (as well as the juice), and theres a high chance
Anything that is a
part of the retail
process and isnt
offering a value is
by
definition,
a
waste.
that he/she may encounter a long queue in the supermarket. So obviously, value isnt always
just about the lowest price.
To reduce this regular occurrence of long queue, supermarkets started introducing specific
checkout isles labelled 10 items or more, then 5 items or more, then self-services etc. This is
an example of focusing on what the customers value, and then going about giving it to them by
improving the flowa key concept in Lean Thinking.
Does Lean thinking makes any sense to Retail system?
Lean Thinking isnt some complex mysterious set of philosophies and practices its a simple
method that creates a lot of sense, and delivers the aptitude of a better way with better results.
The lean bit originally referred to trimming the fat from processes during product
manufacture. Its actually about doing things rationally to free up time, remove various forms of
waste, and provide a better experience for the customer and employees, and to become more
economical as a business. Waste is any activity that consumes time, resources, or space but does
not add any value to the product or service. The point is, Lean Thinking is about a continuous
perfection to achieve business excellence.
For example, these days, all the banks is known to have a single queue, and when you get to the
front of it, you simply wait for the next teller to indicate (often via a light or bell) to let you
know that theyre ready for you. In Lean Thinking, this is a pull system where the bottleneck
is ready for the following piece of work.
However, another continuous improvement approach, very popular in retail sectors known as
Six Sigma, which simply means a measure of quality that strives for near perfection. Six Sigma
is a disciplined, data-driven approach and methodology for eliminating defects (driving toward
six standard deviations between the mean and the nearest specification limit) in any process
from manufacturing to transactional and from product to service. These days, the Six Sigma
approach has fallen toward the Lean approach to the extent that theres now Lean-Six Sigma,
in an attempt to diminish the drawbacks of the pure Six Sigma approach.
For any retailers, products need to be transported to a location where the end user are via a
third-party logistics provider (abbreviated 3PL, or sometimes TPL) or by their own fleet of
vehicles. A company (retailer) takes a decision to have an in-house vehicle fleet based on the
needs of the company to get goods to customers as quickly as possible. However the ease of
having a vehicle fleet to transport stuffs comes at a considerable price. The cost of having an inhouse vehicle fleet is often compared to using a 3PL service, but the choice to have an in-house
fleet is not always based on cost.
The idea of Outsourced transportation has
retailers
taken over own private fleet is a myth, that Sometimes
generally exaggerated as a trend. It is true that 75- prefer to have their
80% companies use outscored transport system, but own
private
fleet
at the same time mainstream of them are also because
of
the
having their own private fleet. One of the reason is
performance level of
the performance level of these 3PLs service
3PLs
service
providers often not reaching to an acceptable level. the
often
not
And that can create a larger expenses to providers
synchronize it with the operation. For instance, if a reaching
to
an
company has a reducing inventory policies that acceptable level.
means transportation has less scope of delivery
which triggers the higher transportation cost. One can have either less inventories resulting
higher transportation cost or more inventories resulting lesser transportation cost. Because of
that, it makes little sense for some retail companies to focus on cost of transportation.
On the other hand, despite potential advantages, creating a private fleet can be a scary intention
for any business, large or small. However, due to increasing competition for common carriers or
3PLs, own private fleets are once again hot. More rigorous hours-of-service rules, rising fuel
costs, and other factors have combined to squeeze the availability of 3PLs carrier capacity,
inspiring more retailer companieslarge and smallto consider assembling their own fleets.
Beth Enslow, a supply chain analyst at Aberdeen Group at
Boston says "Many companies find it more cost-effective to
run fleet operations themselves". For example, some retailers
(like ALDI), who operated nationally and internationally, have
resisted the temptation to outsource carrier operations to 3PL
provider like Eddie Stobart Transport and NFT and opting to
operate their own fleets. Though, for these companies, the lure
of improved customer service, better scheduling flexibility,
and guaranteed capacity is a hard battle.
The expenses of owning a fleet is sometime more than the company is aware of and the unseen
costs at times can result the difference between owning fleet of vehicles and hiring a third party
transportation service. These includes:
Vehicle Costs Buying or leasing a vehicle is very expensive. New one cost more than
used one, but need less maintenance and will typically offer a greater mile/gallon will
drop the overall cost of the own fleet of vehicle
Fuel cost At the same time if retailers consider an alternative fuel vehicles such as
CNG driven vehicle, which may also have government tax relief (if available), dropping
the overall cost of running the own fleet of vehicle. At the same time, as fuel prices vary,
it is challenging to budget each month for the fleet operation.
Insurance Coverage Vehicles used in a retail company need to have a business
insurance coverage for vehicles. It is important to have a full coverage otherwise any
accident could lead to a severe damages and loss against the companies operating profit.
Vehicle Repair & Maintenance Owning a fleet of vehicles means that those Trucks
and Lorries need to be maintained regularly, including fuel changes, emergency tire
replacement, air filters, brake pads, and transmission fluid and lots more. Apart from the
regular maintenance stuffs, there are always sudden maintenance and repairs and
accident repairs that may be required.
Transportation Employees Maintaining a privately owned fleet means that the
company must either employ drivers or use contracted drivers. Employing a fleet of
drivers not only have a payroll obligation to the company, but there are other costs for
employees such as workers compensation insurance, taxes, and health insurance.
Contracted drivers can provide a similar service at a lower cost, but that contracted
drivers can lead to jeopardy if they do not have the necessary insurance.
Employee Training New drivers may need to be trained and that is an added cost to
the company. The cost of either purchasing training or developing the courses in house
are again additional hidden expenses.
Unexpected Problems The cost of a missed delivery or sickness of diver can impact
on total cost of production and hence on customer satisfaction. A company can hire
back-up drivers or temporary contract drivers in case of illness and employee vacation.
Because of shrinking carrier capacity of 3PLs, many retailers like Walmart, and ALDI are using
own private fleets as a way to regain control of distribution of products. Before taking any
decision, they need to carefully evaluate the potential benefits and drawbacks involved with
operating your own fleet. Below are some of the advantages and disadvantages of a privately
owned fleet shown by Inbound Logistics Magazine:
ADVANTAGES:
1. Guaranteed capacity.
2. Enhanced customer service.
3. Scheduling flexibility.
4. Can design fleet to meet specific needs.
5. Free advertising.
DISADVANTAGES:
1. Capital expenses.
2. Recruiting/retaining drivers.
3. Ongoing maintenance.
4. Scheduling/routing responsibilities.
Although, the convenience of being able to make backup distributions and having control of the
transportation of your finished goods can outweigh the cost of maintaining the fleet, companies
like ALDI is still preferred to have their own private fleet eyeing to gain some economies of
scale. Managers can decrease logistics expenses by exercising larger control over
transportation by directly monitoring the routing and scheduling of their own fleets, they can
decrease the length and variability of in-transit lead times. Less lead times produces more
reliable demand forecasts and require less safety stock to achieve the higher service levels.
Decreases in safety stock provide a permanent saving in inventory levels and free up working
capital for other requirements.
Retailers like ALDI depends on private fleets to continuously replenish perishable products,
confirming a high revenue and more product freshness. A private fleet enables management to
exert the control required for a high-velocity supply chain and to optimize their network (Cooke
2002).
Private fleets often serve as moving billboards. The advertising may provide significant value to
the firm, especially if the truck has a clean appearance and is operated safely (Morgan 1970).
Advertising on the sides of the truck represents a unique image of the company with an
exposure to millions of potential customers. Retailers confer a significant value to this
advertising.
Finally, for the retailer like ALDI, a privately own fleet increases the potential exposure of the
firm to organized labor. The Teamsters frequently attempt to represent drivers, as well as other
non-driver employees (Coyle, Bardi, and Novack 2006). Firms with unionized drivers usually
have restrictive work rules that negatively affect output and flexibility. So, the decision to use a
private fleet first must be a strategic decision as there are many countless elements that effect
the decision.
Answer to the Question no 3
ALDI was one of the pioneers of the hard discount style of retailing in Germany. The Aldi
Group (which comprised of two companies - Aldi Nord and Aldi Sud), was known for its low
prices and no-frills business model. Targeting a specific segment of customer is the ongoing
process. To establish the position, companies need to analyze their external and internal
environment and choose one or more strategies to create a value for the targeted customers.
ALDI is featured with high efficiency of operation and management based on the costreduction principle to offer and attract a particular segment of customer who are cost sensitive.
All ALDIs stores in the world are characterized by simple design and decoration thus to
minimize the cost. Hard-discount is the most important feature of ALDI stores, but the low
price is not based on the sacrifice of products quality. ALDIs cost-saving method is reflected
through the followings:
1. Lean production
2. Limited number of good-quality products for selling in the stores to save the expenses
of shelves.
With a constraint growth, there is increasing evidence coming out of the behavioral economics
field that customers can be put off by ever increasing choice. The psychologist Daniel
Kahneman, says Thinking, Fast and Slow, has discussed the fact that humans find rational
thinking effortful. He argues there are two systems in the brain: one in which most decisions
made are fast, automatic and intuitive (system 1), and one in which decisions are slow,
deliberate and effortful (rational thinking - system 2).
The brain has limited capacity for system 2. With multiplying options accessible to customers it
can be comforting to visit a retailer where they trust that the limited range on offer is of the
highest quality with a competitive price. The relative lack of choice can essentially be a selling
point to customers who are overloaded by promotional cues every night and day. And thus,
ALDIs proposition is likely to be even more convincing to many more customers in the future.
ALDI package is primarily aimed at low-income working class, no fixed income residents and
retired old people. In Europe at present the proportion of the ageing population has reached to
20%. In Germany already close to 25%. Therefore, in order to adapt to these people's need,
most of ALDI store are located in downtown residential areas and the small towns. As the low
income earners, the elderly and housewives mainly live in urban areas and small towns. In
addition, ALDI paid precise attention to college students, the demand of foreign workers.
Almost every city has more than 10% of the foreign workers, and each has University City and
there are many foreign students, ALDI give priority to these people, so that they can have
dinner in convenient food at convenient price.
Answer to the question no 4
The entrance of ALDI as a heard discounter firms has sharpened the rivalry of an already
aggressively competitive market. Competitive Equilibrium is a term used to describe the
relationship between firms in an industry. In the FMCG industry the competitive equilibrium is
very unstable and characterized by continuous battle, often in the form of competitive price
confrontations. These happen because firms are trying to charm the same type of consumer by
offering a very comparable product range, frequently in very close proximity to one another.
The challenge faced is to show differentiation from their competitors in the mind of consumers.
The development through possesses of continuous improvement can be obtain through
performances like:
1. Differentiation
Differentiation is the process of adding a set of meaningful and valued differences that
distinguish a company's offering from those of its competitors. Differentiation is strongest when
it satisfies all of the following criteria:
2. Provide Quality
The top 3 customer requirements were:
Fresh Bakery, Meat, Vegetables and fruits
Friendly customer Service staff and Hygiene of Store & Facilities
Reasonable Price and Good Quality of Own Brand
Good quality of own brand has a strong relationship with Purchasing Process. A well-defined
process of supplier selection and forming good relationship of own brand everyday in
reasonable price can provide good quality.
3. Target Values:
Inventory Management Process/Stock Control - The target for this has been set such that ALDI
should develop relationships with suppliers to ensure JIT Delivery to its stock room facilities, in
order to ensure freshness of fruits, vegetables, bakery, meat etc., along with confirming
availability of items in the store.
4. Purchasing Process:
This is a process with highest importance as multiple customer requirements viz. fresh bakery,
vegetables, meat, and fruits; good quality handbags; good quality of own brand;
discounts/offers and reasonable price have a strong relationship with efficient delivery of this
process.
5. Benchmarking of WHATs against CompetitorsOn comparing ALDI against its competitors- Mostly Lidl and some other corner shops are the
competitors. Benchmark the products and services that Lidl and corner shops do not currently
offer and how customers react on those products and services.
7. Technical Correlation Matrix:
On comparing processes within the system it is derived that the processes that are
interdependent have a strong relationship with each other. It has been perceived that the Ecommerce website development has a strong relationship with the delivery process. This is
because the shopping orders for home delivery are taken through the shopping website for
Tesco.
8. Direction of Improvement:
Market research and interviews with Mistry Shoppers helped to understand what the current
state of stores is, and thus if needed change the process in order to ensure improvement in the
services.
At the same time, the firm (ALDI) must also get on with Supplier Development Programs, so
as to develop a competitive supplier network over a longer period of time. This may include:
1. Communicate expectations: In a corporate environment, individuals and organizations
may require to have a regular meeting to deliver tusk on time and to contribute to the
Much of its success in 2011 can be attributed to its TV campaign: ALDI. Like brands only
cheaper, which has the core message that ALDIs private label is just as good as major brands
but is significantly cheaper.
Its a message that has stuck home in these tougher times and as long as the price stays low and
the quality high, its a success story thats set to run and run.
Personal Point of View:
While ALDI was one of the biggest and most successful retailers in Germany, some analysts
expressed concerns that the company's growth might slow down as the German market became
saturated. Reportedly, by 2005, more than 80 percent of the Germans lived within 20 minutes of
an ALDI store. Analysts said that this would limit the company's expansion in Germany.
Besides, in Germany, shopping at discount retailers was not restricted to the lower income
groups...
Imagine an ALDI stick of rock with the words low cost embedded through its length. ALDI
consistently delivers products at the lowest prices via a business model, designed and built to
operate at the lowest cost. The ALDI story is interesting because it is a great example of a
business that thoroughly gets its proposition to the marketplace and follows it through in every
aspect of its operation. This proposition has a sustainable customer following in the
marketplace which is likely to remain and grow in spite of a changing technological landscape
and improving economic conditions. By maintaining a consistent market offering it has a loyal
customer base hat is growing as it extends its reach through steadily building its reputation,
store footprint and channels.
The lessons to be learned from ALDI are not about cost. The lessons are about clarity,
consistency, value to the customer and a focus on execution precisely. Our advice to the major
grocers and to all businesses would to invest similarly in developing a sustainable and
inimitable proposition to the marketplace, by understanding the customer, plan the operation
consequently and emphasis all the organizations energy on accomplishment.
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