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Aldi analysis Essay

The international discount retailer industry is a high competitive market. More than ever, discount supermarkets need to offer customers value for money. ALDI – the budget food supermarket chain based in Germany understands that its customer wants to buy everyday groceries of the highest possible quality at guaranteed low price. (ALDI Australia, 2013) As stated in its “Spend a little Live a lot” message, ALDI operate in a no-frills concept. And in company’s initial international expanding stage, it mainly focus on attract low-earning clienteles who think much of price and quality but don’t mind on fancy displays or glamorous shopping experience. This customer target can be referred in ALDI’s choices of store location in early days. For instance, when ALDI entered the United States market in 1976, stores can be firstly found in the Northeastern and Central regions. Within these regions, the locations are mostly in rural areas or suburb areas of greater cities where the income levels are lower. And only a few stores located in high economically developed areas. (ALDI-Location, 2013) On the other hand, ALDI’s customer target can also be reflected in its lean production theory. ALDI carried a limited range – just 1000 products compared with the over 20,000 in a typical supermarket, and the majority of them are basic daily using groceries.

It does not provide something special or unique but only simple quality general goods. “We strip out any extra costs,” explains Julie Cheston, a spokesperson for ALDI. “We only stock 1,000 lines and don’t duplicate any products, so we can buy large amounts which keeps costs down.” (Cash in on the Aldi effect, 2013) However, the situation slightly changed in recent years. The economic crisis in 2008 brought a lot of business changes especially in customer behavior within the supermarket around the world. The financial event has strongly motivated a certain amount of middle classes who want to purchase inexpensive products in high quality shopping with ALDI. (Kollewe, 2012) ALDI has noticed this situation. The retailer is looking to enhance its image by being a strong supplier focus on quality of its products, as well as its additional in-store services. In addition, ALDI has also plan to open new stores in higher, more upmarket locations and expand its product range to attract a higher-earning clientele. (ALDI UK, 2013) In fact, no matter customers come from which social class; they want to purchase best quality products at the lowest possible prices at ALDI. According to an “image of supermarket” research conducted by Roy Morgan Institute in 2010, it shows that the most important consideration by Australian consumers in their selection of a supermarket is that of being perceived as ‘Good Value.’(Morris, 2010) The consciousness of the customer has changed from selection by perceived quality to the greatest perceived value for money.

This situation may explain ALDI’s rapidly growth in Australia and why it can win the Roy Morgan Supermarket of the Year 2012 award. (ALDI Awards, 2013) In order to effectively analyze the relationship between ALDI and its customer, it is better to use one of Porter’s five forces – bargaining power of customers to analyze. (Porter, 1985) The supermarkets usually are considered as price-takers based on the Competition Commission Report (2008), which means that the customers must buy at the price set by the retailers. Because most supermarkets, especially those discount retailers like ALDI, supply a generally similar range of daily groceries which allow consumers have a wide range of shopping places to choose from, it is not doubt the buying power of consumers to ALDI is high. Based on this fact, consumers will be sensitive to price change and their actions can force the further change of price. For instance, if the tomato is too expensive in ALDI, consumers will move to another close-by retailer to buy, thus ALDI may reduce its tomato price to attract more purchases. As a result, supermarkets like ALDI mainly compete based on pricing strategies by offering value for money, discounts and sales to retain their consumer base. Therefore, the most important mission for ALDI is how to operate its business in efficiency to offer its customers quality products at competitive prices. ALDI’s approach involves reducing costs in all areas of the business. At first, most of the ALDI’s stock is their own-branded labels products.

They are cheaper copies of groceries, which are equivalent to those best-selling and well-known labels. And because ALDI buys resources in large volume from suppliers and sold them under its own labels, it is able to negotiate substantial discounts and then pass the savings to its customers. Secondly, ALDI persist in carrying a limited range – just 1000 products, and uses a just-in-time approach to store management by only holding the stock that it needs. Therefore, the company only do stock purchase at required time. Stock is expensive and when it stays at low level, the cost will be reduced. Thirdly, ALDI also adopted a number of management approaches in operating process to minimize the level of waste.

For example: At ALDI there is no free carrier bag, customers are advised to prepare their own bays before go shopping. Moreover, ALDI’s shopping trolleys have a $1 deposit system, which ensures that customers return them after use. (Osborne, 2012) All such savings approaches used by ALDI help it operate more efficiently and able to supply quality products at prices that are lower than its competitors. And ALDI’s rapidly expanding compared to the big four supermarket chains shows its success in attracting certain amount of customers. A report shows that within 2008 in UK, ALDI’s were up 21% compared to the previous year and its market share has reached nearly 3%. (Finch, 2008) Furthermore, besides price and quality, social factors such as lifestyle changes and health concerns also impact people’s choices of shopping places.

For instance, there is an increasing demand for organic foods and ban of GM foods in recent years. ALDI should consider such change in consumer taste and modify its future products’ development strategy. Moreover, there is not doubt that some of lifestyle changes such as home shopping and internet usage will increase online shopping, thus ALDI probably should consider invest more funds to enhance their online service and delivery’s service. (Pearson, Henryks & Jones, 2010) In conclusion, it is clearly that ALDI faces a high bargaining power of consumers because customers have so much choice. And in order to keep customer’s loyalty, ALDI should able to supply quality goods that meet customers’ requirements at a guaranteed low price.

Reference list:
1, about ALDI Australia n.d., viewed May 19 2013,
2, Locations of ALDI stores internationally n.d., viewed May 19 2013,
3, Cash in on the Aldi effect n.d., viewed May 19 2013,
< http://www.smarta.com/advice/sales-and-marketing/sales/cash-in-on-the-aldi-effect> 4, Kollewe, J 2012, ‘Discount retailers grab market share as shoppers get thrifty’, The Guardian, 4 December 2012, < http://www.guardian.co.uk/business/2012/dec/04/discount-retailers-grab-market-share> 5, Morris, N 2010,’Both Woolworths and Coles increase their ‘good value’ perception, but Aldi not far behind’, Roy Morgan Single Source (Australia), viewed 19 May 2013, Roy Morgan Research online database.

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