The success of Aldi Essay
The success of Aldi
This report presents the current situation of UK supermarket especially Aldi by the PESTLE analysis, and the economic, social and technological are the main factors affecting the performance of supermarkets nowadays. For instance the unemployment rate, technology used and current trend. There is also a case study on Aldi, explaining the strategies used by Aldi, reducing cost to achieve its goal of providing both value and quality to the customers. Lastly, the report also distinguish that Aldi is applying the rational goal model, as Aldi has a clear goal and emphasis on the efficiency, and how the systematic working method of Aldi helps itself to reach the success.
In recent years, the whole UK grocery market are stretching continuously, about 4% bigger than a years ago(Supermarkets in the UK: Market Research, 2013). Aldi is one of the British ‘big four’ supermarkets in UK. It was started in 1913 as a family grocery business in Essen. In 1946, brothers Karl Albrecht and Theo Albrecht took over the business from their mother. Aldi is a supermarket flaunts low prices as its name – Albrecht-Discount, and the mission statement of Aldi is”Incredible value everyday”. There are 512 stores in the UK, and over 7,600 worldwide. Aldi has increased its sales 32.7% year for the 12 weeks before September 15th (The Grocer, 24th September 2013).
In this report, we’re going to use the PESTLE analysis to study the factors affecting the UK supermarket industry and especially Aldi, the approaches used by Aldi to gain the competitive advantage and the model of management of Aldi’s approach and discuss how the culture supports its strategies and lead to the success.
2.0 PESTLE Analysis
PESTLE Analysis is a tool for people to understand the industry situation, PESTLE stands for “Political, Economic, Sociological, Technological, Legal and Environmental” factors. In the following, we will focus on the economic, social and technological factors( Boddy, D. and Paton, S.,2002).
2.1 Economic factors
In 2013, UK is on the path of recovery. It is expected in the second half of 2014, the economy of UK will exceed the peak in 2008. It also says that the UK’s GDP is now set to grow by 2.7% in 2014, an upgrade from a previous prediction of 2.2% as per data by BBC (British Chambers of Commerce) (Kern, 2013). Also, The European Central Bank has cut its inflation forecast for 2014, from 1.3 per cent to 1.1per cent (Yaker, 2013). For the unemployment rate, it stands at 7.4% – down 0.3% on the quarter and 0.5% down over the year. The number of people employed was 250,000 higher this quarter and 485,000 higher than last year (HRM Guide, 2013).
All the above changes and prediction of the economy are the considerations of Aldi, as they will affect the prices, demand, supply and finally the profit of supermarkets. Especially the unemployment rate, as people will have less disposable income when they have no jobs, they would then lower the demand on some leisure goods, for instance the snacks. In case of Aldi, as Aldi is aim at providing a cheaper price compare with its competitors, therefore the sale of Aldi will rise on the country as the unemployed will consider more on the price when they are in limited budget.
2.2 Social factors
The British are more concern about healthy in recent years, there are concerns on organic food. People may rather consume an organic product with a higher price than an artificial stuff with lower price. And Aldi did catch on this trend and establish a product line called “Fit and Active” and organic toddler products to meet the recent needs of customers.
There is also demographic problem of aging population in UK, leading to a paucity of labour in the supermarket as most low level work in supermarket require physical power and the elderly are not suitable for these.
Aldi also focus on corporate social responsibility, they cooperate with many charities, for example, in 2011 Barnardo’s was Aldi’s charity of the year (The Times 100, 2013).
2.3 Technological factors
Technology used by supermarkets will highly influence the efficiency of a supermarket. Most of the work in the supermarket are more or less the same and process daily, for example transportation of goods, storage, distribution system, packaging, etc. Much time can be saved if technology are developed for this simple but repeating tasks.
For Aldi, their stores use the technologies like, intelligent scale, Wireless devices, Electronic shelf labeling, Radio Frequency Identification(RFID), and self-check-out machine (Gill, 2013). RFID technology is used to protect the warehouses, through the system, only people with the RFID tag will be allowed to go into the warehouses.
3.0 Strategies of Aldi
All the customers want a product in the lowest price whilst possessing the highest quality. Aldi understand what customers need and offer them quality products at competitive prices. In some cases Aldi’s product are 30% cheaper than those offered by its competitors (The Time 100, 2013).
According to the article(Competitive advantage through efficiency), The Time 100, the strategy used by Aldi is cost leadership strategy. This is an approach that the business eager to provide the lowest price among the market and this is achieved by cutting the cost without affecting the quality of goods which means it antagonizes with the competitors by price.
Aldi is mainly based on the lean thinking principle to operate the business. The rule of lean production is getting more from less. In other words, using least resources to provide the largest amount of goods and services.
Firstly, the time based management of Aldi. This is an approach aim at minimize the time the used in managing the business. In the supply chain, Aldi will minimize the cost and time of delivery by getting most of the resources(fruit and vegetables) locally. Also, the approach is also implicated to the staffs of Aldi. The staffs of Aldi are trained to do variety of works, the multi-skilled staffs are able to lower the cost on employment of Aldi as they are able to perform different tasks. Different from the competitors, the opening hour of Aldi is regularly 8am to 8pm from Monday to Saturday and 10am to 4pm on Sunday, but not open for 24hours. This action is able to cut the cost of Aldi, as expenditure on light, wages, etc also need to be spend during the wee hours and the sale on those hours must be less than the day time.
Secondly, the just-in-time approach applies on stock storage mentioned in the article. Aldi only holds the stock that it needs. As the expenditure of warehouses is high and therefore the cost on renting a warehouse and staffs on managing of the warehouse can be saved. In addition, Aldi’s products are delivered in display ready cases. Cost on managing the products can also be reduced.
Aldi pays much effort on reducing costs and eliminating waste, applies the principle of lean thinking in every minutiae. Aldi is fully achieved its core purpose “Provide value and quality to our customers by being fair and efficient in all we do”. All Aldi have done is able to reduce the cost and turn out offering a lower price than its competitors, gain the reputation from customers.
4.0 Model of management of Aldi
The rational goal model is the best model of management to represent Aldi’s management approach. This is an approach about an organization maximize its own capability to reach the goal.
There is a clear direction of operating Aldi, offering the “happy price” to the customers. And Aldi has carry out a lot of practices in order to minimize the cost on operating the supermarket. There are different approaches throughout the whole process, from supply, delivery, grounding to packing.
Every staff of Aldi is employed carefully, they should have enough capability to handle any task and duties of the day, they are trained to follow defined procedures. They are a group of flexible workforce to Aldi. The staffs of Aldi also receive a relatively high salary compare with other supermarkets and variety type of jobs enable employees to have high incentive to work. Apart from the skilled staffs, the measures of Aldi also bring itself to an upper level. These factors make Aldi processes in a high level of efficiency and productivity.
The culture of Aldi is carrying out the scientific management. There are systematic working methods throughout every process as discussed above. Also, the business decisions are all made by the managers of Aldi, the employees only need to follow the defined procedures. There are a clear hierarchy among the employees. The employees have low-involvement employment relationship. This culture of Aldi can shorten the time of decision making as the decisions are only made by managers. In addition, there will lead to a quick reaction to the society changes for example the organic products cooperate to the health trend nowadays.
In conclusion, the performance of a supermarket can be influenced by many factors, and most of the factors cannot be anticipated especially the economic factors, for instance the unemployment rate and inflation rate. For the social factors, the recent trend will affect the products sold by supermarket, for example the organic line of Aldi. And the technological factors, technology is able to improve the efficiency of the supermarket as most of the tasks in a supermarket are simple and repeating. The strategies used by Aldi are eliminating waste to reduce the cost of production in order to offer the lowest price to the customers. For example the approaches used in the supply chain, staffs and the opening hours. All of these help Aldi to achieve its goal. Next, Aldi is operating in rational goal model as Aldi has a clear goal, emphasis on the productivity and efficiency. In addition, the culture of Aldi, systematic working methods is helping Aldi to further achieve its strategies.
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