Aldi was founded by two brothers Theo and Karl Albrecht. They started to sell basic items in their mother’s grocery store at the times when German economy was in decline. After the end of the economic crisis they decided not to extend the product range. Instead they focused on the efficiency and effectiveness of their stores. As the result they were able to offer much better prices than their competitors and in 1958 there were 300 stores across Germany. Later the company was divided in two parts and the first store with the name Aldi was opened in 1962. Nevertheless, two companies always have shared information and there are very few differences in the way they operate (Van Den Steen & Lane 3).
In terms of the corporate culture, frugality has always been of great importance for Aldi. The company saves a lot of resources thanks to simplicity. At the same time, satisfaction of the customers’ needs is always the main priority. One more trait of Aldi’s corporate culture is centralization of the decision-making processes and limited store manager independence (Van Den Steen & Lane 4). Aldi cares about its reputation and a very strict business model helps to reach not only the high revenue, but also it leads to the very effective operation of the stores, supply of the good quality products and proper customer service.
Three elements of Aldi’s business model include the following: low-cost products, limited variety of products, and low operating expenses. Aldi’s competitive advantage lies in the simplicity that leads to better customer responsiveness, proper quality of the products and efficiency in terms of suppliers and stores operations.
Since the 1960s Aldi has been operating in the other countries of Europe and since the mid-1970s in the USA. In general, Aldi has been very successful abroad. In 2011, the German retailer was ranked eighth in the world in terms of retail revenues. The largest number of Aldi stores is in the USA (1,188), France (920), the Netherlands (492), Austria (438), Belgium (452), and Great Britain (429). In total in 1999 there were 9,482 Aldi stores and 387 Trader Joe’s stores, which belong to Aldi (Van Den Steen & Lane 9).
Nevertheless, in some countries Aldi faced the difficulties at the entry stage. For example, in the United Kingdom the local customers were very loyal to the British brands. Therefore Aldi had to change the product mix and to offer both German and British national brands. Moreover, there was one very strong competitor Kwik Save and because of this company Aldi’s expansion took much longer time than it was expected. At the same time Aldi’s business was much more sustainable, and it was able to withstand the competition against the other low-cost retailers. In the USA, Aldi was much more successful, but it had to extend the product range. In the USA, the prices are 15-20% lower than at Wal-Mart.
The key elements of Aldi’s operating practices include reliance of the limited range of the private label brands, tight quality control and effective operation of the stores. As the result, Aldi has many loyal customers that will probably recommend the stores to the other customers (Van Den Steen & Lane 4). One more outcome of the limited product range is that the purchases do not require much time and effort and the inventory stock is much easier to maintain. The remark about the price of the can of peas at Aldi means that the company does not need to boost sales by means of advertising and aggressive marketing. There are the other means in particular the pricing strategies that help to reach the high sales.
In the USA, Aldi’s key competitors are Wal-Mart, Target, Trader’s Joe’s (now belongs to Aldi), and warehouse clubs. Undoubtedly, Wal-Mart and Target are much stronger in the USA than Aldi. Therefore, Aldi should focus on the competition with the smaller retail chains. Aldi’s main strength is its unique business model and market positioning. The company has several reliable suppliers that help to increase the quality of the products (Van Den Steen & Lane 5). The possible weaknesses in the USA might include the lack of innovations at Aldi stores in comparison with the competitors. The competitors have been trying to creatively adjust their practices and store formats due to the changing buying habits and technological progress. On the contrary, Aldi seems to be a very inflexible and conservative company.
Aldi and Walmart have very different business models and should not worry about each other’s operations. Two companies operate at different levels. Wal-Mart’s revenues are 36 times higher than Aldi’s. The format of the stores is also very different. Wal-Mart’s average store size is 182,000 square feet and is more than 20 times larger than Aldi’s store size (Van Den Steen & Lane 10). So Aldi should continue to follow its business model and open the new stores in the easily accessible locations with limited parking in the towns and cities. Wal-Mart also should stick to their current strategy and not rely on the warehouse club store format. There were a lot of experiments with changing the store size, but the company still relies fully on the super stores with a large number of SKU per store.
The decision to open 650 new stores in the USA means that the key European market is less profitable for Aldi and there is no possibility for further market expansion. Moreover, the economic situation in the USA is very favorable at the moment and by using its competitive advantage Aldi will be able to expand its activity in the USA starting from the states with the largest population density – California, New York, Florida, etc. What the company should improve in the USA is the image, because many customers think Aldi’s stores are “unattractive” and the product range is too limited (Van Den Steen & Lane 7). Introducing the line of organic products may attract many new customers, because Aldi will become more customer-oriented and fashion-forward.
Works Cited
Van Den Steen, E., Lane, D. Aldi: The Dark House Discounter. Harvard Business School.
17 December, 2015. Print.
