Analysis of the ALDI Expansion to Japan & UK - Case Study Example

Analysis of the ALDI Expansion to Japan & UK By Student’s name Course code + name Instructor’s name University name City, State Date of submission Analysis of the ALDI Expansion to Japan & UK Introduction Market entry decisions form a crucial step made by any particular company seeking to seriously invest in international markets. The selection of foreign markets entails various stages such as reduction of a bigger number of potential markets to relatively smaller number done through screening and after that undertaking an in-depth exploration of the short list to select preferable ones to enter into. In this research paper, the paper shall start by identifying the retail store product of interest which Aldi Company is operating as a Germany retailer shall invest in. The paper shall chat out the plan of selecting the prospective nations which the company shall seek to expand into- these being the United Kingdom and Japan. The paper shall then undertake an exhaustive analysis of both the macroeconomic and micro-economic environment in which the company shall seek to operate. This part will be done by carrying out a macroeconomic analysis of the target nations and categorizing the market structure of the retail store product, as well as the determinants of the demand and supply of the main market. Brief Company Overview ALDI (short form for Albrecht Discounts) is a global brand leader in grocery retailing. The company has established a networked chain of more than 7000 stores, majorly in Australia, USA, and Europe. Having opened the first retail store in Germany (1948), the firm has steadily and consistently widened its scope of operations and has realized greater revenues to this day (Institute of Grocery Distribution, 2010). The beautiful philosophy of ALDI is embedded enshrined in the recognition that all people, irrespective of where they live, must be awarded the wonderful opportunity to purchase daily groceries having the higher desirable quality at relatively lower prices. Operating globally for more than 50 years, its first retail store in Germany was opened in January 2001. The good news is that, by June 30, 2010, there were a record 234 stores being operated across Victoria, Queensland, and New South Wales. Over the nine years, the growth has vividly shown that Australian clients have willingly embraced the firm’s philosophy by terming it as an abundant value investment to all clientele. To this day, ALDI employs thousands upon thousands of Australians and having a concrete growth plan; this employees figure will increase. The three major products owned and sold by ALDI include: 1) Special Buys- representing products that appear only one or two weeks annually and mostly linked to a theme or season. This category includes seasonally relevant specialty foods and non-food general commodities. 2) Fresh produce- This includes commodities such as vegetables, fruit, and bread and mostly sourced locally by each region. 3) Core range- Here, the major grocery lines include cleaning personal care, beverages, and food products; all these are sourced centrally for all the stores across Australia (Institute of Grocery Distribution, 2016). ALDI Plans to Expand and Establish Strategic Zones in the UK Preamble It is a good thing to note that ALDI has set and is continuing to set ambitious plans that would enable it to conquer the United Kingdom grocery market, and ultimately open up eight stores in several UK major towns and centers. The ALDI planning team initially sought to establish a store in every town and city, but later realized that some constraints to such plans could arise. In a substitute, the planning team saw it wise to cater for different classes of people- bearing in mind that the people from the UK are those who travel a lot. The 65 million plus UK population can potentially accommodate close to 2600 stores- a tremendous feature that, if well perceived, can quadruple the 700-store chain. But setting up 2600 retail stores spread across the United Kingdom is not something incredible, because so far, Tesco (one of the competitors) operates 2700 store outlets across the UK, ranging from relatively smaller Express shops to superstores. Some time back, ALDI had projected to set a target of 1000 retail stores by 2022, added to the fact that the ALDI Management views this figure as an understatement to them since they expected higher stores to be opened up. Having set up 700 stores then, the management affirmed that already 300 sites were being approved by the UK Government. Amazingly, the management further acknowledged that there was a record total of 600 town locations where the company management had determined that there were no stores. This, the management admitted that it could do it's very best to set up 4 to 4 stores in these towns where none of their stores existed. Using an example of a town like Watford, the management team admitted that it could even set up 6 to 8 of such stores to fill up the gap (Institute of Grocery Distribution, 2016). Strategic Positioning in the UK Tracking down the history of ALDI establishment in the UK town, it is noticed that the company first set up the first UK stores in Stechford in Birmingham (1990). Though this might have been a transitioning moment for UK sales, it did not become a reckoning force until the last recession when this particular stores won the Britons who were then struggling with their huge grocery bills yet the food prices throughout the UK were soaring at greater prices. To cater for the time and opportunity cost, ALDI went ahead to overtake Waitrose in 2015, and it became the UK’s fifth largest grocer. Sitting on a market share of 7.0%, ALDI tills are now making substantive gains, according to the UK’s report on consumer buying. ALDI has been projected to be the fastest growing grocery chain in the UK whereby its aggregated sales are steadily rising to 18% (Brandes & Brandes, 2015). Key Research in Product Delivery What stands out most is that ALDI is extensively conducting research to its clients and other prospective clients to find out what the people want most out the grocery items. It is arguably true that any firm that wants to make gains in the business zone should constantly seek to know what pleases customers most, what displeases them, what should be improved, what new changes should be introduced, what delivery channels can best apply to them, among many elements that should be considered. ALDI is trying at all costs to set up prices tied with quality products delivery that would ensure that the customers do not fall out of love with them. This way, the company would be able to operate at the much lower margin, yet in the process, continue making a steady improved in sales. Armed with the knowledge that its profits are bound to fall in case ALDI introduces price war mechanism, the company had to leverage the price cuts and introduce products in smaller packets. The management determined that it would continue cutting prices to cater for the local consumer who is used to buying products at the lower prices. The company did not want any client and people who have known it to realize that ALDI was on the verge of making losses after successfully penetrati9ngn into the UK market. The worst scenario is for clients to get acquainted with company products, and only shortly, to hear that the same company has started making losses. In the UK, the impact of the discounters has been magnificently great. Analysts have documented that the discount grocers are portrayed to be leading a dominant role regarding re-shaping the grocery sector (Brandes & Brandes, 2015). In the UK, ALDI has managed to tackle the increasing and damaging issue of a price war. This is because many other groceries operating within the UK are adversely suffering from price wars waged by their competitors. The capability to offer low prices has given ALDI a competitive edge above other rival groceries within the UK. Another pro-factor that worked so well for the ALDI is the fact that it has not been affected by the consumer behavior, which keeps on changing within the UK. The steady decline in the weekly shopping has been measured to pose a real danger to the grocers. The Next Best Move for ALDI In this present day, the modern UK consumer seeks to have cheaper and free online shopping services, with long expiry dates and no room for substitutes. Grocery delivery is mushrooming business for UK clients, but one of the demerits is that the cost of delivery is a barrier to both the grocer and clients. The cost of home delivery continues to put potential clients off coupled with multiples worries about the kind of products being selected by the packers. Though many views that grander emphasis on quality may assist a lot. Having online rivals implies that a competitive environment or price mechanisms will not be bound to reshape the grocery sector, even though all the players will continue using same formats. Having a new entrant into the grocery sector is likely to transform the balance. This can take the form of a new online entrant such as Amazon entering the fight. Initially, when discounters first penetrated into the United Kingdom, they were perceived as stores for working class people. With the high quality of commodities, innumerable awards and low prices received by the discounters has characterized these great changes. Since most of the ALDI’s commodities are a majorly private label, clients have developed a tendency to purchase staple food and drink products from ALDI coupled with specialty purchases from other retailers. The enlargement of convenience store openings in conjunction with the growth of online grocery sales and aggressive extension activity of ALDI Company is bound to increasingly change the behavior of consumers. This move will repeatedly encourage major grocery sales and other stop-over shops at other UK super stores. ALDI Plans to Expand and Establish Strategic Zones in Japan ALDI has also made tremendous steps to invest in Japan and continues to penetrate in most of the potential towns and cities of Japan. The level of grocery stores is greatly intensifying throughout Japan. According to Brandes & Brandes (2015), convenience stores are currently competing strongly by giving attractive clientele food service alternatives. In Japan, fast foods have been discovered to offer high potential gains and profit measures. It is wonderful news to mention that there is grocery competition existing in most of the major trading zones in Japan since this alone is bound to enable ALDI to improve its operations and mode of carryi9njg out business. In a case competition is lacking in a country of operation, it is a commonplace observation that the grocery firm would be complacent, contented and probably its services and products delivery would be sub-standard. Meeting with various grocery firms in Japan is a great signal that ALDI would perform well, provided it establishes its bases well. Introduction of Digital Services To reduce excessive burden on both the staff and operators of all its grocery stores, ALDI is focusing on introducing digital services in its business units. In this current era characterized by digitalism, it is prudent that every global business strives to attain highest optimal levels of compliance with digitalism. That is the reason ALDI has devised and bought digital devices to all the stores spread in Japan. Japan’s population thrives much on consuming fast-food products, and having this knowledge alone should compel ALDI to seek serious avenues of investing in product and services quality. Introducing digital services and devices in its stores is meant to boost products and services delivery. The digital devices will greatly improve the speed of operation of these grocery units. Having a website for ALDI in the Japanese language will go a long way to ensure that online clients can be served with grocery products, at the click of the button. Such a website should be navigable by every client irrespective of their digital knowledge. On the side of the ALDI staff, this will allow them to manage a variety of tasks by optimizing fast food preparation embedded on a forecast demand (Eric & David, 2016). Understanding the Mode of Operation of Grocery Retailers The first consideration ALDI should make is to analyze and understand the demand trends and supply side trends existing within the entire Japan. Knowing the magnitude of demand within the regions the company seeks to penetrate will consequently enable ALDI to devise ways though which it will operate and conquer the markets. Another important stride ALDI should make to understand comprehensive market shares for both global and locally-based retailers. Investing into market shares within the Japanese trading market will show the seriousness with which ALDI takes towards taking root in the entire Japan. This will entail the company sets year-to-year forecasts of market growth and market trends. The entire public must be aware of what is happening within the frames of ALDI. Analysts have asserted the need for ALDI to establish a transparent and robust market research methodology- which should be carried out in-country (Brandes & Brandes, 2015). The Pressure to Penetrate ALDI wishes to venture in retailing with the intent of attracting fresh talent and creating newer opportunities for present leaders; to realize diversification of risks; having a quest for greater economies of scale, and finally the need to consolidate the constrictions imposed by regulatory agencies. Growth becomes the major impetus for ALDI’s rapid seeking to venture into other markets. Since ALDI has recognized that retailing is a low margin business, ALDI should continually strive to expand quickly in cases it wishes to remain attractive to potential investors. Some of the Barriers ALDI may face in the Process of Penetration It is the fear of many retailers that they always have problems venturing and establishing roots in developed markets. This includes even well-developed chains who always have trouble making acquisitions work. In the case of Japan and UK- the two well-developed nations with high-gearing economies- it takes a lot of boldness, courage, and consistency for ALDI to make substantive gains in both nations. Economic analysts postulate that is correspondingly difficult for retailers to grow due to lack of suitable sites, entrenched competition, and real estate costs (Brandes & Brandes, 2015). Now that ALDI is entering well-known emerging markets, it would be prudent for its chains to develop big networks of stores. Sometimes, regardless of the country of operation, ALDI may discover that retailing is done locally and that the entire industry becomes highly fragmented to an extended that setting and achieving certain goals of expansion becomes difficult. Foreign market entrants are often seen struggling to realize offerings to developed nations which prospective shoppers perceive as valuable, different, and new. For the case of ALDI, this problem is well-illustrated by the way ALDI clients did not embrace the format as one that was viable. The customers, especially in Japan, were uncomfortable with the way ALDI stationed its shopping centers across Japan (Eric & David, 2016). This implies that the unwise choice of locations, however strategic it was, is still perceived as a factor that can make ALDI fail, both now and in the future. In these developing countries, consumers of groceries have a tendency to believe that foreign retailers are just premium players since they do not provide the services offered by local grocers, including custom packaging, credit, and freed delivery. Additionally, it is likely that there might be laws put in existence to favor and protect local retailers from foreign competition. Simply because ALDI is a global retailer store likened to others like Walmart Retailers and the rest best brands is not a guarantee that everything will run smoothly from the beginning to the end. The many hurdles that are likely to arise should thus be listed, and the appointed team within the organization should be given the full mandate to explore avenues of countering all the listed challenges and barriers. Doing Brand Auditing as a Measure of Realizing Maximum Revenues in Japan & UK The emphasis is at this moment laid on the process of brand auditing done at a company level, brand exploratory, importance of consumer knowledge, and the criticalness of undertaking competitor analysis. Key emphasis should, therefore, revolve around assessing some workable, practicable, and verifiable recommendations that can work best for this model firm. This will be done by discussing the brand qualities that should be leveraged with the focus on maintaining the sustainability of this company’s brand. Finally, any emerging opportunities and challenges tied to the brand shall be explored. ALDI consistent thrive in the retail industry of grocery was primarily attributed to the vast experiences as well as the capability to effectively incorporate both product and cost leadership strategies by following them accordingly. The first recommendation is for ALDI to ensure that it continues to remain a number one powerful brand globally. This would be done best by seeking to improve on its present/existing brand strategies and looking at the weak ones. In case the firm finds out that some of its existing branding strategies do not bring enough revenues, then it can do away with them (Eric & David, 2016). The second recommendation is for ALDI to establish a unique approach to and philosophy of design. It really must reconsider its past and previous marketing techniques and determine if both are in line with the present branding strategies. Doing this analysis can help the firm to fulfil its mission; the latter move will maintain the firm in existence. ALDI should continue penetrating into newer methods being used by its rival companies. Copying some of these methods and even improving on them can help ALDI to establish a unique brand in a relatively easy way. Only that caution should be taken to ensure that the rivals do not notice since they can announce to their clients that ALDI has copied their branding. The third recommendation involves ALDI setting a “catchy” price tag that would attract clients of all classes: the rich, the middle earners, and the low-income earners. Such a price tag should capture a low price yet ensuring that grocery sales are maintained and that its cumulative revenues are not disfranchised whatsoever. The price tag should capture the quality aspect since this is highly valued by every customer globally. The price tag should factor in place the element of sustainability- that means, it should have a long-term tenure in itself. It should not be a price that keeps on fluctuating from time to time- since this is likely to automatically chase away potential clients. Lastly, the price tag should capture function and form-both of which should be appealing above board. The fourth recommendation is for ALDI to pursue consumer insights and make this feature part of its branding. Consumer insights entail many facets- all of them touch on reaching to clients to position yourself in their shoes. Sometimes, a firm can be able to sell best if only it took sufficient time to consider what the client “wants to get” and not what the firm “seeks to generate and sell.” The final recommendation is for ALDI to focus on design and not the designer. This means that it should partner with other grocery firms who know how best to appeal to clients in these two nations, UK and Japan. This follows exploring the brand name design. Reference List Brandes, D., & Brandes, N. (2015). Bare Essentials: The Aldi Success Story. Wien: Linde. Eric Van Den Steen & David Lane. (2016). Aldi: The Dark Horse Discounter. Harvard Business School. 9, 714-731. Institute of Grocery Distribution. (2010). Aldi (Germany). Watford: Institute of Grocery Distribution. Read More