Strategic Management ofAlbrecht Discounts - Case Study Example

Aldi Case Analysis Student’s Name: Course Code: Lecture’s Name: Date of Submission: Introduction  Albrecht Discounts (ALDI) is a successful global food retailer started in 1948 in Essen Germany (Bonn, 2006). The food retailer has grown from a small grocery store to be one of the world largest food retailers by the end of 2003. ALDI have their main market in Germany, which accounts for at least two thirds of their sales and have maintained a market share of 40%. The company was able to open its first store in Australia in 2001. The presence in Australia involves strategic expansion which is cash based making their risk level low. ALDI was expected to capture 10 % of the Australian grocery market by the end of 2010. The grocery retailer has helped to add competition into Australia market through their cheap pricing. The company has also benefited from positive reception by the consumers in Australia (Bonn, 2006). The case study analysis will recommend an approach which ALDI should employ in their expansion in Australia in order to maintain their strategic competitiveness and growth despite the challenges facing the sector. To address the issue, the analysis will be divided into strategic management and competitiveness, external environment, internal environment and business level strategies. Strategic management and strategic competitiveness  Strategy is the outcome of a planning process which has the key roles being played by the managers. In rare cases, strategies come from the depth of the organisation without prior planning (Nag, Hambrick, & Chen, 2007). Despite this, a strategy is undertaken when there is a formal planning in an organisation. Strategic management involves having a strategic management process which is undertaken through the top leaders in an organization. Strategies are made based on the organisation strengths and weakness (Cartwright, 2001). ALDI have managed to have a successful market in Australia due to competitive strategies (Bonn, 2006). When the company entered into the Australian market, there were other competitors who were established brand names. The competitors in the Australian market involve Woolworths and Coles. The company had to come up with a strategy that will enable them penetrate the market. One of the strategies was offering groceries at a lower price. ALDI have been able to affect the competition significantly using the strategy. The store has been found to sell their products at a price which is 25% lower than the competitors. The fact that the market is competitive has made ALDI to introduce weekly price discounts on items. In response to ALDI strategies, competitors have reduced their prices. Some of the competitors have intensified their use of technology with virtual supermarkets used by Woolworths. The competitive environment has made the companies to change their management and competitive strategies (Scott & Kesten, 2007). External Environment  ALDI external environment can be best analyzed using porter 5 forces analysis. The analysis looks at the threat of new entrant, bargaining power of the buyers, bargaining power of the suppliers, threat of substitute and rivalry among the competitors (Michael, Nicholas & Anita, 2002). Threat of new entrants ALDI operated in a market where the threat of a new entrant is high. The industry is promising hence attracting new entrants more easily (Cartwright, 2001). The Australian government has been keen in making the market competitive. This has led to the government encouraging new innovations and entrants into the market. Despite the high threat for new entrants, small entrepreneurs are required to have a lot of startup capital to compete with established brands like ALDI. There is also need for adequate technology and capital in the industry. For large scale retailers, entering the Australian market is easier. The high turnover from the industry has been attracting new competitors (Bonn, 2006). Bargaining power of the suppliers The bargaining power of the suppliers in the retail industry is low. The supplier is thus required to reduce the price and enhance the quality (George & Brian, 2007). The market is competitive as the case study shows making the retailers to reduce the prices. For the retailers to reduce the prices, the bargaining power of the suppliers has to be low (Porter, 1980). The Australian market has a large number of suppliers making it possible for the retailers to switch them easily. Threat of substitutes The threat to substitutes in Australian market is high. There is presence of large supermarkets and shopping malls which can substitute retail stores. There are other competitors in the Australian market as who can offer substitutes and similar products as ALDI. For example, there is Woolworth and Coles where consumers can switch to if not satisfied by ALDI. The main advantage of ALDI is the fact that they offer quality products at a lower price (Bonn, 2006). Bargaining power of the buyers The buyers have high bargaining power. The buyers are most likely to bargain for quality products at reduced prices and can easily switch to another supplier if not satisfied. There are no switching costs for the consumers (Porter, 1980). Competitive rivalry The market is highly competitive with a lot of players offering similar products to ALDI. Entrant of new competitors would make the position worse for ALDI. The strategies used in the market are easy to imitate as most companies engage in reducing prices and offering high quality. There is introduction of virtual supermarket by competitors such as Woolworths and expected arrival of new competitors. This shows that the industry is in a highly competitive market (Bonn, 2006). Internal Environment  Internal environment in a firm is an important factor as it helps in identifying the firm strength and weakness. For an organization to determine their competitive advantage, they have to analyze their internal environment (Cartwright, 2001). The internal environment has a direct impact on the business. There are several internal environmental factors that have role in the performance of ALDI in their operations. Value chain analysis can help in understanding ALDI internal environment. Value chain analysis consists of both primary activities and support activities. The primary activities in the value chain are marketing, sales and logistics. The support activities involve activities that help in increasing the effectiveness and efficiency of the activities. The main support activities are procurement, technology, infrastructure and human resource. In order to gain a competitive advantage through the use of value chain, ALDI have to make sure they carry out the activities in the value chain in a better way than the competitors. The cost of carrying out the value chain activities should be less than benefit accrued. ALDI have utilized the cost leadership strategy in their marketing. By looking at the value chain analysis, ALDI main focus is to reduce the prices while at the same time offering high quality. The quality of products can be improved through both primary and secondary activities (Bonn, 2006). Marketing and sales The company has focused on their marketing and sales which is a primary activity. The company sells mostly their own brands with other brands being limited. This helps in increasing their sales and also eliminates use of price tags. ALDI offers weekly special offers which in some instances are done on expensive products. The price reduction strategy has also helped the retail store to gain a competitive advantage (Bonn, 2006). Infrastructure ALDI is well equipped in their Australian market. Being a well established firm with international presence. This implies that ALDI have adequate infrastructure which can offer them a competitive advantage. The company entrance was with $750 million in capital with plans to invest more with the profits (Bonn, 2006). Human resource Human resource is a vital factor to the organisation success. Human resource contributes to the firm’s strengths and weakness (Snowdon & Stonehouse, 2006). ALDI human resource can be said to have an added competitive advantage to the firm through planning of the people initiative and quality services and products from ALDI. Business level Strategies  Business level strategies refer to the coordinated actions and commitments that a firm utilizes to gain a competitive advantage (Sutherland & Canwell, 2004). This involves utilizing the competitive advantage in a selected product market. ALDI have utilized a cost leadership strategy in their business level strategy. This is a strategy that involves selling goods to the consumers at a lower price than the competitors with the required features and quality. ALDI Australia can be described as a hard discounter. The Australia unit offers high quality goods at a lower price than the competitors. The retailer offers a limited number of products as opposed to standard supermarket, but sells them at lower prices and making sure that quality is maintained. ALDI offers surprise discounts weekly which in some cases involve electronics, toys and hardware items (Bonn, 2006). The main stock at ALDI amounting to almost 95% is their own brands and the rest is from national brands. The company have almost 80% of their products being made in Australia. In order to avoid high marketing costs in the national brands, ALDI websites mainly focuses on the company brands. This also enables ALDI to come up with their pricing and policies. The fact that ALDI have few products gives them a high buyer power as they can buy in large quantities (Sutherland & Canwell, 2004). This enables them to reduce the prices to the consumers while at the same time maintaining the quality. In order to maintain quality, the products are sampled and tested regularly and compared with those of the leading brands. The fewer products make it possible to reduce shipping costs and ease of handling. Through making sure that the company have saved costs in all levels of their value chain, ALDI is able to offer quality products at lower prices. Minimising the costs of the products is the key in their cost leadership strategy (Bonn, 2006). The company has fewer employees in Australia as compared to the competitors due to their small store sizes. This helps in reducing the cost which can be transferred to the consumers as low prices. The store layout is simple and practical. The main aim in their business strategy is cost reduction in all aspects which can help their cost leadership strategy. The strategy has helped ALDI to capture the Australian market with their low costs and high quality products. The main problem with the strategy is that it can be imitated. The competitors have also started lowering their prices due to ALDI competition. There is a need to come up with new strategies that will enhance ALDI future in Australia in the wake of increasing challenges in the market (Bonn, 2006). Recommendations and Conclusion  Due to competition that ALDI have brought into the market, major competitors have started a price war. Coles and Woolworths have reduced their prices. The cost leadership strategy has worked and enabled ALDI to make competitors reduce prices but may not work in future. If ALDI continues reducing their prices due to competition through their cost leadership strategy, a point will come where further reduction will not be profitable (Mulcaster, 2009). There is a need to come up with a new strategy while at the same time focusing on cost leadership strategy. The company can come up with a strategy focused on making their image more favorable to the consumers. There is also need to engage in marketing techniques which can help to maintain the company brand image among the consumers. If ALDI continues lowering their prices, the consumers may perceive their goods to be of lower quality leading to loss of market share. ALDI can also engage in diversifying their products which can lead to an expansion of the market. ALDI operates in a competitive market with a lot of substitutes where the barrier to entrance is low for multinational players. There is need to expand their presence in Australia in order to gain a large market. ALDI has to analyze their market strategy and take the listed recommendations in order to maintain its level of growth and strategic competitiveness in the light of challenges the sector is facing. References  Bonn, I 2006, “Aldi in Australia”. In C. W. L. Hill, G. R. Jones & P. Galvin (Eds.). Strategic  management: An integrated approach (2nd ed.). (pp. C1‐C11). Milton, Qld: John Wiley & Sons. Cartwright, R 2001, Mastering the Business Environment, Basingstoke, Palgrave Macmillan. George, S & Brian, S 2007, Competitive Advantage Revisited: Michael Porter on Strategy and Competitiveness, Journal of Management Inquiry, Vol. 16, No. 3, p. 256-260. Michael, P., Nicholas, A & Anita, M 2002, An interview with Michael Porter, The Academy of Management Executive, Vol. 16, No. 2, p. 44-54. Mulcaster, W 2009, Three Strategic Frameworks, Business Strategy Series, Vol. 10, No. 1, p. 68- 75. Nag, R., Hambrick, D & Chen, M 2007, What is strategic management, really? Inductive derivation of a consensus definition of the field, Strategic Management Journal, Vol. 28, No. 9, p. 935-955. Porter, M 1980, Competitive Strategy, London, Free Press. Scott, A & Kesten, C 2007, Competitor-oriented Objectives: The myth of Market Share, International Journal of Business, Vol. 12, No. 1, p. 116-134. Snowdon, B & Stonehouse, G 2006, Competitiveness in a globalized world: Michael Porter on the microeconomic foundations of the competitiveness of nations, regions, and firms, Journal of International Business Studies, Vol. 37, No. 2, p. 163-175. Sutherland, J & Canwell, D 2004, Key Concepts in Business Practice, Basingstoke, Palgrave Macmillan. Thompson, A. S 2001, Strategic Management: concept and cases, New York, McGraw Hill. Read More