Strategic Management and Marketing of Aldi Supermarkets in Australia - Case Study Example

A Report on Strategic Management of Aldi Supermarkets in Australia INTRODUCTION Background Information Aldi Supermarket in Australia is one of the branches of the large German Aldi Stores that has successfully fought for a market share in Australia despite massive competition that is offered by pre-existing companies such as Walmart, Woolworth and Cole-Myer; the latter three have secured more than ¾ of the overall market (AC Nielsen Grocery Report 2004). It is basically a grocery investment whose strategy is to offer the market with high quality products that sell at cheaper prices. In fact, the company has been renowned for the cheapest grocery products in Australia as well as back in Germany. As an extension from Germany where over 75% of consumers shop at Aldi stores for grocery products (Coriolis Research 2000), the first store in Australia was established in 2001 with high hope to develop amidst the tough Australian market. The company has since grown continuously despite stiff competition and by 2010; it had owned more than 2.5% of the market share (AC Nielsen Grocery Report 2004). The company’s sole tool is the control of the price of the commodities it offers that many a times remains the lowest in comparison with other similar firms. However, the need to ensure that substantial profit is realized after sales highly regulates the limits within which minimum and maximum prices are decided upon. This report gives an analysis of the company’s capacity to survive major threats that pose from time to time. The aspects looked include the Australian consumer behaviour, threats and opportunities as they affect the future of the company. The internal and external analyses depict an environment within which, by comparison with the strategic management index that the company exhibits, the Aldi stores certainly have the chance to grow even further and colonize more market portion. Given that the Aldi Stores operates among a variety of similar firms, there will always be a call to establish a unique characteristic that will guarantee a higher competitive advantage, largely because competition is always present. Using the TOWS matrix analysis to characterize the internal environment, sustainability index of Aldi investments has been summarized whereas the Value Chain Analysis expresses the strategies the company employs to control the cost-profit balance and for the categorization and accounts of the activities that fall within the framework for the development and thus expansion of the company into potential new areas in Australia. This study further intends to use the Aldi ventures as a platform to display challenges-versus-success element in marketing strategies to assist and/or guide entrepreneurial ambitions. Mission Evaluation Taking into consideration that there existed similar firms before Aldi Supermarket ventures were extended to Australia, the Aldi merchants obviously had established a strategy for fighting for a market share (Coriolis Research 2000). From their major proposal laid out in 2000, the Aldi Company describes their only niche for survival as to juggle with the prices of their commodities (Coriolis Research 2000). However, as in any other major investment, the mission included to provide the highest quality products to the Australian markets. Having set their first foot in Sydney in 2001, the company spread fast to other major cities of Australia where the major tool was lower prices (AC Nielsen Grocery Report 2004). The major challenges up to now have been those related to the sources of row materials and securing interest of the consumers. In Australia, Aldi investments are considered foreign but the strong base back in Germany has provided virtually enough technical support for the success of the company. The company has been successful in providing high quality grocery products in over six major Australian cities at cheaper prices. However, the chance for further expanding the business still prevails (AC Nielsen Grocery Report 2004). STAKEHOLDER ANALYSIS In the world of business, the issue of stakeholders covers a wider array of personalities than just the owners (Dunphy 2000). Aldi is a multinational company with strong bases in European countries. Therefore, the company has been able to provide technical and financial support for itself. The Aldi Supermarkets of Australia are entirely owned by German Aldi Company (AC Nielsen Grocery Report 2004). Therefore, all the activities of the supermarkets use the missionary call of the German Aldi Investments which have all control in all the executive roles necessary for the sustainability of the company in Australia. INTERNAL ANALYSIS The internal analysis studies the operational qualities of the Aldi Supermarkets that enhances the success so far recorded and their contribution on offering a potential ground for expansion. For Aldi, the trust of its uniformity in pricing and maintaining high quality products contributes to a great strength for competitiveness. Various aspects of internal environment have been summarized hereunder. Cultural Analysis Aldi Supermarket has maintained its policy of high value of the consumer. In order to facilitate maintenance of the amount of the profit accrued over time, the company has maintained a culture of cost reduction, the trend in disseminating services as a discipline and maintenance of high quality products (Crane 2007). Cost is reduced for example by avoiding occupancy costs (Windsor 2006), done by buying the operational sites and building on them. The company does not at all offer bagging services for free for the commodities purchased by the consumers. To this effect, the company maintains that such free services lead to the deterioration of the environment by excessively dispensing non-biodegradable containers to the environment. Physical Resources In comparison with other major competitors such as Woolworth, Cole and Foodland, Aldi supermarkets provide relatively lower number of grocery brands. However, the management intends to explore more brands to gain as much customers as possible. Intangible Resources The company operates in a most important era of rapidly growing technology (Hoskisson 2008) and has been a great deal been favoured by especially e-commerce that reduces marketing costs. Financial Resources In say middle stages of development, the management has ample financial resources from foreign Aldi global management team support and local profit accruals to explore and invest in more potential areas in Australia. Human Resources The cheap labour provided by the Australia’s population enhances the company capacity to ensure substantial amounts of profits necessary for increasing its financial base. The company maintains small numbers of well trained employees who are expected to multitask to accomplish various duties. Value Chain Analysis Primary activities; inbound logistics Aldi management uses relatively a smaller number of employees and pays them high wages, a strategy that reduces costs. For example, a typical store is manned by one person. Goods received are stored in an inbuilt store before tagging prices process. This offers the company a competitive advantage (Crane 2007) in the industry. Supportive activities The Aldi global management team oversees managerial activities in Aldi Australia. This essentially includes financial facilitation for supplementary training services to the workers. Early marketing alerts in potential markets of target are not as effectively undertaken. With the vision to expand services, it is high time that earlier alerts are made for the search of potential suppliers (William 2011) and to heighten chances for strong start in any new operational environment (Hoskisson 2008). Core Competences The capacity of any business to dominate the market over a specified region can be summarized by related qualities of a firm and is affected by several factors (Eden & Ackermann 1998). For one, the kind of the staff that operates Aldi ventures describes experienced team with rich entrepreneurial back up (Hoskisson 2008). Aldi Supermarkets distribution in major Australian cities corresponds to a high trust by consumers. The potentiality of the Aldi investors is displayed by their capacity to establish mega stores that flood more than enough commodities for to meet the demands of the market. The only failure realized is the lack of provision of grocery brands in entirety. EXTERNAL ANALYSIS The external analysis studies the external environment and the related factors that affect the operation of a business (Dunphy 2000). The external environment’s role in determination of success covers aspects like the dynamics of the environment itself; the political, social, economic and technological environments; the industry life cycle; statistics and trends (Eden & Ackermann 1998); threats; and opportunities that face a firm. PEST Analysis Political Factor Thriving of any business in a particular area directly means that the firm must follow related rules stipulated by the jurisdiction in place (Crane 2007;William 2011). Foreign investors thus have a role to first conceptualize the working law in their areas of intended operation (Crane 2007). The political sphere in Australia is dominated by two major political parties of equal calibre (Quick Guide to Australian Political Parties 2009) and therefore, there are chances that shift in leadership in highly probable. Luckily for Aldi as well as other businesses on the continent, Australia has had long period of political stability and the constitution that operates advocate for social democracy (Quick Guide to Australian Political Parties 2009). From a corporate perspective, it does not matter who heads the country because he or she is not entitled to change the existing corporate policies and what is required is just to follow the statutory code of operational conduct, for example, concerns on the health of the society. The only political difference of low significance between Germany and Australia for Aldi Australia is the fact the Australians follow ‘the Common Law’ (Quick Guide to Australian Political Parties 2009) as opposed to Germany’s ‘Code Law’. Moreover, there exists the Australian Retailers Association that serves to influence the dynamics of the Australian Corporate Laws. Economic and Social Concerns The success of a business is directly affected by the influx of the customers (Foley 2006; William 2011). The spending willingness and limits are affected by some economic factors. For example, Australian economy offers relatively low wages in general and the need for an individual to save money outweighs his or her capacity to spend satisfactorily (AC Nielsen Grocery Report 2004). The result is a limited spending rate and thus a reduction in the number of commodities purchased (William 2011). However, this problem is neutralized by the relatively low housing rates (Risk for Australian Residential Property Prices 2005). Australia depends on imported petroleum products which sell at a very high price and may affect the behaviour of the consumer (AC Nielsen Grocery Report 2004). Generally, it would be safe to say that due to the constantly increasing urbanization, the society exceedingly depends on purchasing agricultural products from shops as opposed to farming. This translates to an ever widening market and ceaselessly rising demands (Campbell & Mollica 2009). Technological Availability It widely accepted that the technology has grown rapidly over the 20th and 21st century (Cook & Guy 2001; Cateora & Graham 2007) and still its growth is in progress. Aldi investments grow gracefully using mechanized packaging utilities and reduced marketing costs through the use of the internet (Cateora & Graham 2007). With such technological prevalence, the company promises to grow even more. Porter’s Five Forces The Bargaining Powers of the Consumer For an experienced entrepreneur, the bargaining power of the consumer is a subject hard to avoid (Fuller 1999). The issue of concern is to use a strategy that reduces the capacity of the buyer to hop from one’s enterprise to others (Fuller 1999). Most of megastores display fixed prices on the commodities (Carley & Christie 2000). Customer influx trends are used to determine the price that most customers will readily endure (AC Nielsen Grocery Report 2004). However, the quality of products must remain constantly high all the time (Foley 2006). Aldi Supermarkets always ensure a slightly lower price for a similar quality product and ensures its consumer base remains intact or better, increases (Windsor 2006). Suppliers’ Bargaining Power Suppliers bargaining powers for grocery products remain low because the consumer pull regulates the amount retailers are willing to order from the manufacturer (Foley 2006). The existence of several manufacturers offers retailers with a wide variety of options. A retailer goes for high quality products that sell at cheaper prices (Fuller 1999). The ripple pressure effects from the consumer for high quality therefore saves a retailer a breath and the impact is merely left to the suppliers. Emergence of New Investors in the Industry The grocery products industry releases into the market products for which almost every citizen becomes a potential buyer (Australian Bureau of Statistics 2005; Rola-Rubzen 2009). The industry currently has proved high profits in the highly urbanized Australian population that readily consumes substantial amounts of grocery products daily. There is thus a chance that more and more investors may enter into the market. The Australian government in addition, interested in making market competition as stiff as possible , encourages more and more investor to enter Australian market (Department of Foreign Affairs and Trade [DFAT] 2006). Large foreign companies in the industry may therefore be tempted to flood Australian market (DFAT 2006). Competitors The grocery industry in Australia consists of other major food retail shops as reiterated above. All competitors engage in a battle to influence the behaviour of the buyer pro their respective companies’ welfares (Foley 2006). All such firms try to provide the market with the highest quality products at low costs and thus massive competition is ideal (Carley & Christie 2000). Strategic management of individual firm and the policies used solely determine the success of the firm. As said above, Aldi company’s strategies are to reduce costs of occupancy and using the cheapest but efficient labour. Small retail malls do not offer as direct competition for the market (Rola-Rubzen 2009). The TOWS Matrix Analysis Threats Prevalence of other major competitors. Opportunities grocery industry’s nature provides enough incentives to invest even more to penetrate into other markets in the large Australian continent to increase the variety and the quality of on-shelf brands to maintain the lowest price policy as a bait to consumers to make institutions and small retailers additional target markets Weaknesses Most of internal operations are not mechanized due to availability of relatively cheap labour Relatively low variety of brands presented to customers particularly the perishables Push to depend on well trained workforce invites additional operational costs Strengths Aldi has a well-developed reputation of low prices in general The staff have a deep understanding of the economics of business Countering some of production costs Great financial support from the parent company Smaller retail malls rely on supermarkets in a major way (Fuller 1999) SAF (Suitability, Acceptability and Feasibility) Indices Aldi supermarkets provide the market with the much needed household commodities and therefore, with the increasing population and urbanization, the company correctly matches the market needs. After a well-developed reputation worldwide, the supermarkets are likely to be accepted (Banerjee 2007) as a world’s cheapest retail hub. The firm financial resource base in other countries provides the capacity for the company to grow further and to penetrate into potential untapped markets. The Most Appropriate Strategy The competitor threat has been taken care of by the prevalence of a large market and the low price strategy. Therefore, of great importance for Aldi is to focus on how to expand its business by using its strengths to maximize the evident opportunities (Rola-Rubzen 2009). The strategy of choice then becomes the strengths-opportunities strategy known as ‘Maxi-Maxi’ strategy. With this, the low price policy, well trained staff, reduced costs of through avoidance of occupancy costs, great financial resources base are some of the strengths which if used accordingly, opportunities may be made real. The opportunities to expand the market and extend tentacles to other markets (Banerjee 2007) and still increase the on-shelf options for the customers remain the main targets. In simple terms, the best policy is market penetration. It will be advisable to extend services to the already existing market corridors in all cities and institutions because the demand for food products heightens every day. The strongly reputed Aldi worldwide will be a readily accepted retailer. Maintaining its cost reduction policy like purchase of operational sites enables cheaper prices which help in realization of profits as well (Risk for Australian Residential Property Prices 2005). Searching for smaller potential retailers (Rola-Rubzen 2009) who buy larger quantities in relation to individual consumer is also an option. Industry’s Life Cycle Given the hot and dry climate that prevail in most of Australian regions (DFAT 2006) and which leads to high urbanisation rates, plus the increasing Australian population (Australian Bureau of Statistics 2005), the grocery industry for which almost everybody is a potential consumer of its products promises to prevail. Generally, the groceries provide dietary demands of the entire nation whether occurring in modifications such as the McDonalds fast foods or in raw form. Therefore, the demands for grocery products will constantly prevail and even possibly increase and so do the retailers (Fuller 1999). Strategy Development and Implementation To ensure that the quest for success is fulfilled, continued development of strategies in use and additional ones marks a major step for any investor (Eden & Ackermann 1998; Carley & Christie 2000). Surviving under heavy pressure from competitors such as Cole and Woolworth giants, Aldi supermarkets has set out $1 billion in readiness for expansion. This expansion plan includes establishment of more than 25 mega stores in potential areas. The company also looks forward to increasing the variety of products to try and reach the brands varieties provided by larger competitors such as Cole and Woolworth (AC Nielsen Grocery Report 2004). Implementation of the plan is expected to commence as soon as potential suppliers are located. CONCLUSION Aldi supermarkets have been favoured a great deal by all factors of business development including the nature of the industry itself and its long lasting character. However, there is a room for more expansion and this will rely on the management decisions (Eden & Ackermann 1998). The recommended strategy is to penetrate into potential and untapped markets like institutions (William 2011) and other market regions within the urban areas. However, there is still the question to locate reliable suppliers and respective market alerts in advance (Windsor 2006). List of References AC Nielsen Grocery Report. 2004. Retail spending at record highs, but supermarkets lagging behind. Accessed on 22/07/2012 Australian Bureau of Statistics. 2005. National and state population summary table. (Cat. No. 4102.0) accessed on 22/07/2012 Banerjee, S., 2007. Corporate Social Responsibility: the good, the bad, and the ugly. London: Edward Elgar Publishing. Campbell, T., & Mollica, D., 2009. Introduction. In T. Campbell & D. Mollica (Eds). Sustainability. 2(1); pp3-7. Carley, M. & Christie, I., 2000. Managing sustainable development. London: Earthscan. Cateora, P. R. & Graham, J. L., 2007. International Marketing (13th Ed.). New Delhi: McGraw Hill. Cook, G., 2001. "The Discourse of Advertising", 2nd ed. London: Routledge. Pp56-8. Coriolis Research. 2000. Aldi in Australia: What will be the impact? 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