Strategic Management and Competitiveness of ALDI Australia - Case Study Example

Strategic Management: Case of ALDI Australia Name: Tutor: Course: Date: Table of Contents 1.0 Introduction 4 1.1 Strategic Management and Competitiveness 4 1.2 External Environment (Porters 5 Forces) 5 1.3 Internal Environment (Value Chain Analysis) 6 1.3.1 Logistics 7 1.3.2 Operations 7 1.3.3 Front-End Activities 7 1.3.4 Supporting Factors 8 1.4 Business Level Strategies 8 1.5 Conclusion and Recommendations 9 Reference list 11 1.0 Introduction This report on strategic management and competitiveness of an organization is based on the case study of ALDI Australia. The intention is to identify strategic management issues, competitive landscape and identify some of the strategic management tools such as Porters 5 forces, value chain analysis and business level strategies. ALDI is a German based retail grocery store was established in 1948 by Theo & Karl Albrecht in Ruhr, Germany. The company has diversified and expanded to various countries including Australia. It is one of the world’s biggest global food retailers with more than 7000 stores. ALDI Australia started in 2001 and has expanded to states like Queensland, Victoria and New South Wales. The organizational mission is to provide people with the highest quality-low priced products (Hitt & He, 2008). This strategy is behind Aldi’s success. The report has provided in detail information of Porters 5 forces, value chain analysis and business level strategies used by ALDI. These tools have been used because they provide insights on current performance and future direction of the company in relation to its competitors. Porter’s five forces look at the external environment while value chain analysis considers the internal environment (Porter, 1985). Recommendations are made based on these analyses to provide the strategic direction and sustainability of ALDI. 1.1 Strategic Management and Competitiveness Strategic management involves using techniques and tools that will increase organization’s competitive advantage and performance. These tools include setting goals, market leadership, infrastructure development or product differentiation and brand development. Companies become competitive when they utilize resources efficiently to meet the ever changing needs of customers. Some of the factors influencing firm competitiveness are; technology, corporate culture, talent, research and development, responsiveness to needs of employees and communities. Strategic competiveness is in the ability of the organization to favorably win a sizeable market share for its products, increase profitability on a steady platform and long-term sustainability. Demarie, Keats and Hitt (2007) note that the new competitive landscape engenders increased organizational advantage over its competitors through drivers such as economic activities, globalization of business and technological revolution. Internet has become the new international highway not only to advertise but a point-of-sale and distribution. Emphasis on knowledge intensity gave rise to competitive advantage and positive feedback industries. Technological convergence brought instant changes. Globalization enhanced cross-border relationships for multinational firms to expand to emerging markets and transitional economies (Henderson & Cote, 2003). It influenced marketing of services and goods as well as supply chain through sourcing activities in their value chains to organizations in different countries. ALDI is a beneficiary of globalization, technology and knowledge is international expansion to Australia. Thompson (2001) argues that an organization exploits the less competitive landscape in the country to gain competitive edge and increase market share in four states. In order to take advantage of the new competitive landscape, ALDI maximized changing expectations and careers, innovation and continuous learning, consumer satisfaction, quality and price in hypercompetitive markets and blurred industry boundaries. The company remained lower in product prices compared to some of its major competitors such as Coles and Woolworths. It also led on its supply chain by sourcing from within Australia from reputable suppliers of vegetables, fruits, chilled dairy and fresh meat. It also became a market leader in online product advertising in which all its product and their prices were listed online for customers to get exact value (Yoon et al. 2006). Limited product lines in ALDI maximized creativity and avoided price tags to increase sales. By exploiting on product and consumer knowledge, the organization was able to offer weekly special offers on expensive products and weekly discounts on cheaper items. The company remains determined to remain low on product prices especially on grocery shops. 1.2 External Environment (Porters 5 Forces) External environment of an organization includes customers, suppliers, regulators, local authorities, local community and government. External stakeholders influence the profitability of the company given that suppliers and customers can opt to embrace quality, negotiated pricing and effective distribution. Porter (1985) argues that it would be difficult for an organization to implement differentiation and cost leadership at the same time. ALDI is influenced by suppliers, substitutes, customers and ease of entry to newcomers. The sector is capital intensive and most likely discourages new entrants. Suppliers are many with steady performance and quality owing to improved agricultural methods and efficient processing or packaging techniques. These are conflicting requirements that makes companies to get lost mid-way and fail to successfully executive differentiator or cost leadership strategies. ALDI opted for cost leadership upon entry into the Australian grocery market. Its prices are known by consumers as lower than that of Coles and Woolworths. Porters 5 forces analyzes the rivalry of existing competitors through insights on the threats of new entrants, bargaining power of suppliers and buyers and also the threat of new substitute products (Hubbard et al. 2008). Regarding threat of new entry, the performance of grocery business in Australia requires huge capital and greater economies of scale to break even. This sector though profitable, makes it less attractive to new entrants. Grocery businesses have no close substitutes making it difficult for customers to switch to other alternatives in the case of price increases. The power of suppliers remains high and attractive in the market. On competitor rivalry, ALDI faces few competitors like Coles and Woolworths who offer differentiated products making the market very attractive. In the recent past, buyers have become frugal and economical on their grocery shopping. Economic downturn in the recent past has eroded the buyer power. Grocery is a mass market business where buyers are households, institutions and restaurants. The products are for daily consumption and as customers try to save, they incur lower switching costs from one supplier to another. Buyers are multiple with less power to dictate terms (Bonn, 2006). Grocery suppliers are also many making it difficult to drive up the prices. Australia is one of the leading countries producing fruits, vegetables and beef products. The products are not unique giving fewer privileges to suppliers on patents and trademarks (Thompson, 2001). Their strength is low with lower switching costs between suppliers. 1.3 Internal Environment (Value Chain Analysis) ALDI has shown determination to improve efficiencies, reduce costs and effectively meet customer needs. Some internal issues critical for company’s performance are vision, mission, culture, employee morale, financial capabilities, talent selection and drive towards corporate goals. Value chain analysis looks in the aspect of logistics, operations, front-end activities and supporting factors. 1.3.1 Logistics On inbound logistics, the company has created more than 7000 stores globally to coordinate distribution activities. In Australia alone, ALDI has more than 300 stores which lower supplier costs. The company has built strong relationships by sourcing most of its merchandize from local producers and processors. On outbound logistics, the internet is one stop shop for consumer information and actual price comparisons (Henderson & Cote, 2003). Distribution of fresh groceries to the convenience of the consumer has made ALDI efficient and low-cost hence providing timely service to buyers and optimizing distribution costs. The company is looking forward to going the Woolworth style of using internet to advertise and point-of-sale. 1.3.2 Operations ALDI has modern trucks, packaging equipment and efficient processes. Its 3200 Australian employee base is diverse and competent with annual training on performance and product handling. Limited number of brands has facilitated increased brand research and development. In providing best quality goods, the company culture enhances supplier partnerships which has optimized on equipment costs and labor (Johnson & Scholes, 2008). They have revised and eliminated wasted steps in their grocery processes. Their operations has made easier for resellers or retailers to manage merchandize and inventory. 1.3.3 Front-End Activities ALDI has a strong sales, support and marketing team to facilitate front-end value chain activities. The middle level management conducts weekly reviews promotional activities such as special offers and discounts. They also have strong marketing research and support activities for its customers. Their constant research on quality and prices has helped learn the changing customer preferences (Adams, 2004). Use of internet to promote and offer discounts attract customers. On monthly basis, ALDI revise the current promotional techniques and devices opportunities for improvement. They also review processes such as procurement, handling, point-of-sale and distribution for efficient customer care. Staff is also evaluated and trained to continuously delight and retain customers. 1.3.4 Supporting Factors ALDI technological infrastructure includes mobile phones and internet. The company has embraced the use of social media such as Google and Facebook to advertise, and also exploit mobile communication in sending new offers and prices to customers. They have improved the efficiency of value chain and customer support structures. Human resources have increased staff capacity by training, talent development and attractive compensation package to its store employees. They also have a build-up of modern equipment and buildings that support ongoing business activities. ALDI encourages on-the-job training to enhance employee alignment to company culture and performance. Purchasing departments have been synchronized with other functions like distribution, handling and sales through Enterprise Resource Planning systems (ERPS). Consequently, the use of management systems has lowered operational costs and maximized on process time (Bonn, 2006). 1.4 Business Level Strategies Business level strategies help organizations to develop a competitive advantage over its rivals. These firms have the choice to compete on a focused market or a broad market. The business level managers are tasked with providing medium-term goals that can propel the brand and increase its market share from the competition. These strategies include cost leadership, differentiation, focused low cost, focused differentiation and use of an integrated differentiated or low-cost approach. In ALDI Australia, the strategy is on cost leadership. The company entered Australia had lowered product costs on a number of limited brands (Henderson & Cote, 2003). ALDI has established a 25 percent margin lower than its competitors to attract customers sensitive on price. The groceries have been standardized and generic goods remain acceptable to many customers. The price is so far the lowest among Australian grocery competitors. To remain a cost leader, ALDI continuously reviews and maintains its prices lower by building on state-of-the art facilities and equipment, tight controls on overheads and production costs. It has also minimized on service, research and development as well as cost of sales (Adams, 2004). To obtain a cost advantage, the company has reconfigured its value chain, determined and controlled costs. The risks encountered are technology, tunnel vision and imitation which threaten its market share. Cost leadership is tied to the quality of products from suppliers and optimal marketing mix which ensures continued profitability. By embracing total quality management, the company has ensured that quality becomes one of its core values to customer satisfaction and retention. ALDI has formed partnership with top companies dealing with production of fruits, beef farms and vegetable growers. It has efficient delivery and distribution systems including trucks and vans to ensure faster market reach. This has kept direct and indirect costs at a minimum (Bentley, 2009). 1.5 Conclusion and Recommendations The report has established that ALDI uses the limited assortment and cost leadership strategy to make gains in the recent past. The company at present remains susceptible to currency fluctuations, private label ownership, government intervention, changing grocery technology and aggressive promotional activities among competitors (Michie & Sheehan-Quinn, 2001). The recommendations are as follows; i. ALDI will need to differentiate its grocery products for greater profitability and combat competition. It should focus on the store roll-out program as a new strategy to move into other regions such as Tasmania and Western Australia. This will make them competitive and profitable in the long-term. ii. ALDI will have to go by the ‘lower price-highest quality’ strategy for sustainable competitive advantage over competitors such as Woolworths, IGAall and Coles-Myer. iii. Technology is among its core values but the company will need to embrace it as Woolworths has done to remain unique, diverse and competitive. iv. There is need for ALDI to maximize on online advertising and publicity to remain on the top of Australian grocery business. By doing so, it will incur less costs and high returns. It will consistently remind customers of ‘low price-highest quality’ strategy, attract more customers and enhance sustainability. v. Institutional marketing is another area that ALDI should look forward to especially by establishing stores inside commercial buildings (malls) and hospitals in order to reach larger audiences. Reference list Adams E 2004, Alternative Quality Improvement Practices and Organizational Performance. 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