The Australian Supermarket Industry - Case Study Example

THE AUSTRALIAN SUPERMARKET INDUSTRY: CASE STUDY OF ALDI Name Course Tutor University Date The Australian Supermarket Industry: Case Study of Aldi Introduction Australia has the most heavily concentrated grocery market across the globe. The two primary players are Coles Myer and Woolworths, which control about 76% of the market (Wortmann, 2004, pp. 447). There has been intense competition among the existing rivals despite the industry’s concentration. However, with such a competitive and concentrated environment, Aldi, a global grocery retailer entered the Australian market in 2001. The move was impressive given that penetration into the Australian market is difficult and complex. Indeed, there was no any other foreign retailer that had previously succeeded in establishing its presence in Australia. According to Gerhard and Hahn (2005, pp. 15), Aldi is a German-founded retail store by two brothers, Karl and Theo. It commenced its operations in 1948 and then spread to the rest of the world. Today, Aldi is one of the biggest international food retailers owning approximately 7000 stores globally. In Australia, Aldi embraces its universal policy of providing consumers with low prices and high-quality products. Although Aldi faces various challenges in its operations, this strategy has made it successful. Fundamentally, low prices and high-quality strategy have helped Aldi to overcome its day-to-day problems thus gaining the much-needed competitive edge. Situational Analysis The Australian market offers a favorable setting for business especially in grocery retailing. Foremost, Australia has one of the rapidly growing economies in the world and thus attracts investors from every corner of the earth. Although the Australian government seeks to protect domestic firms and products, it offers opportunities for foreign companies to invest in the country since it focuses on expanding its economy (Grant et al., 2014, pp. 56). Importantly, the changing lifestyle of the Australian population necessitates innovations to meet their diverse tastes and preferences. In this regard, there are increased opportunities for other firms to address these needs. Probably, the ability of the Aldi to provide products that meet consumers’ expectations has been a crucial pillar of its success in the market despite the presence of the Coles Myer and Woolworths, the two chief monopolies. Additionally, Aldi emphasizes the use of environmentally friendly products and packaging thus earning the trust of the Australian authorities (Zarkada-Fraser and Fraser, 2002, pp. 285). Indeed, the great concern of the Australian government is food packaging, a factor that Aldi has put into considerations since its establishment. Australia also embraces technology that offers a central platform for Aldi to employ technological facilities to deliver its products to the clients on time. The threats of new entrants in the Australian market are high because there is a great possibility of duplication of the competitor’s strategies in the grocery business. Indeed, both big and small firms in the industry could easily copy and implement a competitor's strategy in another market segment (McKinna, 2011, pp. 7). In this regard, Aldi should expect some challenges from other international competitors such as Tesco and Wal-Mart, which may consider penetrating the Australian market. Therefore, Aldi should remain prepared for any competition that might arise from new entrants to the Australian market. Correspondingly, the threat of substitutes is also high because there are a significant number of global players as well as domestic firms in the Australia with similar products to the consumers. In such a scenario customers may feel dissatisfied and they may shift to the competitors especially if the switching cost is low. Fortunately, Aldi has slighter power over other players owing to consumers’ loyalty and trust through its low price and good quality policy. In the Australian grocery market, the suppliers’ bargaining power is low because there are a considerable number of sellers offering identical products and services thus Aldi has several options. It could acquire products from suppliers with relatively low prices for it to lower their products prices. According to Nenycz-Thiel and Romaniuk (2011, pp. 97), backward integration of big retailers such as Aldi reduces the bargaining control of suppliers even more. On the other hand, the buyers’ bargaining power is moderate. There are many customers and various product options in the market, a situation that drives the switching cost down thus consumers could quickly switch from one company to another. Opportunely, there is little probability that Aldi remains at risk since it charges low prices for high-quality products. Lastly, Aldi faces a high competitive rivalry owing to several firms in the market offering similar goods and services (Aldi Company, 2017, n.p.). In fact, there could be increased competition from other global giants in the future. Therefore, in considerations of all dominant factors in the Australian market, the grocery industry profitability could be termed as low-moderate, and thus Aldi should remain vigilant and innovative to control a significant market share. Fit between the Company Strategy and its Context ALDI’s strategy centers on providing high-quality products at relatively low prices compared to other market players. The key elements of the low price strategy adopted by the Aldi Supermarkets are limited range, exclusive brand products, price change policy, and focus. Firstly, the central pillar of the Aldi’s strategy is its emphasis on exclusively brand goods and services (Nenycz-Thiel, 2011, pp.626). The company forms partnerships with major producers to provide own-brand products. In this way, Aldi has been able to utilize even the products from the local firms. Consequently, consumers are willing to purchase its products since they seek to promote their domestic brands. Importantly, it helps Australian government in strengthening the local firms while offering high-quality products. Arguably, this strategy of outsourcing goods and services from renowned companies, both domestic and foreign, has played a pivotal role in assisting the company to successfully penetrate the Australian market and command a considerable market share. In addition, Aldi Supermarket reduces costs for a limited variety of products. In this regard, it conducts a market research to determine prices for different products to address customers’ needs sufficiently. The firm philosophy is providing consumers with what they require and not changing their desires. Fortunately, the low suppliers’ power favors their purchasing trends and prices. Aldi seeks suppliers who can offer products with specific characteristics as demanded by consumers. In this way, the firm can address the market gap that the Woolworths and Coles Myer have not satisfied. The company also makes sure that the products are available in the required quantities and sizes. Therefore, unlike other traditional supermarkets that stock up to approximately 20,000 lines, Aldi maintains a manageable stock of only 600 to 700 lines (Mitchell et al., 2010, pp. 37). The firm reduces costs substantially by stocking only one size of every product. Aldi’s strategy encompasses a strict focus on what it values as core business. It does not follow the footsteps of Coles Myer and Woolworths, which have expanded their retail base to include pharmaceuticals, liquor, petrol, and online shopping (Cleanthous, Mackintosh and Anderson, 2010, pp. 438). In this way, the company can satisfy consumers’ needs fully since it concentrates on a single business activity. Indeed, Aldi’s strict focus on grocery has enabled it to have a competitive edge against its rivals and new entrants. The only area where Aldi deviates from its strict policy of stocking only core products is during the period of “Surprise buys,” in which bunch of products such as computers or televisions are sold in its stores for a specified time. Such “surprise buys” are purchased in bulk to conform to the company’s high-quality and low price policy. Indeed, its price strategy requires Aldi to pass low costs to consumers during normal economic climate and to increase prices relatively during the time of hostile economic forces. The firm notifies customers of any price rise by placing notes on cartons in their stores. Evaluation of the Current Strategic Approach The present strategic approach of the Aldi supermarket focuses on the timely availability of products at considerably low prices. The approach has three basic characteristics, including decentralization, flexibility based on the formalization of the fundamental elements, and minimization of functions. Foremost, the company uses a strategic method that allows flexibility based on the formalization of the central elements. There are clear reporting lines that permit for rapid information flow and unanimity in decision-making (Zhao, 2005, pp. 33). Indeed, the expectations and rules specified in the Aldi Management System, training manuals, occupational health and welfare guides, and job descriptions help to avoid confusion and increase efficiencies. In return, Aldi has enjoyed various strengths such as improved relationships with consumers, high buying power, regular product testing, and a broad range of own-brand products, which enhance cost efficiency. The company strategic approach allows a warehouse to support only 60 to 70 stores. Aldi creates a new region and replicates the roles when the optimal capacity is reached. The store scopes are also capped. Each store has 10 to 15 personnel with 4 to 6 cash registers (Brandes and Brandes, 2012, pp. 37). Aldi prefers to open new stores in a region rather than making an existing store bigger. Decentralization is also evident in performance monitoring. For instance, the regional management supervises the inventory, sales, and productivity of specific stores while financial feasibility is not managed based on a per store performance. Instead, the company considers efficiency in monitoring financial viability thus helping in enhancing the simple organizational culture and a unique operational system. Lastly, the current strategic method implemented by Aldi tends to minimize some functions. It primarily focuses on core business and thus eliminates public relations, marketing, and legal departments. The lack of public relations and marketing functions is not necessarily accompanied by substantial outsourcing apart from advertising (Vogel and Vogel, 2008, pp. 103). Aldi prefers to depend on localized or word-of-mouth advertising. The firm spends most of energy and time on endeavors, which increase its ability to compete on price and quality rather than gaining public accolade. Indeed, Aldi believes that efficient delivery and quality products earn a good reputation and global recognition more swiftly compared to too much advertising. Conclusively, the firm’s strategic approach has remained central toward expanding into new markets. Fit between Company Strategy and its Goals and Expectations The primary goal of the Aldi supermarket is to meet consumers’ tastes and preferences in their respective locations. The company expects to expand and maintain a significant market share in order to compete effectively with Woolworths and Coles Myer. Importantly, the firm seeks to enhance its financial feasibility in the Australian market. In this regard, the company adopts a strategy that may have adverse short-term returns but promising long-term revenues. For instance, Aldi’s stores are built in such a way that they may last for 20 to 25 years with insignificant repairs (Miranda and Joshi, 2003, pp. 41). They use a substantial capital to build but cost savings happen over the life of the structures. Further, Aldi establishes long-term collaborations with suppliers. If a potential supplier offers a cheaper quote for the needed quality of the product, Aldi gives their current suppliers priority if they could compete on price. In this way, the firm succeeds in achieving its goal of low price and high-quality products. Aldi restructures its methods in order to gain efficacies and save costs. There is the little handling of goods only into the warehouse and out of the store. An emphasis on efficiency means an orderly warehouse. Producers also contribute to effective practices by manufacturing in open containers and delivering the products on pallets (Richards et al., 2012, pp.257). The firm only wheels goods into the store by allowing the suppliers to perform much of the work. Simple display techniques are employed in the stores to promote the ease of shopping and to enhance competencies in stock handling. All stores have a similar layout, which corresponds to that of the warehouse to save time and money. As a result, consumers can comfortably locate their desired products within a short period. Importantly, such a strategy allows staffs to note products that are out of stock and make timely acquisitions to avoid customers’ dissatisfaction. On the other hand, Aldi does not concentrate much on technology since it perceives sophisticated IT ordering scheme as something that would increase complexity as well as costs. Instead, store supervisors use handheld computers as they walk around the stores to order stock based on their expertise of stock turnover (Williams et al., 2010, pp. 311). Therefore, lack of complexity in the daily operations in the stores allows for convenient ordering and timely delivery of consumers’ demands thus winning their loyalty. Recommendations Although the limited assortment policy has been fruitful for Aldi up to today, it is indispensable to differentiate the products to overcome competition, gain greater profits, and to remain successful in the long term. The company should strengthen their policy of penetrating into new markets mainly through store roll-out system. Such program would help them to be viable and earn substantial returns in the long run. Significantly, the “high-quality low-price” strategy gives Aldi a competitive edge over its rivals. Additionally, even though the use of technology is not in its fundamental values, it is essential to employ technological knowledge. Indeed, technological advancements enable firms to become unique and competitive. Finally, despite Aldi being a leading grocery store in many areas in Australia, its management should focus on publicity and advertising to attract more consumers and remind them of their low price and high-quality strategy. In fact, Aldi should engage in institutional marketing in which they should start stores inside commercial buildings and hospitals where they could reach a significant audience. If Aldi implements this policy, they could attract more clients in the future. Conclusion It is evident that the Australian supermarket industry is highly competitive and concentrated. However, despite this situation, Aldi has been able to establish a notable and growing presence rapidly. The success of the Aldi could be attributed on reinforcing a mutual array of procedures. Indeed, the company’s strategy to offer low-cost and high-quality products drive its attention on exclusive brand goods thus eliminating unnecessary commercial functions. Aldi’s strategic approach centers around self-sufficient regions and clear reporting lines as well as low-tech operations designed to achieve efficiency. The ability of the company to create a systemic set of events to reinforce its strategic position has empowered it to establish a niche in a greatly competitive market. However, Aldi faces various threats and thus should focus on capitalizing on the available opportunities to achieve the much-needed competitive edge to succeed in the long run. Bibliography Aldi Company, (2017). Welcome to ALDI. Aldi.com. Available at: https://www.aldi.com.au/ [Accessed 13 Feb. 2017]. Brandes, D. and Brandes, N., 2012. Bare essentials: The Aldi way to retail success. BoD–Books on Demand. Cleanthous, X., Mackintosh, A.M. and Anderson, S., 2010. Spreads in the current Australian market: butter, dairy blends and margarine spreads. Food Australia, 62(10), p. 438. Gerhard, U. and Hahn, B., 2005. Wal-Mart and Aldi: two retail giants in Germany. GeoJournal, 62(1-2), pp.15-26. Grant, R., Butler, B., Orr, S. and Murray, P.A., 2014. Contemporary strategic management: An Australian perspective. 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