ALDI CASE ANALYSIS

Successful Strategies, Issues, Strategic analysis of the issues and

Recommendations
Anju Rajbangshi (anju.rajbangshi@ucdconnect.ie,21200415)
Word count - 3000
First, let us look at few of the successful strategies implemented by
ALDI
Focussed Low Best Cost
Cost Strategy Strategy

Successful
Cost efficient strategies
value chain Global Strategy
strategy
by ALDI

Customer Various strategies

value to strenghthen the
proposition company's
competitive
position

The deep dive into the successful strategies and how it helped ALDI
Focused low Cost Strategy
ALDI has been implementing one of the best competitive strategies by lowering overall cost of products than it's
rivals by serving the middle wage income earners. The table below proves the statement by showing us a few
price comparisons between Walmart and ALDI on select products.

Source: https://www.ramseysolutions.com/budgeting/aldi-vs-walmart

Apples:
Aldi: $2.99
Walmart: $3.70

Source: https://www.ramseysolutions.com/budgeting/aldi-vs-
walmart

Bell Peppers:
Aldi: $2.29
Walmart: $3.34

https://seekingalpha.com/article/4335207-walmart-overpriced-for-growth

In the above visuals, it is clearly seen that ALDI wins the price war and helps customers in saving money. Their
production emphasis was a continuous search for cost reduction for products that meet basic needs of niche
members. This is the main they are known as hard discounters as they supply customers with basic goods of daily
need at the lowest possible prices, while maintaining high-quality standards. The same is also portrayed by the
survey results which reported that 66% of ALDI's consumers think good/affordable prices and good value was
one of the key drivers that made them shop repeatedly at the store.
 Best Cost Strategy
The strategic targets of a Best Cost Strategy are value conscious buyers or a middle market range and this is what
exactly Aldi focusses on. This specific concept helped ALDI attract customers spanning a wide spectrum of
economic levels, ranging from shoppers on a tight budget who were looking for high-quality products at lower
prices, to those who were wealthy and were looking for the thrill of discovering new products at value prices. ALDI
again implemented one of the best competitive strategies by offering better goods with their own private
labels and maintaining a high quality/price ratio.
Cost efficient value chain
ALDI had very good relationships with suppliers, a collaborative approach built on values like mutual trust,
aspiration to very high standards of service, and a fair exchange of value. ALDI did not have to pressurize the
suppliers for various types of discounts, rather it negotiated its price on a net/net basis, giving them an extra
edge to focus on customer needs, and the company's merchandising strategy. They also came to an agreement
with the suppliers to provide them with products in pallets of display ready boxes that could be moved into
position in stores easily which eliminated the need to arrange the products on shelves thereby reducing time and
manual labor expense. At the same time, the packing boxes and crates were reused or recycled through the
suppliers at preset cost savings to the company. Moreover, ALDI had multiple suppliers for each product category
so that they don't have any dependency, instead they preferred to curtail the order quantity to each supplier to
allow the supplier to stick to the high quality and product standards. This also means that if one supplier doesn't
work out, they have others in place. CEO Jason Hart once mentioned that ALDI brands don't come with the big
national-brand advertising budgets and inefficient distribution system. By having a carefully and purposefully
selected number of SKU's, it allows ALDI to have much more volume per product SKU , which makes the suppliers
more efficient and makes the cost prices better. The company also has it's own extensive test kitchen and
product testing facilities and dedicated time/resources to test the products vigorously for highest quality.
These are few of the factors why ALDI's value chain activities are quite good enough.

Customer value proposition

As seen in all of the above points, hard discounting paired with high quality private label brands implemented by
ALDI is one of the strongest business models to provide customers with value. They totally matched the
customer value proposition by focusing on and executing the below which created a cult like following
amongst the consumers:
Satisfying buyer wants and needs at a price customers will consider a good value.
The greater the value provided (V) and the lower the price (P), the more attractive the value proposition is to
customers.
At the same time, ALDI's stores were quite small in comparison to the giants like Walmart supercenters and this
smaller footprint helped them to a great extent to save real estate costs, energy usages and local tax, thereby
perfectly balancing the firm's Profit Formula. This strategy helped them to create a cost structure that allowed
for acceptable profits, given that pricing is tied to the customer value proposition. Moreover, the lower the costs
(C) for a given customer value proposition (V–P), the greater the ability of the business model to be a
moneymaker which can be demonstrated with the help of the visual attached here.
C, V and P stands for below:
V – the value provided to customers.
P – the price charged to customers.
C – the firm’s costs.

As seen in the above diagram, the operating costs of traditional retailers are quite high compared to the hard
discounters and at the same time, cost of goods sold and profits are higher for the hard-discounters. The above
diagram itself showcases that hard-discounters have a better profit formula in the global retail marketplace,
thereby helping them to sustain amongst the highly completely well established retail giants in the USA.

Global Strategy
Why did ALDI decide to enter foreign markets like the USA? One of the main reasons is to gain access to new
customers in a land of opportunities and to achieve lower costs through economies of scale, experience, and
increased purchasing power. Moreover, USA being the hub of superior resources would allow better coordination of
related activities and offer valuable advantages. ALDI had successfully implemented the Global strategy(think
global, act global) in the US market by offering the benefit of global brand, reputation and differentiation-based
competitive advantage using their own standardized store brands. This competitive advantage by differentiating
their products using hard discounter techniques in an international and existing market of traditional retailers in
the USA quickly became famous .
At the same time, even though the limited assortment stores had been around in the USA for at least three to four
decades, they mostly sold discounted branded products and did not exercise much power as compared to the
more established traditional chains like Walmart, Kroger , Albertsons which demonstrated superior resources. As
such, the concept of low cost, hard discounting revolutionized the US grocery marketplace. This helped ALDI
enjoy the benefits of relatively lower costs of entry, with their focus on a smaller physical footprint as well as
more limited inventories with store brands.

Strategies to strenghthen the company's competitive position

Below are few of the strategies implemented by ALDI to strengthen its market presence and
competitive position. The same is elaborated with a few characteristics of each of the strategies
and how ALDI executed them.

How to
strengthen a
Defensive
company's Strategic
strategies
competitive Alliance
position

Actions to block challengers. As a reaction to the ever

Actions to signal the
likelihood of strong
retaliation.
ALDI quickly assorted to the
above steps by taking smart
moves which are elaborated
below:
Since ALDI already had it's own
extensive test kitchen and product
testing facility, it was easier for
them to counter attack
competitors. Whenever
competitors introduced a new
product or a similar product to one
that ALDI already had, it's own
version would go back to the
testing laboratories to make sure
that its current product was
meeting or beating the new
competitor's version. As an action
of defensive strategy, ALDI even
publicly announced in 2015 that it
would discontinue the use of
artificial colors, hydrogenated oils,
and MSG which are all hazardous to
human health thereby implying to
its customers that they took
product quality and consumer
health very seriously .This was
also a gimmick to offer special
inducement to current customers
to discourage them from
switching to competitors by
challenging quality or safety of
rival's products. The company also
declared that all of its packaging
would either be reusable,
renewable, or recyclable by 2025
which is one of the industry-leading
strategies which was again a new
feature.
ALDI stores even had an aisle
dedicated to ALDI Finds which
featured 50 to 60 new products
every week. This is a very
successful defensive strategy to
block challengers by introducing
new features and models to
broaden product lines.
Vertical
integration
strategies
ALDI portrays the
characteristics of a vertically
integrated firm which means
participation in multiple
segments or stages of an
industry’s overall value chain.
ALDI follows the principles of
Tapered integration by using a
mix of in-house and
outsourced activities in the
overall vertical chain which
enhanced the firm’s
technological capabilities.
Testing is one of the most
important activities in a value
chain and one example of how
ALDI implemented this strategy
is by doing inhouse testing of
select products instead of
outsourcing it to other partners.
It tested over 60,000 products
each year and product testers
sampled 180 meals every week
and each product was tested at
least 30 times before it made to
the store.
It helped the organization to
streamline its operations by
taking complete ownership or
responsibility of its testing
process rather than relying on
external contractors.
At the same time, it outsourced
a substantial amount of order
quantities to multiple suppliers
to commit to the high standards
of the products.
evolving market, ALDI resorted
to the strategic alliance
ideology .
Strategic alliance is a formal
agreement between two or
more separate companies in
which they agree to work
cooperatively toward some
common objective.
As most of ALDI's competitors
were focusing on and
increasing its visibility by
adopting strategies that gave
them an omnichannel
presence, ALDI partnered
with Instacart in 2017 to
provide its customers with a
delivery service. It also added a
same-day delivery service for
wine and beer. These moves
attracted new customers who
did not shop at ALDI previously.
The above outcome clearly
helped the firm to create
important new market
opportunities which can be
supported by the statement of
the ALDI's U.S. vice president
of corporate buying, Scott
Patton who said that 20% of
it's delivery customers had
never been to an ALDI store
before, underscoring the
potential gains that could be
made in the delivery segment.
Hence, the adoption of
Strategic Alliance strategy
helped the firm increase its
presence and visibility not
only amongst the tight budget
customers, but also the
wealthy consumers who were
looking for the comfort of
getting quality products at a
better price right outside their
door and to try something
different and new. This helped
ALDI open new angles in their
operating strategies.

 KEY ISSUES
Should ALDI shift it's strategy from
limited assorted products in order to
cater to the well-heeled clientele ?

The economic woes which followed the financial crisis in 2008

resulted in a change amongst the U.S. shoppers who were
now looking into not only lower prices but also uniqueness in
product variety and quality. They were more open to
experience newer offerings with an emphasis on healthy
organic food options. This was when hard discounters like
ALDI became more prominent in the US market as they highly
focused on limited product assortment ,value pricing and high
quality private label items which were mainly targeted to the

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middle class buyers. But with the advent of home delivery
service, ALDI realized that it can penetrate the upmarket by
expanding it's locations towards more wealthy neighborhoods
to attract the well-heeled clientele. This however led the firm
to introduce imported products , increase of fresh food
offerings and expansion of its produce selection along with a
few national brands.to cater to the new customer base. Such
kind of transition of the company's initial strategy could lead
to increasing operational and supply chain management
costs because importing items will again involve new
suppliers, new distribution systems, logistics ,foreign trade
policies, taxes etc. which in turn might result in higher
consumer prices. This could lead the initial ALDI shoppers to
switch to other competitors like Walmart provided the
traditional retailers already have a wide variety of product
choices.

Limited customer in-store experience

Eating away from home has become a major trend these
days. And it is not only the time-starved customers that
may look at these options but also people who go
shopping might want to have a quick bite or two of

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prepared foods. Most other retailers have already invested
to cater to these needs of their consumers by introducing
in-store cafes, prepared foods, fine wines, gourmet tastes
and few other healthy options. This is a marketing
gimmick to make more money as it will attract more
customers who both want a quick breakfast/lunch/dinner
and some amount of shopping.
As this is like killing two birds with one stone and mostly
preferred by today's generation, consumers who really
want such a facility would not mind switching to other
competitors who already implemented it. So, this is one of
the key issues that should be addressed by all of the ALDI
stores.

No long term contracts with

suppliers
Even though ALDI has good relationship with it's suppliers

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and employs a wide variety of them to achieve its high
quality of selected produces, they have no long term
contracts with any of them. Although this has been working
in favor of the firm, it could lead to potential issues in the
near future as there is no reliable integrated model. This can
result in high bargaining power of short term suppliers in
the long-term because most of the larger chains are into
long-term contracts and this builds confidence in the
suppliers that they have a client who would buy from them
for long amounts of time and it reduces their burden of
continuously looking for new buyers or contracts, thereby
saving their costs as well.
 Lack of digital space/online presence

The graph above shows an exponential rise in online Grocery

Shopping experience over a course of time. The drastic changes in
consumer's shopping styles and other environmental or socio
economic factors resulted by pandemics like COVID are forcing

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customers to go online. This is also stressing industry leaders to
play hard in order keep up to the game with Amazon and Walmart
leading the digital space in the grocery market. But we still see
ALDI has a long way to go in respect of increasing it's online space.
Although it has partnered with Instacart in 2017 to employ home
deliveries, it still has not been much successful in attracting
customers to shop online. ALDI is lagging behind big time in
embracing the new technological advances and lacks major
contributions to the online shopping experience. This is one of the
major issues that ALDI needs to quickly work on to sustain its
competitive advantage.

No Global(intercontinental) expansion
Although ALDI with it's value based pricing has revolutionized

5
the grocery market place in few of the European countries and
the USA , it still has its presence in a niche position in the world
grocery market place. ALDI being hard discounter is lagging in
international market segments that has huge amount of
middle wage income earners. Expanding its business i the
intercontinental market, ALDI has has high chances of being
the industry leader specially if it tries to enter the Asian market
where there is a need of rise in the value-for-money retail
models.

Huge amount of money and

resources spent on testing
ALDI has a huge number of stores in the USA but only one
extensive test kitchen and product-testing facility at Batavia,

6
Illinois, U.S. headquarters where it testes over 60000 products
each year. Moreover , the extensive testing of 180 meals every
week and a product being tested at least 30 times before it
made to the store can cost a lot of time , resources and money
to the organization. This could lead to huge pressure on the
time constraints as well employee burnouts. Few of the
products even took nine months to go from concept to the
grocery store which again could be burning issue as it could
lead to an imbalance in demand-supply ratio.
 Recommendations
Increased usage of vertical
integration strategies

1
ALDI can try to cover more of its value chain activities by
introducing more in-house production facilities specially by
setting up manufacturing sites nearer to the store locations to
reduce transportation costs and to have an efficient
distribution system. It can also look into producing the
imported products on its own as this increases the operating
costs to a huge extent.

Implement trending marketing

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gimmicks
In this fast paced highly changing consumer trends, it is
always important to follow the market advances. ALDI can
enhance its consumers' in-store experiences by
introducing more in-store cafes or places serving prepared
food. This will not only attract more new customers, but
will also retain the time-starved daily shoppers.

Introduce integrated model with the

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suppliers
ALDI should try to have long term contracts with suppliers as
it will help in increased collaboration and visibility with
higher profit margins. It will also reduce the risk of higher
bargaining power of suppliers as long term established
settings results in stronger bonds and cost reductions.

Explore the new disruptive

technologies

4
ALDI should try to implement an omnichannel presence like
its counterparts. Although it is partnered with Instacart for
home deliveries which is helping to a certain extent, it can
adopt and try to upgrade its operating models by adding
extra channels like their own e-commerce sites to sustain its
competitive advantage.

Explore the new global regions

Most of the Asian markets have been recently looking into
value-for-price retail models because of the huge existence of

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middle class population. ALDI with it's hard discounter
strategy should try to explore other market spaces where
there is huge possibility of success. Few of the regions would
be overwhelmed and excited to see all the products at one
place at such a good price because right now in those regions,
there are only small shops with segregated and limited stocks.
Taking a step to penetrate such kind of market will be a huge
money booster and successful step.

Increase Testing facilities

6 ALDI should try to increase its testing facilities and should look
into expanding them nearer to most of the store locations.
Even though this will incur some amount of cost initially, it will
help the firm in the long run as it will reduce employee
burnouts and save time, distribution costs as well.
 References
Faughey, Bernard 2021, Week 1-7, Lecture notes, Strategic Mgmt of Projects-
2021/22 Autumn, BMGT45450, UCD Michael Smurtfit Graduate Business School,
delivered 14th September- 26th October, 2021.

Ramaswamy, Kannan 2020, "ALDI And The Hard-Discounters March in

America", Thunderbird School of Global Management.