Type: Management
Pages: 12 | Words: 3423
Reading Time: 15 Minutes

The retailing industry is a very competitive market. This is even aggravated in the food retailing industry. There is a need for retailers to offer their consumers with value for their money. Customers are transforming from the quantity strategy to the best quality strategy in their shopping criteria. The customers require these services with the lowest possible prices. Bestowed with this enormous and stiff competition in the market, retail organizations are thus in dire need to fully understand the likes and tastes of their customers. These two major issues relating to the customers satisfaction are surely, what Aldi bases its retailing strategy to win the customers’ loyalty to their products. Aldi understands that their customers need quality goods at very affordable costs that are the lowest price available in the immediate market. The case study here will demonstrate the lean approach employed by Aldi in its retailing strategies to offer quality products to customers at very low and affordable prices that are very competitive (Adizes 2008).

Aldi’s Retailing Strategy

Aldi is an international retailing grocery store that opened its first retailing store in the year 1913. This was after Albrecht decided to open the store in Germany to offer grocery services to the inhabitants of the city of Munchen. The store derives its name from the initial first letters of the founder’s name plus the first two letters of the term Discount. The store continued to thrive in the years that followed and went on until the demise of the founder where his sons Karl and Theo took over the operations of the business. This was in 1946. Since then, it has become nothing less than an institution in the German retailing industry. Most firms learn and pick their business retailing strategic practices from this store.

In the year 1960, the two brothers decided to split the Company where Theo took the one operating in the North by the name Aldi Nord. His brother Karl took the company operating in the South called Aldi Sud. The divisions still operate in liaison with one another since the brothers hold regular meetings to discuss the common goals to the companies. However, the administration and most of the operations of the divisions is autonomous. Currently, the two Companies combine to offer revenues of over 37 billion Euros in over 7500 stores across over 15 countries in the world. The most recent store was in Australia where the operations of the Company have grown to very unimaginable heights. The store is ranked 12th among the top 30 food retailers in the global arena. In the year 2000, Germany named it the top retailing Company. This case study aims at exploring the successes in the enterprise, its stores’ operations, corporate functions, international expansions and the distribution centres (Clark 2008).

Aldi is the German retailing Icon due to its very successful operational procedures in the country and in the world as a whole. It offers very low prices through a narrow or limited selection of goods within its market share. They manage this by buying in bulk, but reducing their economies of scale. This is the Limited Assortment Concept. Aldi deals in about 700 to 1500 items as compared to its immediate competitor, Wal Mart that deals in 25,000 items. The stores give the focus onto the items under very frequent use and continue to spice up its selection with weekly special offers on items like DVD players and the house wares.

In some cases, it offers 30% cheaper pricing than its immediate competitors do. This is because these stores operate in a very efficient manner. Efficiency refers to the link between outputs and inputs. Aldi thus operates efficiently by reducing their costs in all sectors of the business. The main areas where Aldi reduces its costs of operation include aspects of saving time, effort, energy and space. This helps the firm to run its business around the general principles of lean thinking. Aldi operates on a no nonsense system of approach to its running of the business. As compared to other retailers in the industry who offer their customers elaborate displays, promotions and additional services, Aldi operates on its core value that is to ‘provide value and quality to our customers by being fair and efficient in all we do’. All activities of Aldi are towards giving their customers the value for their money. Aldi ploughs – back the profits back into the business and thus uses this in meeting the business objectives for growth.

Efficiency cannot be in a short-term period, but has to be along term process attained through lean and feasible thinking. This helps the firm to meet its business objectives. This helps the firm in developing an ambitious investment program with new properties and suppliers. It also helps in the provision of benefits to employees. They use the no frills policy or strategy to help them in cost saving program. They eliminate exclusively and virtually any extras. They have no check cashing, fancy displays, baggers or programs relayed to customers’ savings. The customers shop out of open displays, and these displays are very easy to replenish and needs very limited labour (Colle 2003).

This is by the use of a system of cart rental. This system requires the customers to put a coin into their grocery cart. When the cart returns, then the customer gets the coin back. Since every customer must return the cart in order to get their coin back, it reduces the costs of labour, as there is no need to hire employees who retrieve the carts. They place their orders long in advance due to their large economies of scale. This brings in an enormous turn over rate. The entire store turns over its inventories in less than two weeks. This helps in maintaining very fresh products in its shelves. The stores receive daily shipments from many, decentralized regional logistics. Since the centers are in constant contact with their vendors, it makes the firm to replenish its products in a very efficient manner. Aldi had been using the cross docking for over thirty years before Wal Mart began using the same service. It works very closely with its suppliers to help in the streamlining of the packaging process. Their savings from the efficient operating methods is then passed to the ultimate end user and thus the rock bottom prices to the customers.

Private Label Branding

At the center of the firm’s retailing strategy is the issue of private label branding. Conventionally, this is a very low quality approach to attaining business supremacy. However, in the case of Aldi, the reverse is true. Aldi’s private label products always meet the National brands standards. Most of the products manufactured for Aldi will be eventually modified by the Company to efficiently meet the quality standards required by the customers.  The relationship marketing focuses more on the vendors than its consumers do. They never use the data mining or cards of bonuses that gives the profile of their customers. This is because the low prices and high quality products vehemently speak for themselves (Datamonitor 2007). In place, the firm strives to build a very good rapport between them and the suppliers together with the delivery system. This calls for the streamlining and strengthening of their ties with these channels of distribution. For example, Bread is a staple food in the German soil. In trying to offer quality bread to its customers, Aldi decided to sign a five-year renewable contract with one of the best Bakeries in the country. They agreed to buy their bread from this Bakery at reduced prices as long as the quality is at the top most gear. This is always a one sided business strategy, but has really worked for the Company for a very long period.

Although they major on the staple foods in their respective areas of operation, they still offer competitive prices in the electronics and the kitchenware. This adds some form of economic excitement to the shoppers attending these stores. This, they achieve in the same way that they have managed to monopolize the bread market through alliances with the vendors of these products. They rely heavily on Medion. This is a fully merchandised vendor in the German Stock Exchange list. Medion covers a complete management process, which includes but not limited to the following: product design, quality control, after sale service, logistics, product oversight and marketing research. This is a win- win situation. Medion enjoys the large market share offered by Aldi while on the other hand, Aldi enjoys the management services offered by Medion.

Also at the centre of the operations of the business is the basic preposition that the firm offers limited assortment of 900 basic food items with very high quality and at the lowest price ever in the immediate market. When compared with most supermarkets, this is quite a very low number of items as most of the other stores generally stock more than 15, 000 items with some shooting to levels even above 50,000 items within their stock base. Their pricing is very low as compared to the immediate competitor superstore in the market that is the Wal Mart stores. Limited assortment and low pricing is indeed inseparable according to the two brothers at the helm of the firm’s operations (Duke 1993.). Why must a Company focus on unneccessary factors yet it is capable of identifying the basic requirements? This therefore, calls for eliminating the unneccessary and remaining with what is completely necessary in the running of the business. Abrecht once said, “ People live generally on what they do not eat.”

Aldi’s Basic Principles

The principles to which the firm operates has been scaled down to four major issues. Simplicity, frugality, high quality and confidentiality. These principles can transform and bring out 11 major commandments that are the key to success by the firm. These are as follows: Keeping  it simple, Striving to earn the customers’ trust,  Setting clear goals and following them rigorously,  Improving details daily, never optimize,but maximize,  Know  your stand, but never  waste time on  figures and budgets, Test now and perfect later, Be fair to suppliers and provide help in improving their business,  Practice management through control and trust, Talk in understandable to most people, stay frugal and thrifty no matter the volume of youe successes.

Physically or by the exploration of the physical planning and layout of the shops or stores, it is evident that they are very trendy in their design. The stores are about 1000 square metres, and the items available in stock are usually dry items like cereals (Hill 2008). Customers pay in cash, debit cards or by use of food stamps. The products are privately labelled, and there exist no furniture or decorations within the stores. This offers a large surface area for stocking their products. The shelving system is very simple with a row of freezers. All products are in shipping boxes onto the shelves , on the floor or in the freezers. All these features are meant to save labor and time thereby reducing costs in the long run.

The staffing in the stores is very minmal in order to cut costs of operation to the firm. Each store has a manger and two assistants. All the personnel carry out the functions of the store in a simoultaneous manner. They carry out tasks like cleaning, stock unloading, watching for shoplifting and checking out of the customers. Since they are dogged with a lot of work, Aldi employees get returns that are more than three times their regular equals in other super markets. All in all, Aldi’s costs of operation is still at 3% of sales as compared to the 9% in other regular supermarkets (Jobber 2004).

Successful Financial Management

On matters pertaining to distribution, The firm organizes its distribution channel into cells where each cell consists of about 50 to 80 stores. This form of organization allows the Company to avoid publishing their financial reports. According to the german law, firms below a certain threshold in their turnover need not to make their financial statements public. It supports the quest by the Company to simplify and decentralize its services. Each cell has its own independent distribution center. The center suplies all the stores within the radius of about 50 kilometres through the use of a “hub and spoke” system of distribution. Suppliers pay all their shipping bills to the main distribution center and about 5% of the goods are shipped directly to the stores. Some goods are on open boxes and can thus be placed on the floor or shelves immediately they arrive at the stores. Over 90% of the goods docking into a distribution center are again cross docked immediately and than placed on trucks for the immediate shipment to the respective stores. Aldi has a very strong purchasing power since every buyer is in charge of over 100 items of sale and this translates to over 3 billion Euros in an annual scale. The firm tests the products for about six to eight weeks before settling on it. This is in order to filter unnecccessary products out of its shelves (Myers 2010).

Internationally, the first growth internationally came about in the year 1967, when the firm purchased the Hofer chain of supermarkets in Austria, Australia. Aldi Sud has since continued to expand to other areas like Great Britain, Ireland, Switzerland, US and Slovenia. Meanwhile, Aldi Nord spread its wings to Belgium, France, Holland, Spain, Portugal, Luxembourg and Denmark. The expansion of the company saw its entering into the book of records as the largest store in the whole Europe (Skinner 2008). The company then progressed to open superstore and managed to benefit from perfect positioning of products in the market when most customers preferred supermarkets to small shops. The company has since improved and expanded its business to opening a petrol station, internet-shopping services, offering car and house insurance, and mobile phone network.

In any company, the functioning and advancement depends on how efficient the firm manages its finances. The company is currently experiencing diverse development in trying to expand to other areas in the world. This has influenced the company’s business structure, organizational structure, company culture and significantly the financial status of the company. However, this has not stopped the company from maintaining the competitive nature.

Successful management of the funds and the escalated profit margins are through sound financial management. The finance department in Aldi Company ensures that there is enough money for the expenses such as payment of debts, employees’ salaries and investment of cash for the continuity of the business advancement. The main source of funding at Aldi is the share capital. The growth in the financial status of the company evaluation is through studying the trend in earnings and the share price (Key Note  2007).

In 2010, the earning per share was 20.07. This increased to 23.84 in 2007, 26.95 in 2008, 28.92 in 2009, 31.66 in 2010 and 33.10 in 2011. The profit recording for the company has been on the rise since 2002. The profits recordings for the last four years are: £ 2,130 in 2008, £ 2,166 in 2009, £ 2,336 in 2010, and £ 2,671 in 2011, which has consistently increased. However, in 2011, the company recorded the worst sales in Australia in a historical period of 20 years (Wood 2011). This resulted from consumer’s reducing their purchases of the non-foodstuffs in the company’s outlets.

The company enjoys a higher share in the market compared to its competitors. For instance, in 2009, the company’s market share was 30.5% compared to its closest rival, Wal Martthat was 16.9%. According to 2011 financial analysis, the customer loyalty was higher in Aldi Company than in that of its competitors. The customer loyalty scaled at 29.7 % for Aldi and 18.5% for the closest competitor (Porter 1985).

Aldi’s Possible Risks

The possible risks that can threaten a business include unclear strategy, unavailability to meet business needs, fluctuations in interests and exchange rates. The company also seeks external advice for the best steps to be in the management of the problems realized in the company strategy. There is also consistent reviewing of policies in the treasury functioning. Liquidity is a state when a company cannot sufficiently finance its activities or the ability to secure such interest comes with an extra cost. This risk hinders the development of the company leading to funding risk. There is a dedicated treasury functioning established by the company with the aim of managing the liquidity and funding risk.

Moreover, the company has established a strong liquidity position with a wide range of stocks. This ensures that the sales of the different commodities help to cover instances of hidden zones for possibilities of liquidity risk. In addition to this, Aldi Company has ensured that the retail trades other than the wider company manage lending of cash. This gives the retail trade a responsibility to monitor the lending and follow up to avoid bad debtors. The company also conducts a daily monitoring, management of key funding and liquidity ratios for early intervention before things slip to complicated levels. Another measure used by the company is conducting regular stress testing for determining the stability of the company in the market. These measures together ensures that the company manages its financial risk effectively, thus, retaining the position in the market(Nieri and Roth 2009).

This form of risk arises in cases where liabilities and assets of an organization present different re-pricing dates. Aldi Company counters this through minimizing the sensitivity of gross revenue to fluctuations in interest rates. The company uses Value at Risk to control interest risk, especially the short-term exposures. Success in the management of interest risk is due to the well-established policies in the company. The company operates under a policy of fixing interest rates minimum level of 40% of the realized and procrastinated debt interest expenditures. In 2010 financial year, the value of the debt at an established rate of interest was £6.2 billion. It was at 91% of the company’s total debt, leaving the other amount in floating rate form (Roth and Morrison 1990).

Credit risk is the risk associated with losses realized from default by financial associate groups. These groups fall in the list of reliable credit counterparties. To avoid such risk in Aldi, the retails hold an update of credit rating for such counterparties. The retail branches use a framework policy to evaluate the possibility of lending money to the customer. This policy has well delineated limits and standards depending on the level of the customer’s lifecycle. The ability of the customer to repay the debt is before lending. The policy also has monitoring scheme that validates the affordability of the client to a loan, thus, avoiding bad debtors. Among the most used frameworks for the assessment of the credit process there are such as Fitch, Standard and Poor’s ratings.

A venture’s choice of the fund is through the availability and accessibility of sources of fund. The corporate lifecycle theory determines the level or the position that a company or organization holds (Adizes 2008). It will be very crucial in the selection of the fund to ensure that the organization’s future is secure. A stable company will mostly show cash rich report, but it will be later on during the life cycle, when it reaches the aristocratic stage. This is actually the time when the company will reveal signs of aging. Organizations should avoid the reflection of aging since at this time the company may decline drastically (Wang 2005).

Modigliani and Miller argues that an organizational value remains unaffected irrespective of the means of financing the company. However, the theory acknowledges that some factors must maintain. These factors include absence of taxes, bankruptcy costs, agency expenditures and asymmetric information, in addition to a state where, the company operates in an efficient market. This theory is also the capital irrelevance principle. The theorem has enhanced use of advantage in the companies (Skinner, 2008).

Aldi firm mainly uses funds from income generated from its varied ventures. This ensures the company’s ability to reduce debts, loan interest and fines. In this vein, the company enjoys a stable financial strategy, which is at the equilibrium within the internal environment of the firm.  The company is at the prime level where it can sustain most of its financial activities without involving the external sources of funds. Aldi uses profit gained as the main choice of fund. The company is also beneficially a shareholder of the firm. This offers the company revenue through dividends. This follows the authorization of the company to purchase its own share to a limit of 10%.

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