ALDI Australia Final 0608 PDF

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Marketing analysis of Aldi...

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ALDI Australia 1

ALDI VENTURE INTO AUSTRALIAN MARKET

Assessment 2: Groupwork Report International Marketing BHO3373 Lecturer: Dr Thuy-Huong Truong Assessment 2: Groupwork Report Team members:

Student ID:

Bashar Al-khanaty Ezra Faza Omer Cabir Peter Marcetic Anthony El-Fahkri

s4603470 s4613002 s4574650 s4615609 s4592259

Word count (2840) without Executive Summary, Conclusion, Content Page, Content Headings, Reference List and Appendix List.

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Contents EXECUTIVE SUMMARY.........................................................................................................................4 THE BACKGROUND STORY OF ALDI SUPERMARKET.....................................................................4 ALDI JUSTIFICATION ON INVESTING AUSTRALIAN MARKET......................................................5 Crucial External Driving Factors.............................................................................................................5 Australia’s Population..........................................................................................................................5 Income per Household.........................................................................................................................5 Consumer Sentimental Index...............................................................................................................6 THE PESTEL ANALYSIS......................................................................................................................6 The Political Environment...................................................................................................................6 Economic.............................................................................................................................................6 Social-cultural Standards.....................................................................................................................7 Technology..........................................................................................................................................7 Environment........................................................................................................................................7 Business Legal Factors........................................................................................................................7 COMPETITOR ANALYSIS........................................................................................................................8 Marketing Mix Strategies........................................................................................................................8 The Product Marketing Strategy..........................................................................................................8 The Pricing Strategy............................................................................................................................8 Place Strategy......................................................................................................................................9 Promotional......................................................................................................................................... 9 Strategy................................................................................................................................................9 People and Presentation Strategy.........................................................................................................9 The Porter’s Analysis.............................................................................................................................10 Stiff Competition from Existing Retailers.........................................................................................10 Threats of New Store Brand Ventures................................................................................................10 The Buyer’s Bargaining Power- High................................................................................................11 Low Bargaining Suppliers Bargaining Power....................................................................................11 Increasing Threat of Alternative Products..........................................................................................11 Future Market Prediction...................................................................................................................11 THE CULTURAL PROFILE.....................................................................................................................12

ALDI Australia 3 HOFSTEDE’S FIVE DIMENSIONS ANALYSIS................................................................................12 Reduced Power Distance...................................................................................................................12 Individualism Society vs. Collectivism Culture Society....................................................................13 Masculine vs. Femininity...................................................................................................................13 Unpredictable Avoidance Index.........................................................................................................14 Long-Term Orientation vs. Short-Term Orientation...........................................................................14 Achievement vs. Nurturing................................................................................................................14 THE MARKETING SEGMENTATION...................................................................................................14 Demography Segmentation...................................................................................................................15 Segmentation by Geographic Location..................................................................................................15 Segmentation by Psychograph...............................................................................................................15 Segmentation by Behavior.....................................................................................................................16 ALDI’S ENTRY STRATEGY...................................................................................................................16 Brand, Price and Limited Range................................................................................................................16 Reduction Price Change Policy.............................................................................................................16 Minimisation of Function......................................................................................................................17 Recommendations and Conclusions..........................................................................................................17 Reference List........................................................................................................................................... 18 APPENDIX............................................................................................................................................... 22 Supermarket Industry Performance.......................................................................................................22 Household income and wealth...............................................................................................................22 Consumer Sentiment Trend...................................................................................................................24 Hofstede Dimensions.............................................................................................................................24 World Population Review......................................................................................................................25 Australian Population............................................................................................................................26

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EXECUTIVE SUMMARY The supermarkets industry is quite competitive in Australia. For this case study, ALDI’s top competitors are Woolworths, IGA and Coles. The value of this retailer is predicted to rise at 2.5% by 2024-2025 (Aldi 2020).

The main competition between the supermarkets in the

industry is based on prices of products. According to Ibis World 2020, the competition over prices has dropped over the last two years. Coles, IGA and Woolworths also offer low-cost products hence ALDI has tried to differentiate itself by offering customers with the best shopping experience (Quirke 2015). Generally, as competition increases, the annual revenue is expected to increase by 4.6% in 2020 even though the demand is highly affected by the current COVID-19 pandemic.

THE BACKGROUND STORY OF ALDI SUPERMARKET ALDI is the short form for Albrecht Discount. It started as a little corner grocery retailer in Essen, Germany. Since 1913, it has grown to become one of the biggest brand supermarket chain stores in the world today. It was a family-owned store that was expanded by Anna Albrecht sons, Karl, and Theo in 1948. Today, ALDI has over 1,600 stores in the US and thousands more across the world (ALDI 2020).1 ALDI competes with Walmart and Kroger as it third in the US by store count. Today, ALDI has established over 10,000 supermarket retailer stores in over 20 countries. It has an estimated combined turnover exceeding $50 billion by June 2020. In 1954, ALDI opened its 50th grocery retailer store in Germany. By the start of 1960, there were over 300 stores in Ruhr Valley and Aachen and in 1963, they parted into two independent retailers, ALDI North, and ALDI South each headquartered in Essen and Mulheim3,

1 The Aldi Story

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respectively (Investopedia, 2020). Today, ALDI counts over 25,000 employees and serves over 40 million satisfied clients every month.

ALDI JUSTIFICATION ON INVESTING AUSTRALIAN MARKET ALDI launched its entrance in the Australian market in 2001 by starting a store in Sydney. It became one of the fastest-growing stores to become among the top 10 retailers in the Australian market. According to Ibis World (2020), the Australian consumers register a high income where they spend over $113.3 billion every year. 2The growth in demand is projected to reach 2.2% (IBIS World, 2020). ALDI survives the Australian market because it sells high quality groceries at highly competitive prices. ALDI stores in Australia own 9.9% market share in the retailer grocery industry and registered sales of $11.2 billion in 2020. The plans to seek new property, new market, employment opportunities, logistics and major investments are still underway. Australia gives an opportunity for ALDI to explore a new market considering that Australia is a first-world economy and consumers appreciate high-quality grocery supplies. Crucial External Driving Factors Australia’s Population Today, the population is 26 million people with a steady growth rate of 1.8% annually. According to OECD (2020), that is a perfect market opportunity for ALDI to venture into Australia and feed this urbanised population. Income per Household In 2020, Australia has a net disposable household per capita of $40,237(Trading Economics 2020).3 The expense on consumables in a household is high and that makes ALDI

2 Major Companies, Ibis World 3 Australia’s Business Environment

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stand a chance of getting more sales from the population. Customers are always looking for cheaper grocery stores like ALDI. Consumer Sentimental Index The consumer sentiment index in Australia turned negative between 2015 and 2020 (Reserve Bank of Australia 2020).4 The COVID-19 situation made it even worse. The population has become pessimistic of their economy turning them away from buying groceries from expensive stores (Australia Population 2020).5 That is a win for ALDI who sell groceries at the lowest prices. THE PESTEL ANALYSIS (Macro Environment) The Political Environment (Business Index,2020) Suggests that Australia ranks in the top five economy giants with long-term political stability. Just like China, Europe and USA, Australia was free from conflict hence making it a recommendable market as the threat to ALDI’s operations was low (Australia Government 2020). The government of Australia has made the prices of groceries go higher. Consumers find themselves in discounted grocery stores like ALDI. Economic Australia experience an inflation rate of up to 3%, making the value of dollar decrease. According to Trade Economics, 2020) Australia’s GDP growth rate is approximately 2.2% and an unemployment rate low to 5.2% just before COVID-19 struck. 6 Shoppers became more aware of their household budgets. Discounted retailers like ALDI would become the most preferred shopping stores by the Australian population (Statista 2020).

4 Australian Culture 5 Consumer Sentiment Surveys 6 COVID-19 is short form for Corona Virus Disease

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Social-cultural Standards Consumers in Australia embraced the modern lifestyle by striving to be of a higher social class. They turned to purchasing products from big-brand companies like ALDI.7 The retailer purchased supplies from locals to win the hearts of Australians (Margetts 2011). Technology ALDI was already practicing self-service checkouts operations. ALDI is still against the digitisation of these operations but have convenient systems that allow them to serve their customers faster to meet their expectations. However, ALDI introduced an ecommerce platform to help serve the online and store customers faster. ALDI uses Facebook and Twitter to engage her customers and announce various discounts and offers on their products. Environment According to the Australian Government (2020), ALDI is increasing the stock amount from the Australian local farmers and producers and seeks to maintain long-term relationships. The retailer plans to convert its labelling package to be recyclable, reusable, and decomposable by 2025. The store is turning green by initiating the use of solar energy to enhance environmental awareness. Business Legal Factors ALDI supermarket has faced legal hiccups on its copyright the brand campaign that said her products were similar, but only cheaper. The mistake was displaying competitor products and comparing them with her products.8 Laws in Australia do not allow comparative advertising of products and the company was stopped from flagship advertisement. There are also lawsuits from small businesses for knocking out products (Roy Morgan 2020). ALDI must work to keep these cases from ruining its public image. 7 Australian Culture 8 A Retail Perspective of Marketing Management

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COMPETITOR ANALYSIS Marketing Mix Strategies Competitor analysis is the process of doing research to identify competitor’s strengths and weaknesses and compare it to your company’s products and services. The main ALDI competitors include Woolworths, IGA and Coles. Total market share of Woolworths is 37.6%, of Coles group is 29.1%, of IGA owned by Metcash Limited is 6.6%, and that of ALDI is 9.9% (Ibis World 2020).

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The major products that the industry deals with include meat products,

tobacco products, beverages, fresh fruits, vegetables, health products, dairies and bakery products.

The Product Marketing Strategy ALDI gets its products from specific suppliers and brands them as their own thus end up having control over production and prices of the goods (Aldi marketing mix n.d.). Woolworths diversifies its products to increase their returns (Woolworths 2019). Coles has segments such as Coles supermarket, express, liquor, online, spirit services and has its own brands. IGA sells a variety of products to customers under the same roof. A list of products that IGA sells include fresh produce, meat, fish, seafood, cheese, and bakery products, among others.

The Pricing Strategy The best thing about pricing for ALDI is that it offers high-quality products at a lower price, thus attracting many customers. ALDI uses market penetration, competitive, psychological pricing, and lowering nonfood products (Marsh 2018). Woolworths uses a market penetration strategy under which they sell products at a given price depending on its quality. Also, it provides discounts to customers through use of cards (Wan, L 2018). Coles aims at lowering prices of 9 Journal of Retailing and Consumer services

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baskets on a weekly basis to attract more customers. IGA uses psychological pricing to confuse the emotions of customers and make the prices look cheaper.

Place Strategy ALDI has over 8,000 stores in about 18 countries, and each store opens on a weekly basis in Britain. Besides, it has stores online to help people to check details of products and locate the stores near them. Woolworths has over 1000 stores and has an online platform in which they offer delivery services. Coles has physical stores in Australia and a Coles online which offers their services online. IGA has over 1400 stores all over the country and their layouts are specific and presentable (Ibis World 2020).

Promotional Strategy ALDI uses promotion and advertising to increase sales. ALDI uses public relations and advertising to let people know about their products. For advertisements, the company notifies people in the US, UK, and Australia of their products through TV (Sultan, Wong & Sigala 2018). For public relations, ALDI engages in corporate social responsibility that helps it build its brand image, thus attracting more customers. The marketing strategy for Woolworths is advertisements using the slogan, “the fresh food people”. Coles marketing strategy revolves around low-cost products and uses slogans such as “Good things are happening at Coles”. IGA uses slogans such as “Why Pay More” and promotes its products through the television, newspapers, and the internet.

People and Presentation Strategy

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ALDI has employees working to ensure the success of the company through marketing. ALDI has a good brand image and cannot afford to lose it; thus, it uses similar layouts from all its stores regardless of the country (Ho & Lin 2008).10 Woolworth has many employees at their stores to provide the best services for customers. Also, it has a unique layout for its shops as well as makes sure that the process is faster through the latest billing technology software and efficient support staff (Woolworths marketing mix n.d.). According to Financial Business Review on 6th September Woolworths have won an award for ranked 1st in Australia and 14th globally in diversity index (Mitchell, S 2018). Coles gives employees the freedom to develop ways of making customer services better. IGA has employees trained to offer better services for customers in different departments as well as continuous improvement of the supply chain process has been indispensable in streamlining of methods. The Porter’s Analysis Stiff Competition from Existing Retailers The main ALDI competitors include Woolworths, Coles, and IGA (Tom Youl 2020a). ALDI has achieved a competitive advantage over these competitors by providing high-quality custom label products at a low cost. Rivalry occurs in the quest to provide quality products at low prices, thus making ALDI have a competitive advantage over Woolworths, IGA and Cole.

Threats of New Store Brand Ventures ALDI is not threatened by the entry of new stores in Australia. ALDI has a big brand name that makes it hard for other companies to join the market because people are used to buying from ALDI at affordable prices. Other barriers to entry into the market include finding the right distribution channel, and the right target market for their products. 10 Business...