Aldi Strategy Report - Grade: Distinction PDF

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Summary

This report was conducted surrounding a question that sought to analyse an organisation and their strategic issues surrounding up to a 3 year period. Analysis was conducted through internal and external environments and strategic issues have been identified and then solutions have been recommended....

Description

Executive Summary This report identifies mission objectives and strategic statements of Aldi. It will also illustrate external analysis through the PESTEL framework, explaining the state of the macroeconomic market in the industry. In addition, VIRO analysis is used within internal analysis, describing the strategic positioning of Aldi’s resources and capabilities. Value chain analysis is also conducted, detailing procedures between production and sales. A SWOT summary is constructed to devise the strategic decisions below. To increase Aldi’s market share in Australia, With external and internal analysis given in the report, following strategies are recommended: 1. Investing in home delivery and online shopping capabilities to give Aldi competitive advantage 2. Investing in personalised customer experience by creating a ‘click + collect’ shopping model which means consumers can shop online then collect in store or Coles Express petrol station. 3. Increasing customer loyalty by carrying out campaigns that can demonstrate what the company is doing to benefit their consumers such as campaigns that are related to ‘food safety’ and ‘local environment’ Reasons for recommending these strategies: Strategy (1) is recommended to reposition Aldi in the market to compete in the home delivery sector. Aldi lacks investment and focus within online shopping and home delivery. These benefits are greatly appreciated by consumers and allows for increased customer retention and reach within the industry. Strategy (2) is recommended to ensure Aldi retains its cost leadership within the changing social paradigm. Consumers have begun to use online shopping and strategy 2 acts as a compromise between home delivery and increased consumer service and personalisation. The strategy addresses both the identified issue of customer service within Aldi at the expense of increased human resources, and a relatively uncostly compromise for home delivery. Strategy (3) addresses Aldi’s consumer retention issue due to its foreign label. To achieve this, implementation of campaigns to further the brand image and the culture it promotes targeting social issues directly related to the consumers. To increase customer loyalty, and prevent cross supermarket shopping, making consumers understand what Aldi represents will build a relationship of trust and consumer retention. These strategies will be measured through: Consumer surveys to indicate cross supermarket shopping and satisfaction levels, total home delivery numbers and its % in sales as well as the resulting total market share percentage Aldi will be aiming to achieve through these strategies.

Mission Objective + Strategic Statements

Mission Statement: - “Our vision is to enable Australian shoppers to live richer lives for less. All people, wherever they live should have the opportunity to buy everyday groceries of the highest quality at the lowest possible price. To put it simply, we offer our customers a smarter way to shop” (Aldi 2019, para 5). Objectives: - In Australia, Aldi has just 12.1% market share within the supermarket industry. Therefore, we suggest one of Aldi’s objectives is to increase their market share to exceed 12.1%. In addition, Aldi needs to increase customer loyalty to reduce cross supermarket shopping Competitive advantages: - Aldi has established a good cooperative relationship with the suppliers. Aldi has a clear strategic advantage in their low price through successful supply chain management. It is through this approach that Aldi is able to attract customers to give up the variety of produce offered by other supermarkets. The next target area will be the eastern coastal region of Australia.

External Environmental Analysis The current broad macro-environment surrounding Aldi and an understanding of how they affect Aldi’s machinations going forwards is paramount to orchestrating strategic plans and decisions to fulfill the organisational goals and mission. Through this analysis, clarification of Aldi’s critical opportunities and threats within Australia will be detailed and used as a knowledge base for strategic planning further in the report. The PESTEL model will be appropriated as a lens to analyse the Australian macro climate with focus on each heading (Political, Economic, Sociocultural, Technological, Ecological and Legal) being of significance to Aldi’s operation within its ‘Supermarket’ industry. (specified further in Industry Analysis) Despite the continuous growth, Australia’s GDP has been trending downwards as suggested by statistics figure y and y.1 (Australian Bureau of Statistics 2018). This along with information released by the RBA Governor Philip Lowe in his address to the National Press Club of Australia (6 February 2019) suggests Australia’s forecast GDP growth will be 3%. Lower than initial predictions of 3.5% going forward from 2019 to 2.75% in 2020. With these numbers in place, Aldi must be prepared to operate in both situations of cash rates being lifted (which will be the first time since August 2016 at 1.5%) and potential interest rate decrease which may allow for further investment loans from the government.

With the trend forecast being positive (as of 6th Feb 2019), Aldi is within an economic climate that is relatively stable in its growth and allows for some investment in its current or future business activities (see Appendix for further GDP analysis). The ACCC and its legal enforcements and enquiries into the supermarket industry are of great importance to the current and future operations of Aldi (see Appendix for Dairy inquiry 2018). Aldi has been at the center of an enquiry of the ACCC in relation to the prices of groceries (ACCC 2008) which will be further analysed in competitor analysis. With this level of involvement, response and its effects within the Industry Aldi must be mindful of the significance that inquiries can have in exposing its supply chain management, which we must consider in making future strategic or operational decisions. A summary of the other PESTEL headings are included in the appendix and outside of the areas discussed above, are not of immediate concern to Aldi within its supermarket industry.

Industry Analysis An analysis of Aldi’s competition within its supermarket industry is integral to future investment options and strategic decision making. Porter’s (1979) ‘5 Forces’ framework will be adopted to examine the levels of competition within the industry (a summary will be provided in the appendix of the 5 forces framework). The buyer power in the supermarket industry is high and in conjunction, the supplier power is weak as indicated in Aldi’s ACCC (2008) report into grocery pricings and its Dairy Inquiry (2018). The buyers power is characterised various factors such as: The cost to switch from suppliers being low, the amount of competitors is scarce with the main competitors dominating the market, the ability for the buyers to set the price and the availability of suppliers is not scarce. Aldi enjoys this benefit immensely noted in the ‘Enquiry of Grocery Prices’ in 2008. The supply chain structure (further detailed in the internal analysis) Aldi has used allows for price wars and successfully achieves its “everyday bargain pricing” against Woolworths and Coles. That being said, there is concern with the way in which Aldi would defend and maintain its supply chain to prevent a drop in prices and further inquiries from the ACCC to ensure the longevity of its producers and thus Aldi’s prices. The threat of new competitors and replications of Aldi’s products is relatively low. The barriers to enter the supermarket industry are extremely high without another strategic method to separate themselves significantly. Aldi has succeeded in its business structure to provide alternatives to big brand products in its own form of ‘home brands’ that replicate similar produce. This allows lower prices and price wars as the differentiating factor between how Aldi stores operate. Due to the high barriers of instigation price, supply chain defence and the severity of price wars within the industry, the threat of new competition is relatively low. In terms of competition between the market currently, there is a concern with where Aldi has not invested itself compared to competitors. This area is the online buy and deliver recipe which is offered by Coles and Woolworths within respective locations. Another competitor that has an edge over the market in this aspect is Amazon Fresh: an online supermarket that has no direct storefront, has numerous warehouses where produce is stored and taken to deliver directly to consumers. The convenience, interconnectedness of technology through the internet is something that Aldi must begin to consider in its decisions to further goals and objectives within the industry.

Internal Environmental Analysis VIRO ANALYSIS

The above VIRO analysis displays Aldi’s strategic position in the market helping managers to determine the level of the company’s sustainable competitive advantage. Aldi prides itself on being Good Different, demonstrating that their business model is very dissimilar to that of its competitors. The VIRO analysis displays that Aldi has many systems in place that allow them to achieve a sustainable competitive advantage. This can be seen through its low-cost items, by offering always low prices on all products consumers can save close to $80 a basket by choosing Aldi’s budget product over leading brand supermarket items (Cormack 2017). This appeals greatly to an increasing segment of the Australian market with more households wanting to reduce spending on everyday items. Even with these low-cost items, Aldi does not compromise on quality ensuring consumers are enjoying the products they are purchasing, allowing for repeat customers. Furthermore, Aldi is creating a sustained competitive advantage through its private ownership structure allowing them to take a long-term view of success rather than a short term one. Aldi stores also have a limited product range meaning they can reduce costs in many parts of their business including warehousing. Aldi’s Special Buys range is something not seen in any other Australian supermarket chain, this means that customers can purchase household items such as an armchair at a reduced price on a one-off offer (Marsh 2018). While Aldi is achieving a sustainable competitive advantage in many aspects of their business, they are creating a competitive disadvantage in other aspects. An example of this as shown in the VIRO analysis is their limited customer service. When shopping at Aldi you have to pack your own shopping bags at the register and there is limited customer service while undertaking your shopping. For some people shopping at a major retailer like Woolworths or Coles allows them the convivence of service that they do not get at an Aldi store. Thus, reducing the number of people wanting to shop at Aldi significantly (Osegowitsch & McCabe 2018). The VIRO analysis has demonstrated that Aldi does have a sustainable competitive advantage through its value, rarity, inimitability and support of the organisation. In saying this, to increase their market share in the Australian Supermarket Industry they need to appeal to a wider segment of the market, for example, by increasing their level of customer service.

Value Chain Analysis The purpose of the analysis is to find out which activities can add value to the company and help creating competitive advantages (Matias et al. 2018).

Through Aldi’s value chain analysis above, it is clear that Aldi is pursuing the cost leadership strategy to create value and gain competitive advantages through cost reduction and maintained quality. Furthermore, Aldi differentiates itself from its competitors by focusing on CSR issues as they are aware of their external socioeconomic environment.

Strategic Issues, Planning and Decisions Through the internal and external analysis conducted, a SWOT framework was constructed to identify key strategic issues and guide potential strategic decisions to address the issues brought forward.

Online Shopping + Home Delivery Through the SWOT diagram above, a key threat to Aldi’s present position in the market and its ability to achieve the goal of increased market share is the lack of investment within online ordering and home delivery. It is built upon the identification that Aldi has limited investment within its active manpower or human resources within its shops. Threats and issues arise from this area and include customer service, care and personalisation. This aspect is an area where competitors like Woolworths and Coles have invested themselves into, incorporating the technological investments within their business model to deliver extra value to customers. With the economic climate being stable in Australia, and Aldi’s strong relationship with its suppliers consistent offerings, allow the potential to venture into this opportunity to expand its business activities. Investing in a home delivery and increased online store capabilities furthers the range of customers Aldi can cater towards, building their brand reputation for customer service further

than it is presently. Technicalities like cost and scope of delivery should be based upon competitor prices like Coles who offer between $4-$20 fees and minimum spend values based on the proximity to the nearest store. With this investment, Aldi can increase its competitivity against Coles and Woolworths in the market and solidify its stake by positioning itself with its low prices and delivery capabilities.

Online Shopping + Delivery Alternative: Click & Collect Model An alternative to investment in the home delivery market is an appropriation of Coles’ “Click & Collect”. This strategy implemented by Coles allows consumers to purchase their shopping online and have it ready bundled to collect in store or Coles Express petrol station. Within this venture, Aldi would also address the strategic issue around its perceived lack of customer or personalised service. Aldi has employed less staff as a part of its business strategy and along with its supply chain construction and ‘home branding’, is used to keep its prices low as a strategic advantage. The compromise between keeping the prices low, and offering more personalised or customer service to consumers could be to adopt a similar scheme of “Click & Collect”. Achieving this strategy would involve in increasing its human resources by hiring 1-2 more employees per store and have them rostered on more frequently to deal with the increased work demand. This strategic decision satisfies both previous issues brought forward in the SWOT analysis and achieves the opportunities created within the market. Increasing Customer Loyalty As known, Aldi is not an Australian based company, therefore, its cultural adaption is low compared to companies that are Australian based such as Coles and Woolworth. Even with its strategy which focuses on great quality and low price, 80% of the consumers who shop at Aldi are also shopping with competitors which brings out the customer loyalty concern to Aldi (Chatterjee 2017). To increase Aldi’s customer loyalty, the company can focus on issues that consumers currently care about, such as ‘global warming’, ‘food safety’ or even local environmental issues. Campaigns related to these issues or campaigns that can demonstrate Aldi not just care about the profit and customer but also care about the things that can benefit the local society or environment can be carried out by the company constantly. By doing this, customer loyalty can be increased as the company’s brand image will be changed from ‘having good quality products with low price’ to ‘the company who focus on sustainability issue as well as Australian society and environment’, therefore helping to increase Aldi’s market share.

Measuring the success In order to determine the success of the recommended strategies in their relevance and ability to achieve the objective of increased market share, the following techniques will be used: ●

Customer surveys to identify cross supermarket shopping and consumer satisfaction levels following the implementation of ‘Click & Collect’

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The number of home deliveries made and their percentage against the total sales made

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The attendance to events hosted by Aldi for social issues and questionnaires detailing their level of impact on consumers decision to purchase Aldi products

Adopting these measures, allows understanding the effectiveness of the recommended strategies.

Appendix Australia’s Economic Climate as of 2017 according to data from Organisation for Economic Cooperation and Development extracted on November 2017, Australia has achieved 104 quarters with positive quarter-on-quarter percentage growth as shown in figure x breaking the world record for the longest quarter growth period (Australian Trade and Investment Commission 2018). This is offers an insight into the economic conditions of the past and potential future ones that Aldi will have to take into account for its strategic decisions.

Governor of the RBA Lowe concludes that “Over the past year, the next-move-is-up scenarios [in terms of economic movement] were more likely than the next-move-is-down scenarios.” The result of upwards movement, is a potential “lifting of the cash rate” whilst downward movement

may “lower interest rates to be appropriate” when dealing with the economy’s adjustment to the end of the mining boom (Lowe, 2019). Through his address, it is revealed the likely outcome of the current years financial course and is indicative for the next years as well. With that being said, the measures taken by the RBA are also revealed and Aldi should take both scenarios mentioned into consideration with its strategic decision making.

An ACCC report relevant to the supermarket industry is the ‘Dairy Inquiry’ reported April 2018 which detailed issues surrounding an imbalance of power between dairy farmers and buyers, reflecting market failures that resulted in significant income loss for over 2000 dairy farmers, severely impacting the productivity of the industry (ACCC 2018). The figure below describes the specifics of how the product breakdown affected the prices and farmer incomes (ACCC 2018 p. Potential issues like these must be accounted for in the decision making of Aldi and their ability to defend the supply chain capabilities to provide their unique value to consumers.

The figure above is a summary of the important PESTEL analysis features that affect Aldi in its supermarket industry and is used to make strategic decisions and identification of issues.

The figure above is a summary of the important features that determine the levels of competition within the supermarket industry and what Aldi has or doesn't have within its strategic advantage. These features of the competition within the market are used to make decisions about the potential areas Aldi must maintain and invest in to position itself in the market favourably and achieve the desired goals and outcomes.

Reference List About Aldi 2019, Aldi Careers viewed 4th of April 2019, . Australian Bureau of Statistics 2018, Australian National Accounts: National Income, Expenditure and Product, Dec 2018, cat. no. 5206.0, ABS, Canberra, accessed 26 March 2019, . Australian Competition and Consumer Commission 2018, Dairy Inquiry Final report April 2018, Canberra, accessed 30 March 2019, . Australian Competition and Consumer Commission 2008, ACCC inquiry into the competitiveness of retail prices for standard groceries, Australian Government, Canberra, accessed 7 April 2019, . Australian Competition and Consumer Commission 2008, Public Submission to the ACCC Grocery Inquiry made by ALDI Stores, Australian Government, Canberra, accessed 7 April 2019, . Australian Trade and Investment Commission 2018, Investor Updates 2018, Australian Government, Canberra, accessed 26 March 2019,...