ALDI Australia – Opportunities and Future Challenges

Over the years, most firms have committed substantial portions of their resources to uncover why some organizations fail while others flourish despite operating under similar business environmental elements. The driving factor explaining such motive involves the need to continually review the firm’s operations as organizations of all nature and sizes are endlessly facing changing situations. However, coping effectively with the uncertainties in both micro and macro environment and attaining desired performance levels remains a real challenge for most enterprises. This calls for strategic management in the organization. Strategic management involves the deliberate structures in organizational units to systematically examine all vital variables in the determination of what is appropriate for them to do and how to undertake such corporate policies(Ireland, Hoskisson, & Hitt, 2010, p. 7).This yields alignment of business policies and creating priorities to enhance firm’s performance.In pursuit, strategic competitiveness is accomplished when an organization successfully formulates and adopts a value-creating approach deriving sustained competitive benefits which current and prospective competitors cannot duplicate and simultaneously implement. Organizations of ALDI nature, must therefore pay attention to external strategies and relate them to organizational capabilities in the determination of long-range direction in relation to the existing and potential challenges and opportunities.

Role of External Environmental Factors Influencing the ALDI Operations

No single entity may operate competitively in the current market conditions by distancing itself from the immediate external environmental elements.Consequently, this has forced ALDI to embrace market-leading initiatives to constantly review the complex set of the external environment to frequently evolve and avoid environmental shocks.ALDI like all other enterprises do not operate in vacuums but is part of a system faced with unpredictable and uncontrollable changing economic systems.For instance, a snapshot of the retailing sector in Australia reveals the presence of stiff competition arising in the food industry, brand competition, adequacy of investment in innovations, rapid industry rationalization, changing labour requirements, alongside evolving consumer tastes and preferences(Delforce, Dickson, & Hogan, 2005, p. 386).As a result, ALDI, like many players operating in the retailing sector requires a continuous evaluation of influence emerging from the macro environmental factors, including legal-political, cultural, technological, demographic, economic and competitive factors. Since adopting an evaluative approach to keep pace the changing demands from external elements, ALDI has avoided instances of potential conflicts with its immediate environment. In particular, the ALDI stores commit to operations efficiency by reducing unnecessary labour costs through their deposit-cart system avoiding legal conflict with the Labour regulations.

Among the above mentioned factors is the approach ALDI has utilized in coping with the nature of competition evident in the retailing sector. This has made it succeed in accomplishing what other giant retailing outlets such as Wal-Mart by effectively solving the Porter’s five factor model. Firstly, the outlet has faced little resistance often identified with mismatch of new entrant strategies and the target demands. The outlet uses a simple format while establishing new stores by obtaining space from existing landowners, usually small individuals who have plugged into the society rather than prioritizing on renowned land owners(Clifford, 2011). It is a format that sustains their expansion strategies as opposed to new entrants who seek well-known landowners with little contact with the consumer markets emerging from the immediate society.

Additionally, the outlet stores are distinguished bargain hunters with the strategic capacity to obtain the most favourable terms from suppliers while simultaneously extending low price lists to their customers. Strategically, ALDI has placed itself as a well-funded enterprise hat obtains properties at rock bottom prices and all start-up costs negotiated at the bone with the suppliers(Tucker, 2010). This makes them offer their products at the lowest prices possible emerging from their bargaining power allowing building substantial purchasing scales. This cost saving strategy presents them with a growth opportunity in instances of price-conscious consumers by tapping into the market shares of other susceptible supermarket chains.

Moreover, the relationship ALDI has with the market forces acts favourably to sustain its competitiveness amidst threat from existing rivalry from s major competitors.The outlets tend to commit more on delivering high quality products at low prices allowing them to streamline their supplies and deliveries. These exist in the form of creating strategic alliances in the provision of staple products at lower prices compared with other producers which do not rely on one-sided dependency. Lastly, in the retailing sector where the firm’s competitiveness is vital to guarantee their survival despite existing threat from substitutes, ALDI has committed to operations efficient and lower price ceiling that pins-off price-oriented competition. In particular, the key drivers of the ALDI success are its bargaining and pricing strategies demonstrating a consistent of 20 to 30% lower prices than a comparable consumer basket from other retail chains such as Coles or Woolworths(David, 2011).Subsequently, the outlets have cashed on the positive publicity emerging from the Australian Competition and Consumer Commission report indicating its impact on improving the level of competition to other chains in the retailing sector.

Role Of The Internal Environment (IE) On ALDI’s Performance

Like most successful firms, ALDI internal environment presents the outlet with an acquired comparative advantage obtained from its depth in financial resources, efficient labour force, alignment of its corporate policies, as well as its strategic management. To begin with, ALDI strategic management relies to a great extent on strategic alliances created by its vendors. In particular, the alliances assist in inducing marketing search, product design, product oversight, quality , logistics, and improve after-sale service delivery(Lowe & Neely, 2005). This has freed the outlets from managing complex operations given its huge market. In practice, its financial base enables it pursue strategic alliances with the vendors allowing it exploit opportunities as they arise in the market. For example, its planned $2 billion expansion to outperform its larger rivals Coles and Woolworths, under fire on multiple fronts from the competition regulator in South and Western Australia(Speedy, 2013).

Thirdly, efficient human resource management creates efficiency required in the retail stores where most retailers have failed to arrest the high labor turnover. This prompted the ALDI to refocus on internal promotions and recruitment to fill its senior management with individuals with substantial knowledge in its operations. For instance, this has eliminated extra cost that it would incur in training and orientation programs for its newly acquired team. Internal recruitment enables to create continuity on account of engaging individuals familiar with its business strategies and operations. Similarly, outlets do not operate the traditional marketing forums of specialized distribution and marketing personnel to minimize the advertisement expenditures.

In addition, its retailing philosophy of providing quality products at lower and sustainable prices enables it to achieve cost leadership benefits as the leading value seller. ALDI is committed to providing in-house brands and offbeat commodities as its own brands at lower cost, yielding higher profit margins.Lastly, the outlet employs a company strategy seeking to generate efficiency by operating at smaller than rival competitors generating logistical convenience and cheaper word of mouth communication. Under this company’s strategy, the stores priority is to stock the high demanded commodities while eliminating poorly demanded products and paying suppliers promptly.

Business Level Strategy

In the contemporary business environment, the level of competition demands that firms need business level strategy to reflect where and how the firm acquires advantage over other competing firms. In practice, business-level strategy entails how the firm marshals, integrates, and allocates the firm’s resources, capabilities, and competencies to properly align with its external environment(Hitt & Ireland, 2008, p. 129). For instance, ALDI outlets continuously sustained their success by upgrading their business-level strategies enabling them to choose to perform their retailing activities differently than rivals. Firstly, ALDI has committed to a low cost strategy by emphasizing on resource efficiency. This is observed in operating at small-sized spaces relative to other competitors while employing the minimum labour force to maintain lower labour costs.

Secondly, ALDI acquired advantage rests more on its differentiation strategy by purchasing in bulk from the suppliers at prices negotiated to the bone. These products are then traded in the stores as ALDI own-products at the lowest prices. Similarly, the stores stock high demanded products and less of the poorly demanded product. This allows the stores to benefit from high inventory turnovers relative to its rivals. Additionally, ALDI stores have emphasized the focus strategy where they seek to expand operations in Western and South Australia through new distribution centers(Best, AUS: Aldi to open 25 more stores in 2013, 2013). Under this approach, ALDI has seen its focus strategy guarantee its safe entry into the retailing market dominated by Woolworths and Coles Ltd. Here,Aldi philosophy of high-quality exclusive branded products at permanently low prices is openly embraced by the Australian Customers seeking fantastic value to counter the rising cost living(Best, AUS: Aldi Outlines Expansion Plans for 2012, 2011). Such an approach will remain relevant in the stores as they expand into their target market.

Recommendations and Conclusion

Given the nature of competition retailing sector, it will be essential for the ALDI stores to launch a customer retention policy alongside their current focus on expansion. This will guarantee their growing market share by issuing loyalty cards to their customers with periodic redemption accumulated points.Simultaneously, the outlets should conduct follow–ups to their customers to maintain touch for repeated sales. This will be vital for the firm’s survival as low-pricing philosophy may not be protective enough in the Australian market, where other entrants may tap into its market share through further innovative features and service enhancements.

References

  • Best, D. (2011, October). AUS: Aldi Outlines Expansion Plans for 2012. Just – Food Global News.
  • Best, D. (2013, Apr 4). AUS: Aldi to open 25 more stores in 2013. Just – Food Global News.
  • Clifford, S. (2011, March 29). Where Wal-Mart Failed, Aldi Succeeds. Retrieved April 17, 2013, from http://www.nytimes.com/2011/03/30/business/30aldi.html?pagewanted=all&_r=1&
  • David. (2011, January 25). ALDI – How Do they Do it? Retrieved April 17, 2013 , from http://www.dragoncollege.edu.au/blog/2011/aldi-how-do-they-do-it/
  • Delforce, R., Dickson, A., & Hogan, J. (2005). Australian’s Food Industry Recent Changes and Challenges. Australian Commodities, 12(2), 379-390.
  • Hitt, M. A., & Ireland, R. D. (2008). Competing for Advantage (2 ed.). Cengage Learning.
  • Ireland, R. D., Hoskisson, R. E., & Hitt, M. A. (2010). Strategic Management: Competitiveness and Globalisation. Cengage Learning Australia.
  • Lowe, M., & Neely, A. (2005, November 14). ALDI Case Study. Retrieved April 17, 2013, from http://www.pages.drexel.edu/~arn23/projects.html
  • Speedy, B. ( 2013, March 30). Aldi Eyes $2bn Expansion as Chain Outperforms Rivals . Retrieved April 17, 2013, from http://www.theaustralian.com.au/business/aldi-eyes-2bn-expansion-as-chain-outperforms-rivals/story-e6frg8zx-1226609203004
  • Tucker, J. (2010, April 21). ALDI Effect, the new ALDI stores. Retrieved April 17, 2013, from http://www.examiner.com/article/aldi-effect-the-new-aldi-stores
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