Aldi: A Case Study

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There are four essential reasons why Aldi can create a competitive rivalry in the US market. The first one is the process of continuous improvements that allow the managers to run quality controls and instantly point out the areas where enhancements are necessary (Azeem et al., 2019). Managers, on the other hand, communicate these potential changes to employees to ensure that the whole team is aware of the required augmentations.

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The second reason is the ability of Aldi to implement just-in-time production. The idea is that the company only holds the stock that it currently needs to support customer needs and does not spend too much on unnecessary products or services. This results in increased profits because Aldi always has the so-called backup stock that it can use to replenish the stores (van Rompay et al., 2016). Even though the just-in-time approach negatively affects the time that it takes logisticians to deliver products to Aldi’s stores, the company’s sales do not decrease over time.

The German company is also rather successful in terms of its time-based management because it requires its employees to remain as flexible as possible at all times. There is a specific training program at Aldi that provides employees with all the knowledge and skills necessary to contribute to the development of the organization and improved relationships with customers (van Rompay et al., 2016). Through capable time management, Aldi ensures system efficiency and reduces the cost of its services.

The last reason why Aldi can create a competitive rivalry in the US market is its particular attention to total quality management. This point stems from the management’s focus on continuous improvement because the company has come up with specific rules regarding how to manufacture and deliver goods that meet the customers’ needs (Azeem et al., 2019). With the help of total quality management, Aldi also develops efficient relationships with suppliers that are based on loyalty and an unremitting willingness to advance.

The Impact of Amazon’s Actions on Aldi

Amazon’s decision to purchase Whole Foods is not very likely to influence Aldi in a negative way because the alleged ‘supermarket war’ that Amazon has started with its move is not going to stop Aldi from expanding across the United States. Overseas entrants do not experience any significant issues when entering the US grocery market because they also have access to technologies and resources required to support customer needs or even exceed the expectations. Physical Whole Foods stores built by Amazon might be expected to help the IT mogul reshape the grocery market (Azeem et al., 2019). Nevertheless, the vital issue for Amazon is that Aldi does not expect to go against Whole Foods within the online environment. The future dominance of the Internet and technologies in the grocery industry is questionable, but Amazon still seems to resort to the online capabilities of their approach to business. Aldi’s response is not going to involve any tech-savvy initiatives because the German chain of grocery stores focuses on customer needs and loyalty much more than on digital advancements.

Nevertheless, Aldi should be aware of all the threats that Amazon’s purchase of Whole Foods bears for the industry and Aldi in particular. To respond effectively, the company should continue focusing on reducing costs and creating competitive advantages that revolve around increased market share and the lowest prices among competitors. Another potential step would be to improve the quality of products in order to create a trusted brand that is synonymous with excellence among consumers. Given to the fact that Amazon is willing to spend money on translating its grocery business into the online sphere, Aldi should respond by winning over customer loyalty and becoming the biggest brick-and-mortar retailer in the industry (Azeem et al., 2019). If the costs are higher at Aldi, the latter will lose the market battle and give in to Amazon’s online initiatives while outclassing every other rival in terms of product quality. Aldi could come up with updated store designs to make them even smaller and do not confuse customers with complex layouts while also hiring a lower number of employees.

Aldi vs. Amazon

As it may be claimed on the basis of articles written by Brinkley et al. (2019) and Azeem et al. (2019), Aldi is capable of responding to Amazon in an efficient way. Based on the strategy that has already become classic for the company, Aldi tends to strip down the whole shopping involvement to an absolute minimum. This unapologetic approach to business helps Aldi to coexist with such aggressive rivals as Amazon and creates the image of a strong combatant. The ability to manufacture and deliver products of perfect quality allows Aldi to save every cent of cost without reducing the value of its products. On the other hand, mainstream retailers tend to spend at least on their operating costs twice as Aldi, which makes it difficult to compete with the German retailer even in the US-based market. Lower profit margins create additional obstacles for local retailers that cannot provide customers with a similar purchasing experience.

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Even specific design details at Aldi help the company to speed up the purchasing process. Product barcodes, for example, are either printed on several sides or supersized to help cashiers process the goods quicker. It is also important to mention that Aldi makes sure that all employees are trained to complete different tasks – from retrieving carts to stocking shelves and ringing up customers at cashier desks (Chatterjee, 2017). The willingness to streamline its operations by any means shows that Aldi is rather straightforward in terms of its business strategy and communication with the customers. Another interesting detail is that Aldi’s phone numbers are not available to the public, owing to the company’s inclination toward saving employees’ time. As a result, a typical Aldi store features less staff but operates just as effectively as any other retail store with more employees on the entire payroll.

A Competitive Rivalry among Costco, Walmart, and Aldi

When speaking of how Costco reacted to the advent of Aldi in the US market, it may be important to mention that the former significantly benefits from a membership model that is the epitome of organizational efforts. Membership fees ominously increase the lower-level incomes that only unlock runner-up positions to Costco in terms of overall gross margin on sales. Compared to Walmart, for example, Costco boasts much more predictable revenues and successfully drives loyalty. As approximately 90% of customers renew their membership, Costco has minimal issues related to its incomes (Chatterjee, 2017). Owing to the increasing number of memberships and a rather large number of returning loyal customers, Costco has the capability of withstanding the current dominance of Amazon. Therefore, the company’s stock and market position cannot be affected by Aldi within the short term.

On the other hand, there is Walmart – a retail store chain that remains the largest in the world and is not influenced too much by the transformations that occur among its competitors. The challenges related to ‘price wars’ and market rivalry placed Walmart into its own niche and created many development opportunities. The problem with the largest brick-and-mortar retailer is that the advent of Amazon and its moves in the grocery market has turned the latter into a severe threat that cannot be ignored. The innovative e-commerce approach makes Walmart vulnerable and unprepared for intense competition in the online environment (Brinkley et al., 2019). The launch of Walmart+, a membership plan intended to counterattack Aldi and Amazon Whole Foods, is going to provide customers with same-day delivery services and additional discounts.

Suggested Activities for Senior Management

In the role of a senior manager for Aldi, I would continue promoting the ‘rush-and-panic’ tactics, ensuring that customers would always leave the store with the feelings of happiness and self-realization. This somewhat hurried approach to purchasing products that had been initially offered by the founders of Aldi allows customers to spend less time shopping than they would do in an archetypal shop. On the other hand, it would always leave the customers thinking that they have paid less than they initially expected. The customers do not have to engage in any competition with other store visitors as the quick process of purchasing goods would only relate to the agility of guiding the buyers through the aisles. As the customers become aware of their ability to save money, they are going to come back to Aldi more often to experience the same feeling. The low cost of products would be the shortcut used to achieve supermarket sector disruption and additional transformation of the company’s initial business model.

Accordingly, the cost of products that can be purchased in Aldi would remain my key priority. I would invest more in the research and development unit in order to learn more about online buying behaviors of the local US customers. Even though the current initiatives hardly support online food purchase, it would be essential to move to the Internet-based environment and make the best use of available tools to continue pushing the limits and leave Walmart, Costco, and other supermarkets struggling. The profit margin on grocery sales is evidently small, but the company could overcome the delivery costs by investing more in improved logistics and bonus services for those customers who order to-door delivery. It is most likely that other supermarkets would not be able to perform the same operations because of flawless logistics and prompt shipment that cause cost drains and deteriorate the budget. The idea here would be to perform a pilot study of to-door deliveries and decide on whether Aldi would continue its online operations or not.

Developing and Sustaining Aldi’s Competitive Advantage

The main objective that has to be achieved under the condition where Aldi expects to build competitive advantage is the presence of continuously increasing monetary expenditures. This is going to allow the company to remodel its stores located in the US and then open new stores in the State of Texas or Florida. Another idea would be to support the amount of potential expenditures with the help of frequent price fluctuations intended to provide Aldi with a chance to respond to rivals such as Amazon or Walmart. Non-stop remodeling and reselling activities will give the German chain of supermarkets a competitive advantage because the volume of customer purchases is going to increase over time and there will be more customers coming to Aldi to fill their shopping carts with all the necessary products. The former trends show that the company’s US-based income is going to grow further, expanding the grocery market ownership percentage by at least 15%.

With Walmart currently standing at 22%, the willingness to keep prices low and invest more in the US-based markets is going to catapult Aldi at the top of the list of the most successful grocery markets. Even though Aldi’s competitors witness the market transformation, there is not much that can be done to stop the company’s growth, at least in the short term. Walmart will need more expenditures to regain its position among other low-price leaders, which shows that Aldi came prepared to the battle for customers and market share. On the other hand, Aldi may also benefit from the fact that Lidl, another German store chain, is willing to open at least 100 US-based stores within the framework of the next two years. Aggressive tactics established by German competitors make it harder for Walmart and Costco to fight back because the ambitions of Aldi and Lidl grow rather quickly. Within the next several years, Aldi is most likely to accelerate the bankruptcy rates among other grocery stores in the US.

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References

  1. Azeem, M. M., Baker, D., Villano, R. A., Mounter, S., & Griffith, G. (2019). Response to stockout in grocery stores: A small city case in a changing competitive environment. Journal of Retailing and Consumer Services, 49, 242-252.
  2. Brinkley, C., Glennie, C., Chrisinger, B., & Flores, J. (2019). “If you build it with them, they will come”: What makes a supermarket intervention successful in a food desert? Journal of Public Affairs, 19(3), 1-13.
  3. Chatterjee, S. (2017). Two efficiency-driven networks on a collision course: ALDI’s innovative grocery business model vs Walmart. Strategy & Leadership,45(5), 18-25.
  4. van Rompay, T. J., Deterink, F., & Fenko, A. (2016). Healthy package, healthy product? Effects of packaging design as a function of purchase setting. Food Quality and Preference, 53, 84-89.

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BusinessEssay. 2022. "Aldi: A Case Study." January 12, 2022. https://business-essay.com/aldi-a-case-study/.

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