Answer to the question no. 1
An industry is a group of firms producing products and services that are essentially the same. The U.S. supermarket industry is consists of both supermarket such as Kroger, Walgreens, Home Depot and large discount retailers such as Wal-Mart, Aldi. According to IBIS’s research, the U.S. supermarket industry’s revenue over $574 billion with 1.5% growth rate since 2009 to 2013. As the U.S. economy is recovering and the household disposable income further expand, it would be reasonable to assume, this trend should slightly increase over the next few years generating a steady stream of revenue. This essay would critically discuss and analyze the attractiveness of U.S. supermarket industry based on Porter’s five competitive forces namely the threat of entry, the threat of substitutes, the power of buyers, the power of suppliers and the competitive rivalry.

The threat of entry: like any other attractive industry, the U.S. supermarket industry has a high barriers to entry that is the factors that need to overcome by new entrants if they are to compete in the industry. These barriers includes differentiation of products and services, legislation, expected retaliation, scale and experience and so forth. According to Porter, high barriers to entry is an advantage for incumbents relative to new entrants. Example of the actor would be Tesco (U.K.), Carrefour (France).

The threat of substitutes: substitutes are products or services that offer similar benefit to the industry’s products or services but by a different process. Managers often focus on their competitors in their industry and ignore the potential threat posed by substitutes. Porter emphasis two important points to bear in mind about substitutes that are the price/performance ratio and the extra-industry effects. Aldi’s U.S. marketing research shows that its unique operating style makes it almost impossible for competitors to match price and quality.

Power of buyers: buyers are the organization’s immediate customers. According to Accenture research on achieving high performance in grocery industry, over the last five years, new forces are acting on the industry have intensified. The consumer impact due to economy and their behavior is changing. There is a shift in focus away from the baby boomers towards millennial generation. These customers are more interconnected, mobile and forefront of any discrimination which make them a great deal of barging power.

The power of suppliers: suppliers are those who supply the organization with what it needs to produce to product or service. According to Porter, supplier power is likely to be high where there are concentrated suppliers, high switching cost, and supplier competition threat. Aldi heavily depends on its private level suppliers and has a good barging power over its supplier. Its product assortment, variety and pricing were centrally controlled as a result their prices are about 15% lower than Walmart’s and about 30% less than regional chain stores.

Competitive rivalry: competitive rivals are organizations with similar products and services aimed at the same customer group. The globalization and highly attractiveness of the U.S. supermarket industry result in very competitive and condensed industry. There are a number of factors directly affecting the degree of competitive rivalry in the supermarket industry such as competitor balance, slow industry growth due to maturity, high fixed costs and high exit barriers and low differentiation. Example of the actor would be Walmart, Costco etc.

Although there are high barrier to entry, the U.S. supermarket industry is an example of perfectly competitive industry where there are many equal rivals each with very similar products and services and information about competitors is freely available. Unlike all other competitor, Aldi’s focus and business model is different. It proved very effective and efficient competing with such giant like Walmart. In conclusion, analyzing the key issues of the five forces, it is justified to define ‘right’ market and industry for Aldi.

Answer to the question no. 2
Competitive advantage often refer to a superiority gained by an organization when it can provide the same value as its competitor but at a lower price or can charge higher prices by providing greater value through differentiation. Competitive advantage result from matching core competencies to the opportunity. This essay will discuss and defend Aldi’s competitive advantage through low cost, novelty, knowledge and social capital and the sustainability of this advantage in light of the theory in Barney (1991) and Porter (1996).
Barney (1991) argues that an organization may have competitive advantage and may achieve sustainability when there are “implementing a value creating strategy not simultaneously implemented by any current or future competitor”. Despite the market dominance of Walmart, Costco etc., with advantage of buying power, low prices on branded goods, market presence; Aldi has a unique business model which makes it almost impossible for competitors to match and compete. The company’s focus on private label products is one of the central and essential to Aldi’s value proposition. Aldi’s focus on limited assortment with economic of scale and hard bargain power with supplier help them to achieve the low cost advantage. In 2013, Aldi prices were approximately 20 percent lower than Walmart’s and about 40 percent less than regional chain stores. According to Barney’s sustainable competitive advantage theory, Aldi would be conceded as one of the early mover in the discount retailer with the unique concentration and business module. It created uncontested market space which helped them to break the value cost trade off, create and capture new demand thus making the competition irrelevant. They are successful to align the whole system of the firm’s activities in pursuits of differentiations and low cost. Therefore, Aldi’s present competitive advantage can be defendable as sustainable.

In addition, Porter (1996) explains how an organization can achieve competitive advantage through analyzing its internal factors such as strength and weakness as well as external factors such as threats and opportunities. In 2012, Aldi ranked among top 20 companies and was the only grocer on Facebook with the most loyal fans, defined as those most likely to recommend the company. Aldi exercised rigorous quality control over its private label items as well as comparisons with other leading brands. In U.K. taste test, Aldi came out of top in 16 of the private label products tested. Aldi stores were generally located in nondescript but well trafficked locations with limited parking, engineered for simplicity, reduction in spending for advertisement and focus on delivering quality products and services at lower price are some of its great internal strength. However, some critics argue that shopping at Aldi requires some education which is inconvenience, stores are unattractive and very few product line. For example, customers need to packed their own purchases, need to bring or use own bags to carry shopping, reduced trading hour may seemed weakness compared to its competitors. There are other companies who are successfully emitting and following the business model of Aldi for example Schwarz Unternehmens Treuhand would pose a future threat. However, their slow but consistently steady growth at market place, recent ramping up of expansion plans shows the success, sustainability, recognizing opportunity and reactiveness of their strategy.

In conclusion, Aldi’s asceticism and a low profile, earning the trust of the customers, devotion to and passion and rigor in action prompt their competitive advantage and reasonable to believe at its sustainability.

Reference:

Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99-120.
Porter, M. E. (1996). What is strategy? Harvard Business Review, 74(6), 61-78
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