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Aldi Model

In: Business and Management

Submitted By gongqing6595
Words 1061
Pages 5
ALDI is a German grocery store that was started over forty years ago. Today it has over five thousand stores in 16 different countries. It is ranked 12 out of the top 30 food retailers in the world, and Germany named it their top brand in 2000. ALDI is able to offer such low prices by having a relatively small selection but buying in large quantities, known as the limited assortment concept. It carries only 700 to 1500 items compared to Wal-mart’s 25,000 items. It focuses on most frequently used products, and spices up its selection with “weekly specials” such as DVD players and house wares.

Their “no frills” strategy is also one of ALDI’s cost saving methods. They eliminate virtually all of the extras. There are no baggers, fancy displays, check cashing or preferred customer savings programs. Customers shop out of open displays, which are easy to replenish and require the least amount of labor. They also use a shopping cart rental system. The customer is required to put a coin in the grocery cart and when the cart is returned the customer gets the coin back. This tactic cuts down on labor costs, since customers must take their cart back to its original location to receive their coin. This eliminates the need to hire employees whose job is to retrieve shopping carts.

ALDI strives to maintain operational efficiency. Its “bare bones” approach to inventory acquisition has made it easier for them to order large quantities far in advance. ALDI has an amazing turnover rate. It can usually turn over its entire store inventory in only two weeks. This helps to ensure the freshness of all their products. Their stores receive new shipments almost daily from decentralized regional logistics centers. These centers are in almost constant contact with their vendors making a very efficient replenishment system. For instance ALDI has been using cross docking for well over thirty years, before Wal-mart became known for it. From their conception ALDI has worked very closely with suppliers to streamline packaging. They have placed a great deal of importance on efficiency to enable them to pass their savings on to the end user.

Private-label branding is at the heart of ALDI’s business strategy, which is typically known for its poor quality. The case study states that, “Indeed, the opposite is true. ALDI’s private-label product quality meets or exceeds national name-brand standards. … Many of the products manufactured for ALDI are especially modified for ALDI to significantly upgrade quality.” We disagree with this statement, having shopped at ALDI in both Germany and the USA we found that quality was normally of equal or lesser quality.

ALDI’s relationship marketing focuses more on its vendors than its consumers. It does not use data mining or bonus cards that profile their customers. They believe that their low prices and high quality products speak for themselves. Thus, they are constantly trying to strengthen and streamline their supplier and delivery relationships. For instance, in Germany fresh bread is a staple and purchased multiple times a week. ALDI in an attempt to offer high quality at a low price created a strategic alliance with one of the bakeries. It entered into a five year contract with the bakery in which they agreed that they would buy all their bread from that bakery at significantly reduced rate for the next five years as long as their high quality standards where met. This alliance allowed ALDI to offer fresh bread for forty percent less than the local bakery. This is normally a very risky business move because it creates one-sided dependency however it has proven to be a very successful business strategy.

As aforementioned “weekly specials” add a level of excitement for the ALDI shoppers. Even though its main focus is on staple, they are able to continually offer the best prices on kitchenware and electronics. ALDI has made this possible in the same way they are able to offer cheap bread, strategic alliances with its vendors. They rely on Medion, a full service marketing support vendor publicly listed on the German stock exchange. Medion covers the complete management process inducing marketing research, product design, product oversight, quality control, logistics, and after-sale service. This is again another win win situation, Medion is able to profit off of ALDI’s huge market, and Medion frees ALDI from having to manage complex product development.

We’ve come up with three recommendations that we would propose to ALDI. First, due to their negative consumer image, they must attract a new market segment. Many people won’t step foot into ALDI because of the image that is associated with the company. Through personal experience, especially in West Philadelphia, the trip to ALDI’s was less than enjoyable. Constantly being heckled by poverty stricken individuals is not my ideal trip to the grocery store. ALDI must concentrate on improving company and brand perceptions.

Secondly, we would like to see services being offered with-in the store. Many sales are lost to competing grocery stores in the same geographical area because of the lacking of services like a deli or seafood section. People will shop at ALDI for specific items, rather than fulfilling their entire shopping list and will be forced to travel and spend money elsewhere. Rather than buying pre-packaged meats or fish, consumers will be willing to spend extra money for the more fresh food. This will also help raise the image of ALDI and will influence “one stop shopping”.

Finally, our last recommendation would be to form strategic alliances with other grocers. Since ALDI is very prone on relationships within channels and creating win-win situations this could be a very realistic recommendation. When traditional grocery stores are having issues with a product that has a slow turnover and have over estimated the quantity within the inventory, ALDI could purchase these products at a cheap cost and sell them in their stores. Similar to the concepts of TJ Max, or Ross, this would help both ALDI and the traditional grocer.

Overall, ALDI’s strategic alliances seem to be what makes the business so successful. Many other recommendations that we thought of were outside the boundaries of the efficient model of business that they choose for operation. ALDI is a successful grocery store that offers quality products at an extremely affordable price.

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