Free Essay

Aldi

In: Business and Management

Submitted By kabbalisto
Words 9719
Pages 39
IES184

P-1071-E
0-606-009

Aldi: A German Retailing Icon
“The next Wal-Mart?”
Cover story on Aldi, Business Week, April 26th, 2004
“I love my Aldi – good quality at rock-bottom prices. Why do I need
‘brands’ when all they do is rip you off?”
Long-time Aldi customer, driving a BMW
“Discount means to leave away everything that is unnecessary.”
Dieter Brandes, former Aldi executive

Introduction
In 2005, Aldi, a German-based grocery store chain, was turning heads throughout Europe, Australia and the United States with its rock-bottom prices, efficient store operations and growing global network of limited assortment stores. Founded in the German town of Essen, with antecedents dating back to 1946, Aldi had revenues of €37 billion ($44 billion US)1,

This case was prepared by Jordan Mitchel, Research Assistant, under the supervision of Professor
Marc Sachon, as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. October 2005.
This case was written with the support of the CIIL (International Center for Logistics Research), IESE.
Copyright © 2005, IESE. To order copies or request permission to reproduce materials, call IESE PUBLISHING
34 932 534 200, send a fax to 34 932 534 343, or write Juan de Alós, 43 - 08034 Barcelona, Spain, or iesep@iesep.com No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means - electronic, mechanical, photocopying, recording, or otherwise without the permission of IESE.
Last edited: 3/7/06
1

Aldi: A German Retailing Icon

P-1071-E

and over 7,200 stores across 15 countries. In the United States, Aldi’s prices were approximately 6.6 per cent lower than Wal-Mart’s private label offerings2. Based on a
1,000 square meter stand-alone store, the typical Aldi had four aisles, a three-to-sevenperson and approximately 700 different SKUs – a far cry from the typical supermarket, which had 10 to 20 aisles, over 30 staff and 15,000 or more SKUs3.
Many observers questioned how a chain of stores that offered only a fraction of the average supermarket’s selection and that broke many of the golden rules of retailing could be so successful and profitable. Aldi’s answer? Focus only on the necessary and give the resulting savings to the consumer.

The Company
The words “self made” were emblazoned beside the Forbes profiles identifying Karl and
Theo Albrecht as the world’s 8th and 20th richest individuals respectively 4 . With personal fortunes estimated at €28 billion (US$34 billion)5, the Albrechts had started building the Aldi chain of supermarkets in 1946, when they ran a 100-square-meter shop on the outskirts of Essen. In 1948, the brothers made a conscious decision to add the principle of low prices to their concept6. The business grew to multiple locations, and in 1961 the brothers split the business into two units: Theo Albrecht took the north (Aldi Nord) and Karl Albrecht took the south (Aldi Süd). The southern unit was based in Mülheim an der Ruhr and the northern unit was headquartered out of Essen, only 30 kilometers away. The separation did not mean that the brothers did not cooperate; the two frequently shared the details of their business operations with the exception of their annual profits7 (see Exhibit 1 for a map of the Aldi divisions and their logos). The first store branded with the Aldi name (an amalgamation of the name
Albrecht with the word discount) opened in 1962 in the town of Dortmund8.
From the beginning, neither brother was interested in speaking to the press. Aldi required that all of its employees remain “tight-lipped” to external sources. This desire to lead a private life was heightened when Theo Albrecht was kidnapped for ransom for 17 days in 1971. While this event led the Albrechts to further shun the press in subsequent years, they remained committed to expanding their businesses in Germany and internationally. In doing so, they followed the key principles of simplicity, high quality, frugality and confidentiality.

The Aldi Value Chain
The concept of the Albrechts’ approach to food retailing had remained largely unchanged since the late 1940s. Aldi’s philosophy was to focus on the indispensable and avoid the unnecessary (see Exhibit 2 for Aldi “doing-without” list and secrets of success). The core approach of Aldi was to offer a limited assortment of quality daily basic food items at the lowest possible prices. In a rare statement to the press in 1953, the Albrecht brothers commented:

2

IESE Business School-University of Navarra

Aldi: A German Retailing Icon

P-1071-E

“Since 1950 we have adhered to the principle of low prices as well as that of limited selection. This was also a matter of necessity. If we did not want to offer customers a wide range then we had at least to offer them some other advantage. We sold our products for decisively less. I am convinced that these two principles, narrow product range and low price, cannot be separated.”9

Product Selection
Aldi carried 700 items at Aldi North10 and 900 items at Aldi South11. The limit to the number of products was determined by what Aldi’s management felt would provide high turnover and fulfillment of basic customer needs. One former Aldi executive talked about the challenge of selecting the right product assortment of 900 SKUs or less: “[The limit] can only be drawn arbitrarily, and then it must be strictly enforced.
But one thing is clear: every additional item certainly causes increased expenditure.”12
Over 80 per cent of the products were dry goods, with the remainder being made up of refrigerated products (10 per cent), frozen foods (5 per cent) and other (5 per cent) (see
Exhibit 3 for a breakdown of the goods and their delivery source). Only 5 per cent of the products fell outside the company’s own portfolio of private labels. In recent years, the most prominent brand outside of Aldi’s private label portfolio was Medion computers. Aldi began carrying the Medion computer in 1997, when it offered a 100 megahertz Cyrix Pentium computer packed with high quality components for 999 euros, a price 25 to 35 per cent below comparable computers at the time 13 . Aldi’s approach involved selling a limited number of computers per store, advertising the time of the sale through flyers and selling off the entire stock as quickly as possible: on a given Monday morning in May 2005, 200 laptops would be piled up in Aldi branch in the Barcelona area, and 90 minutes after opening the store to the public all the laptops would be sold, cash payment. Aldi’s sales method led to it becoming Germany’s leading retailer of computers with an estimated 10 per cent of the private market as of
2005 – and made its brand of computers the second most widely sold in 2005 (after
Fujitsu-Siemens). For computers and other merchandise such as bicycles or electrical heavy tools, it was not uncommon for massive queues to build up in anticipation of the sale.
All regularly sold items were Aldi group private labels, or branded products for which
Aldi could determine the prices. This made Aldi a hard discounter, i.e., a company that sold all products in its portfolio at a discount. While the private label names of Aldi
North and South were different, the suppliers were usually the same. Coffee was the sole product that Aldi made itself14. Each of the regular items in the shop was usually available in only one standardized size.

Product Pricing and Promotion
Many of Aldi’s private label products led market share categories. In Germany, Aldi held a 16.7 per cent market share of total food retail sales15 and approximately half of all private label sales in the country. The company had 51 per cent of the German fruit juice market and half of the processed meat and sausage market16. To achieve these
IESE Business School-University of Navarra

3

Aldi: A German Retailing Icon

P-1071-E

high market shares, the company’s prices were often 20 to 30 per cent below those of regular supermarkets17. As of 2005, the average price of a food item on Aldi’s website was 1.47 euros with the entire basket of 900 items costing 1,327 euros 18. The sales price of each item was regarded as an essential decision and was made by Aldi’s top administrative board and general managers19. While Aldi employed an everyday low price strategy, the company frequently put forward “surprise buys” 20 (called “Aldi
Aktuell”) stocking limited quantities of a certain item. Aldi promoted special offers once (Aldi North) or twice (Aldi South) per week and advertised through their weekly flyers only available in store or via the Aldi website (www.Aldi.de). Out-of-store advertising was almost non-existent, except in some situations when promoting the opening of a new location.

Product Quality
Aldi strictly enforced quality tests for all lines of products, both to keep customers happy and to meet legal requirements: under German law, for private label products, the responsibility of product returns, warranties etc. was with the retailer who sold the products – not the manufacturer. To ensure quality, Aldi performed daily taste tests of its products and was one of the first supermarkets to perform intense laboratory tests on eggs using an egg lamp to determine freshness thresholds21. The company had been the recipient of many tasting awards for private label beer, whisky, wine and coffee.
And recognition of Aldi’s quality was celebrated across German households; people held Aldi-themed parties at which all the attendees had to adorn themselves in Aldi clothing and partake of an exclusive menu of food and drink purchased at Aldi22. A cookbook with recipes using only Aldi foods had sold over a million copies23. External accolades and awards however did not lead the company to seek out quality certifications such as ISO 9000 or total quality management. A former manager commented, “We did not need ‘ISO 9000’ or ‘total quality management’ (TQM) to make us think it was good idea.”24 In a surprise visit to one of Aldi’s fresh produce suppliers in Southern Germany, the case authors could see that incoming shipments were meticulously checked, pallet by pallet, case by case. In one instance, a pallet of tomato boxes had been damaged during transport. The employees took the pallet aside, unloaded the 120 boxes and checked every tomato in every box, replacing them with undamaged tomatoes when necessary. They commented that “these tomatoes go to
Aldi, so we have to deliver quality”. The statement was confirmed by an independent fruit expert who, looking at the merchandise, acknowledged that one could hardly find better tomatoes at this price.
Finally, Aldi accepted all customer returns without question.

Store Operations
Store Sizes and Locations. Aldi stores averaged 1,000 square meters in Germany, but could be smaller elsewhere (e.g., 660 square meters in France, due to legal requirements). Each Aldi store had a small storeroom of 150 to 200 square meters.
Industry observers thought that preferred store locations were in low cost districts,
4

IESE Business School-University of Navarra

Aldi: A German Retailing Icon

P-1071-E

implying that Aldi stores were often on the outskirts of town. It was estimated that
Aldi spent less than 2 per cent of total sales on occupancy costs25. Aldi purportedly preferred to purchase land for its stores, and was one of the largest property owners in
Germany. In some instances, however, Aldi rented stores which had been built to its specifications. Industry observers felt that an Aldi location actually boosted the business of nearby fruit and vegetable markets and other specialty shops since Aldi carried only a limited selection of basic items26.
Payment terms and Consumers. Even in 2005, Aldi permitted only cash, charge cards
(the EC-Card, a form of payment only found in Germany) and food stamps27. Credit cards were not accepted. All European Aldi stores charged three-euro cents per bag and required a one euro cent deposit to use the grocery cart. These conditions did not put off consumers, who spanned a wide demographic range. At one time the store had been known to appeal to people on a tight budget, but since the early 1990s it had become just as common to see consumers arriving in luxury sedans as people arriving on public transport. By 2005, a new Zeitgeist had developed in Germany, giving credibility to stinginess28. Aldi clearly benefited from this trend.
Store Design. A typical Aldi store had four wide aisles where all the products were displayed in their original shipment boxes. Emergency exits were clearly marked as were all prices and product descriptions. Aldi stores were kept very clean. All store fixtures were seen to be purely functional. There were no in-store decorations, and economic building materials were used for flooring, ceilings and shelving. Stores had one telephone, only to be used for communicating with the distribution center. Store telephone numbers were not listed and personal staff calls were forbidden. One-way mirrors were installed in parts of the store so that employees could keep an eye out for shoplifters29. Shrinkage at Aldi was estimated to be 0.5 per cent of sales in contrast to
1.7 per cent for the retail industry at large30. See Exhibit 4 for pictures of an Aldi instore model as well as in-store snapshots.
Staffing. Aldi stores were staffed with an average of three to seven people: the store manager and two assistants. All employees were required to unload stock, clean the store, watch for shoplifting, ring through the customer’s order and operate mechanical equipment such as the cardboard baler and electric pallet jack (see Exhibit 5 for the required duties of all levels of Aldi’s staff). Store managers were actively involved in all store operations and would help with customer check-out at times of peak demand.
Since established stores were hectic, staff members were required to move efficiently and quickly – and were paid approximately twice the amount of individuals working at conventional supermarkets. In Germany, this amounted to 2,500 euros before tax per month for a store assistant31. Personnel costs in store were approximately 3 per cent of sales versus 9 per cent for a conventional supermarket 32 . Aldi discouraged union activity and in some countries this led to dissent. One example was in Ireland when six workers were reportedly fired after joining a union. Aldi acknowledged unfair dismissal, but some believed the damage had been done33.
Checkout and Barcodes. Originally, all cashiers were required to know the price of each item in the store. Aldi’s Dutch affiliate ran a quick experiment in the 1980s whereby all cashiers would memorize a three-digit code instead of a SKU’s price (quick experiments
IESE Business School-University of Navarra

5

Aldi: A German Retailing Icon

P-1071-E

of this nature were encouraged within the company). The experiment showed that a time saving occurred, since the cashiers did not have to learn new prices every shift.
Subsequently, Aldi rolled out the three-digit code method to the rest of Aldi North’s operations 34. Following the switch to the euro, Aldi South implemented the scanner system in 2001. Instead of placing the barcode in just one spot (as was standard in retailing), Aldi required that suppliers place it in four different parts of the package to decrease checkout time35. Furthermore, it required barcodes to have a specified size, often with one larger barcode across the package, so that cashiers did not have to waste time looking for the barcode. Some observers believed Aldi’s checkout to be among the fastest in the industry, with one source stating that Aldi clerks could check out 42 items per minute versus 15 items per minute in a conventional supermarket36.
All Aldi barcodes began with the number 24, and had eight digits: 24 0 XXXX N37. The
Xs identified the price and product and the N denoted the lot number38. The use of eight digits varied from the industry standard of 13 digits, with the exception of Lidl who also used an eight-digit code beginning with the number 20 39.
Inventory Flow. Depending on the turnover of the store goods, shipments of goods arrived five to six days a week to the store with an average lead time ranging from one to four days from order placement to delivery at the store 40 . All shipments were unloaded directly from the truck (arriving either directly from the supplier or from
Aldi’s distribution center) to Aldi’s small storeroom (approximately 20 to 25 per cent of the store space)41 located between the selling area and the reception dock. However, the storeroom rarely held goods for more than one day; it was used as an unloading buffer enabling the staff to shelve the stock later in their workday necessary. The goal was to avoid any out of stock for standard items and to have the selling space filled with stock (items up to eye level) with the back storeroom as empty as possible. The storeroom also contained a press which compressed used cardboard boxes, which were sold subsequently to recycling companies.
With goods in the storeroom, one of the three in-store staff would use a small electric forklift to lift the pallet (60cm by 80cm) from the storeroom and place it directly in the store. In some situations it was necessary for the store clerk to cut through the plastic wrap, but often products were shipped in open boxes from the supplier. It was estimated that a pallet of goods could be prepared for sale within three minutes, counting the time from the storeroom to the selling floor42. All products stayed in their original shipment boxes until the supply was depleted. No item was to be moved individually. It was estimated that Aldi turned over its inventory about 50 times each year. Refrigerated and frozen items were ordered from suppliers in standardized boxes which could be directly placed in the freezer or refrigerator without unpacking.
Originally, Aldi had not carried refrigerated and frozen items. It added cold chain products only when suppliers were able to match Aldi’s stringent requirements on box dimensions, allowing for efficient handling and stacking43.
Inbound Shipments and Reordering. Stock levels were controlled by both the central warehouse and the in-store staff. Shipments frequently arrived at stores without having been ordered by in-store staff, being dispatched from the region’s DC 44 .
Reorders were placed by one of the staff four times a week, e.g., on Mondays,
6

IESE Business School-University of Navarra

Aldi: A German Retailing Icon

P-1071-E

Tuesdays, Thursdays and Fridays45. Order sizes for each store (whether initiated by the central warehouse or the in-store staff) were determined by a computerized system that analyzed the existing inventory and automatically produced a report listing the items that were needed for restocking 46 . Store employees were required to verify that the inventory report was correct by counting the items. Items were ordered by pallets
(milk, sugar, salt), trays (canned products) or units (cereals and bottles of alcohol)47. Instore IT systems were rather basic: all check-outs had scanner systems and there was at most one computer per store, which was used to control sales and ordering processes.
In-store inventory checks and controls were performed every day by the store manager. Additionally, inventories were checked on a monthly basis and periodically during surprise visits from other Aldi managers48.

Supply Chain Operations
To improve logistics, Aldi’s operations were organized in cells. One cell consisted of 50 to 80 stores in a given region and had one distribution center. Aldi generally created separate legal entities (“Aldi Gesellschaft”) for each cell. Each of these cells generated its own financial statements and no consolidated financials were published. However, some observers stated that the rationale for creating the cell structure was not solely to take advantage of German regulatory loopholes, but rather to follow the key Aldi principles of decentralization, less complexity and lower costs overall49. In Germany,
Aldi had more than 60 separate legal entities under the combined Aldi North and
South umbrellas50.
When a new cell was created, a distribution center was either opened or redirected to serve the new group of stores. Aldi used a hub-and-spoke distribution system and aimed to have each distribution center servicing 60 stores within a radius of 50 kilometers. The size of a typical distribution center was 25,000 to 40,000 square meters51, equipped with 20 reception docks and 20 shipping docks52. It had a fleet of 25 or more trucks that delivered approximately 95 per cent of the stores’ inventory. All products except bread and frozen goods flowed through these distribution centers. Five to six per cent of an Aldi store’s inventory was delivered directly from the supplier’s warehouse. Aldi’s delivery trucks were also responsible for retrieving the empty pallets from the stores. To reduce the cost of the truck fleet, Aldi retreaded tires and placed wind deflectors for better gas mileage53. Exhibit 6 shows pictures of Aldi’s distribution center and shipping docks.
Aldi’s suppliers paid for the shipping to Aldi’s distribution centers – or, in the case of baked and frozen goods, directly to the stores. Aldi’s distribution centers did not keep the majority of their stock for more than 24 hours: approximately 90 per cent of the volume entering the warehouse was directly cross-docked and put on an outbound truck54. There were only two sizes of pallets: 120cm by 80cm (the “Euro pallet”) and
60cm by 80cm (the “Düsseldorf pallet”). Aldi South’s distribution centers were equipped with re-loaders that were used to separate 40 large pallets (120cm by 80cm) into 80 smaller pallets (60cm by 80cm) every hour55. Aldi had also developed a truck forklift system to transport three pallets simultaneously56. Stores only received 60cm by 80cm pallets and it was common that the pallets were mixed with different products
IESE Business School-University of Navarra

7

Aldi: A German Retailing Icon

P-1071-E

to reduce handling at the store 57 . Regular checks were done to ensure quality and quantities. A former Aldi manager explained the process, “Aldi has been practicing this policy for a long time with fast-moving items such as beverages, sugar, eggs – socalled pallet goods… Aldi has always had an influence on easy-to-ship packaging which must be harmonized with the pallet size. Aldi just did not know that this approach was referred to as ‘efficient consumer response’ (ECR)…”58

Purchasing
Industry players recognized that Aldi’s buying power was extremely high, allowing it to demand low prices. Aldi was stringent with quality: all products were tested for six to eight weeks in all stores of one, two or three Aldi cells before any formal agreement was made 59 . However, Aldi was reported to virtually never change terms and conditions once a price was agreed upon 60 . One expert described the relationship between Aldi and its suppliers as being symbiotic. He stated:
“A company that produces private labels needs the trust of its clients. This is usually developed over years of business relations. In the beginning, however, there is of course always a sort of ‘coaching’ by Aldi.… One really important point remains – and all Aldi suppliers will confirm this: renegotiations during which attempts are made to upgrade terms and conditions for deliveries which have already been made do not occur. Aldi is interested in the continued survival of capable suppliers.” 61
Aldi paid its suppliers in 30 days and was known for its punctual payment, with some stating, “You can set your watch by its payments.”62 When new suppliers were taken on board, they were clearly given all of Aldi’s requirements for shipping, packaging and other logistics. As one supplier said, “If the goods sell rapidly, if they prove popular and Aldi needs additional supplies, the owners have no mercy.”63
Buyers at Aldi central purchasing were typically in charge of 100 items or up to €2 billion annually 64 . They were very quality conscious (see Exhibit 7 for a list of examples of typical tests). In dealing with suppliers, it was strictly forbidden for Aldi purchasers to accept any gifts larger than a calendar. As one former purchasing manager and administrative board member said, “It seems impossible to minimize potential corruption in advance, or actually to eliminate it altogether… Aldi has not taken any special preventative steps, and I myself cannot see any sensible approach to this because the purchaser requires the trust of his supervisor when he negotiates.”65

The Back Office Operations
For each cell (i.e., 60 to 80 stores and one warehouse), Aldi’s management had a general manager and five direct reports: an administrative manager, central warehouse supervisor, sales manager (responsible for all stores in the district), purchaser and property-leasing officer (see Exhibit 8 for the organization of a typical Aldi cell company). 8

IESE Business School-University of Navarra

Aldi: A German Retailing Icon

P-1071-E

Aldi North and Aldi South corporate head offices had very few central functions: purchasing, revenue and expense management, central accounting, internal auditing,
Aldi did not have any other staff functions – e.g., no Department of Strategy or
Marketing - and never used consultants or advertising agencies: it regarded these efforts as adding little or no value to the client’s purchasing experience. Technology was kept to a minimum. In some Aldi affiliates, it was not uncommon to encounter employees without their own computers. The company was rumored to discourage email use with the outside world and preferred back-office staff to share computers.

International Operations
As with growth within Germany, all of Aldi’s international growth was financed through retained earnings, due to its fast cash-to-cash cycle and solid profit margins.
The company had successfully expanded into Austria, Holland, Belgium, France, Spain,
Portugal, Luxembourg, Great Britain, Ireland, Slovenia, Switzerland, Australia and the
United States (see Exhibit 9 and Exhibit 12 for information on Aldi’s international expansion). Aldi’s policy of limited selection and prices 20 to 30 per cent below conventional supermarkets remained intact. Types of products varied from country to country. For example, in Spain, Aldi carried omelets that were made by local suppliers, while in Great Britain, the company carried locally-brewed bitter beer66. Just like in
Germany, international Aldi operations also looked for high quality local suppliers for basic items. A book listing the suppliers of Aldi’s 100 top-selling products was a best seller in Germany67. In Spain, it was remored that the well-known dairy company Celta and renowned spice brand Dani produced private label goods for Aldi 68 . It was estimated that approximately 20 to 30 per cent of the products varied by country69.

Competitors
Aldi faced competition from a number of sources. The food retailing market was generally categorized by hard discounters such as Aldi and Lidl, soft discounters such as Dia (located in Spain and owned by Carrefour) and Plus (owned by Tengelmann), conventional supermarket chains and large retailers with growing global operations such as Carrefour from France, Ahold from Holland, Metro from Germany and WalMart from the U.S. (see Exhibit 10 for a list of global retailers).

The Global Giant: Wal-Mart
Wal-Mart stood out by its mere size – it was the world’s largest retailer with US$285 billion (€219 billion) in sales and net income of US$10.5 billion (€8.1 billion) as of
January 200570. Seventy-five per cent of Wal-Mart’s 5,700 stores were located in the
U.S. The company operated smaller Neighborhood Markets, regular Wal-Mart stores, large format Supercenters, and Sam’s Club (a wholesaler concept like Metro in
Germany). Regular Wal-Mart stores carried about 70,000 items, whereas Supercenters carried upwards of 100,000 SKUs, including more than 20,000 grocery items 71 .
IESE Business School-University of Navarra

9

Aldi: A German Retailing Icon

P-1071-E

Supercenters had as many as 40 departments, more than 500 employees (referred to as associates) and sales of over $100 million72.
Wal-Mart was known in the U.S. for its slogan, “Everyday low prices” (EDLP) and guaranteed its customers maximum selection of both private label and branded merchandise spanning nearly every category of consumer goods. Grocery, candy and tobacco was the largest category, making up 28 per cent of Wal-Mart’s total sales73.
Across all categories, private label accounted for approximately 20 per cent of its overall sales74. It was rare to find a particular item at a lower price than Wal-Mart.
However, in one test in the U.S., comparing Wal-Mart’s private label goods with Aldi’s, the prices of an Aldi basket of basics was found to be 6.6 per cent lower than WalMart’s 75 . Wal-Mart’s inventory turnover was 7.5 at the beginning of 2005 (see
Exhibit 11 for a comparison of prices and key facts on Wal-Mart)76.
For stock keeping, control, replenishment and measuring performance, Wal-Mart used a complex information technology system. Handheld computers were linked to an internal inventory system. All information was real-time via Wal-Mart’s private satellite network and permitted in-store staff to reorder and track and chase pending orders77. Furthermore, all systems were linked via a secure intranet to suppliers and the company had 100 tetrabyte database linking geographic, demographic, supplier, consumer and product information to optimize pricing and availability.
In the U.S., Wal-Mart shipped 81 per cent of its goods from 99 distribution centers –
37 were for general merchandise, 34 were grocery distribution centers, 7 were for clothing and apparel and 16 were for supplying specialty merchandise78. The rest of the goods were delivered directly to the store from its suppliers. Wal-Mart used its own truck fleet to deliver general merchandise and contracted third parties for grocery deliveries 79. On average, the size of Wal-Mart’s distribution centers was one million square feet (93,000 square meters). Each distribution point served approximately 150 stores within a 240-kilometer radius and was staffed by 700 associates80.
Wal-Mart’s operations in Germany had encountered several stumbling blocks. To enter
Germany, Wal-Mart bought the 21-store Wertkauf chain for €1.2 billion, and 74 hypermarkets from Interspar for €560 million in 1997/98. Some observers described this initial phase as “nothing short of a fiasco.”81 Several problems were cited, such as nearly getting fined by the German government for below-cost selling, as well as strict zoning regulations preventing Wal-Mart from building its typical big stores 82 . A
“culture clash” also manifested itself internally, in which American managers did not learn to speak German83. Furthermore, German customers complained that they were being harassed by store employees who were supposed to be ‘store greeters’, following
Wal-Mart’s US standard procedure84. Wal-Mart reportedly underestimated the German population’s loyalty to established competitors such as Metro, Lidl and Aldi 85.

Aldi’s Emulator: Lidl
The first Lidl store opened in Ludwigshafen, Germany in 1973 86 . The company had nearly 2,400 locations in Germany, 2,800 in 15 other countries and sales of
10

IESE Business School-University of Navarra

Aldi: A German Retailing Icon

P-1071-E

approximately $25 billion (€20 billion) annually. Lidl was owned by the Schwarz
Group, which also operated other classes of supermarkets such as Kaufland and
Concord. Like Aldi, Lidl’s owners were fiercely private, eschewing press and external coverage. Its operations mirrored those of Aldi, and it was generally accepted that Lidl had imitated Aldi’s operative approach, with small stores, three to five staff members and a basic assortment priced 20 to 30 per cent below conventional supermarkets.
Three main differences were noted by onlookers. First, Lidl carried more branded products than Aldi and often stocked different SKUs per product. Second, Lidl employees were paid 20 per cent less than Aldi’s 87 . Third, Lidl’s pace of expansion internationally was seen to be faster than Aldi’s. Lidl had entered prior to Aldi in ten
European markets (Italy, Portugal, Greece, Poland, Czech Republic, Finland, Hungary,
Norway, Slovakia, Sweden). Exhibit 12 shows a comparison between the two companies. An analyst tracking food retailers in Europe commented: “[We believe] that
Lidl is well-positioned to capture Aldi’s European crown and its aggressive expansion across the continent will drive its total European sales ahead of Aldi’s by 2012.”88

Outlook
In Germany, Aldi was a cultural institution. A British reporter declared, “Aldi is more than just another food store. The true character of the German life-style and Zeitgeist can be found in much more ordinary places. Aldi is one of them.”89 Some observers also said that an ageing population and stagnating economy played into the hands of
Aldi.
Behind the low prices, quality foods and very loyal customers, were simple, efficient and highly profitable operations: Sales per square meter were estimated to be €8,65090, whereas traditional supermarkets came in at €3,960 91 . Aldi’s gross margins were approximately 11.5%, with total costs of operations between 9% and 10%92. Bottom line margins thus ranged between 1.5% and 2.5%93. Retailing experts predicted that together Aldi North and Aldi South earned between €1.1 and €1.3 billion in after-tax profits94. All of these numbers indicated that Aldi was rather successful in 2005 – just as it had been for the previous six decades.
A consulting and market research firm specializing in retailing, Retail Forward, reflected the feeling of many of Europe’s retailers and suppliers when it entitled one of its 2004 reports “Aldi&Lidl: Europe’s hard discount threat.” What could traditional retailers do to react to Aldi’s and Lidl’s rapid expansion in Europe? What would WalMart do in Germany? What would be the future for Aldi? Most of all: what had made this company so successful, six decades in a row?

Note: We would like to acknowledge the project work of IESE MBA Class of 2006, Section A, which greatly contributed to the writing of this case.
We would also like to thank Mr. Theo Albrecht (Senior), for his valuable comments and insights.
IESE Business School-University of Navarra

11

Aldi: A German Retailing Icon

P-1071-E

Exhibit 1
Images from Aldi North and Aldi South

Picture of Early Albrecht Store

Map of Germany - Aldi North and South

Aldi Website Splash Page: Countries of Operation. (Aldi North to the left and Aldi South to the right.)

Aldi North Store in Germany

Aldi South Store in Dusseldorf, Germany

Source: Aldi Corporate Websites, www.aldi.pt, www.aldi.com, Accessed August 1, 2005. Photos of stores by case writers.
12

IESE Business School-University of Navarra

Aldi: A German Retailing Icon

P-1071-E

Exhibit 2
The Doing-Without Checklist
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.

No staff to relieve management of intellectual work
No controlling department to provide direction
No external market research
No work with management consultants
No budget forecasts
No scientifically cleaned statistics to reveal all
No scientific analysis techniques for all questions related to supplying the market
No customer surveys
No ISO 9000 or TQM
No sophisticated system of terms and conditions to squeeze supplier prices
No differentiated price policy by sales area or store type
No differentiated product mix from store to store
No complicated calculation methods for setting prices
No games involving qualities to optimize profits
No highly complicated engineering for logistics
No product placement in stores based on psychological analysis of shopper behavior
No luxury in the office, no top-of-the-range company cars
No public appearances
No publicity
No acceptance of gifts from suppliers
No acceptance of invitations to dinners from suppliers

Source: Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 44.

Aldi’s Secrets to Success
1. Keep it simple
2. Strive to earn your customers’ trust
3. Set clear goals and follow them rigorously
4. Improve details daily
5. Don’t optimize, maximize
6. Know where you stand, but don’t waste time on budgets and figures
7. Test now, perfect later
8. Be fair to your suppliers and help them improve their business
9. Practice management by trust and control
10. Talk in terms that people can understand
11. No matter how successful you are, stay thrifty and frugal
Source: Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, front cover insert.
IESE Business School-University of Navarra

13

Aldi: A German Retailing Icon

P-1071-E

Exhibit 3
Product Selection
Breakdown of Products at Aldi North

Items

%

Dry goods delivered from distribution centres
Refrigerated products (dairy, sausage, cold cuts) delivered from distribution centres
Frozen foods, including ice cream, delivered directly by the suppliers
Bread and other baked goods, delivered directly by the suppliers
ALDI current specials (non-food)

570
70
35
10
15

81%
10%
5%
1%
2%

Total Number of Items

700

100%

Source: Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 152.

Flyer from Aldi South, Germany

Flyer from Aldi North, Spain

Cross Section of Products
Source: Pamphlets collected from stores. Product selection from Aldi website.
14

IESE Business School-University of Navarra

Aldi: A German Retailing Icon

P-1071-E

Exhibit 4
In-Store Images

Inside an Operating Store

RIGHT TURNING STORE
Refrigeration
Loading
Dock

Storage

Cash Registers

Packaging & Carts
Entrance/Exit

Typical Store Format

IESE Business School-University of Navarra

15

Aldi: A German Retailing Icon

P-1071-E

Exhibit 4 (continued)
In-Storage Images

Stacks of Alcoholic Beverages

Reloading Palet in Front of Refrigerators

Source: Photos in stores by case writers and students of IESE MBA 2006, Section A.

16

IESE Business School-University of Navarra

Aldi: A German Retailing Icon

P-1071-E

Exhibit 5
Staff Duties
General Managers:




Achieve the highest possible turnover on a long-term basis and strengthen the company’s market position by expanding and securing a high-performance chain of stores;
Clear the best profits possible without endangering the company’s future development;
Apply the principle of economy in its extreme form to consolidate and expand the company’s market position.

Sales Managers:





Ensure that, in their sales area, the highest possible turnover is achieved on a permanent basis. The above requires them to ensure that the business runs smoothly in tidy stores at the lowest possible costs whilst delivering the highest possible performance and accurate accounts, in order to maintain and improve the company’s competitiveness.
Staff the stores with managers who meet the demands of the position and ensure that their district managers perform their duties in compliance with the job descriptions.

District Managers:



Put the right staff in place in the stores to keep them clean and tidy, ensure a smooth sales process and correct inventories, and achieve high sales.
Ensure that the instructions issued by management are carried out in the same way in all stores. Store Managers:





Be responsible for keeping their stores clean and tidy at all times.
Ensure adequate supplies of merchandise (avoiding both surplus stock and short-falls).
Ensure that all customers are treated in a friendly and polite manner so that today’s regular customers remain regulars and new customers can be attracted.
Take the greatest possible care to ensure accurate accounts, and achieve the highest possible sales by means of intelligent work management and staff training.

Central Warehouse Supervisors:



Guarantee adherence to statutory regulations, safety, smooth operations at lowest costs, best performance and minimum inventory losses in their warehouses.
Keep the warehouse and grounds clean and tidy.

Personnel and Administrative Managers:




Put the organization and human resources in place in all departments, applying the principle of economy in its extreme form, to enable tasks to be carried out perfectly within the framework of the law and company rules.
Ensure that the documents and data required by management are available on time.

Relevant to All Staff:



In the course of completing their duties, supervisors must tap into their staffs’ initiative and ideas. The leadership principles to be followed can be deduced from the general management instructions. Source: Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, pp. 91-92.

IESE Business School-University of Navarra

17

Aldi: A German Retailing Icon

P-1071-E

Exhibit 6
Distribution Center Logistics

Receiving Docks

Aldi Distribution Center in Germany

18

IESE Business School-University of Navarra

Shipping Docks with Aldi South Trucks

Reloader for Palets

Aldi: A German Retailing Icon

P-1071-E

Exhibit 7
Examples of Quality Checks









Samples are taken of every shipment of canned fruit, vegetable and fish
Samples are also taken of each shipment received and individual units weighed
Each week at least two types of sausages or cold cuts are checked
Each paper product is tested at least once per month.
Eggs are submitted to weight and quality controls each time a shipment is received according to special, detailed rules.
General weight checks take place on a daily basis; for some items this involves selecting a certain number of samples.
As part of the daily checks, ten items are taken out of the distribution center’s inventory. Each purchaser carries out quality comparisons with competitive items within his category. Source: Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 150.

Exhibit 8
Typical Aldi Cell Company Structure

General
Manager

Administrative
Manager

Central
Warehouse
Supervisor

Sales
Manager

Bookkeeping

Vehicle
Fleet

Personnel
Management

Central
Warehouse

Property
Leasing
Officer

District
Manager

Store
Manager

Purchaser

Incoming
Goods

Source: Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 86.

IESE Business School-University of Navarra

19

Aldi: A German Retailing Icon

P-1071-E

Exhibit 9
International Expansion
Aldi’s first international expansion was in 1967, when Aldi South purchased Hofer, a chain of supermarkets in Austria. In the initial stages, the company faced protests from
Austrians. An attempt was even made to pass the “Anti-Hofer-Law” since Aldi did not carry certain items and provided the rest of its items at steep discounts. Hofer/Aldi weathered the storm and agreed to stock milk, dairy products and bread95. By 2005, the protests were a thing of the distant past; the Hofer name had remained intact and the chain had grown to 300 stores, and sales were estimated at €2 billion96.
Operations in the U.S. were kicked off when Aldi South purchased Benner Tea Co. in
1976. The stores were renamed Aldi and the discounter’s concept was spread out to over 700 locations in 26 states97. Industry experts predicted that Aldi would add 40 stores per year in the U.S. until reaching a network of 1,000 by 2010 98 . A former executive of Procter & Gamble commented on Aldi’s threat in the U.S. market, “[Aldi] is kind of bottom-feeding, and nobody notices it.” 99 Another analyst in the U.S. commented, “In our opinion, Aldi shares more in common with the dollar stores, as they both serve the same low-income households.”100
Aldi North purchased U.S. chain Trader Joe’s and acquired a 10 per cent stake in the grocery and drug mart Albertson’s 101 . Trader Joe’s was a full-service supermarket decorated like the inside of a ship, complete with a European delicatessen and a whacky sense of humor, in which the store manager was referred to as a captain and store clerks wore Hawaiian shirts. Theo Albrecht did not change the concept nor did he integrate it under the Aldi brand. The name Trader Joe’s remained and by 2005, the chain had spread to over 200 stores in 19 states across the U.S.102 Theo Albrecht’s other investment, Albertson’s, had merged with American Stores and was ranked second in its sector in the U.S. with sales of $39 billion, 200,000 employees and 2,300 stores103.

20

IESE Business School-University of Navarra

Aldi: A German Retailing Icon

P-1071-E

Exhibit 10
Global Retailers
Top Retailers Worldwide - 2003
Company
1 Wal-Mart(1)
2 Carrefour Group(2)
3 The Home Depot(3)
4 Metro AG
5 The Kroger Co.
6 Tesco PLC (4)
7 Target Corp. (5)
8 Royal Ahold (6)
9 ITM Enterprises SA (7)
10 Costco Companies (8)
12 Aldi Group
24 Schwarz Group (Lidl)

Home Country
United States
France
United States
Germany
United States
United Kingdom
United States
Netherlands
France
United States
Germany
Germany

Net Sales
(Millions USD)

No. of
Countries

% of Sales in
Foreign
Countries

256,329
79,761
64,816
60,648
53,791
50,370
46,781
44,283
43,453
41,693
36,211
28,664

11
30
3
28
1
12
1
19
8
8
12
15

19%
49%
7%
47%
0%
20%
0%
76%
30%
18%
33%
59%

Notes:
(1) Net sales excludes sales from McLane ($4.3 billion).
(2) Net sales excludes revenue from franchise operations
(3) Net sales includes wholesale revenue.
(4) Net sales includes share of joint ventures.
(5) Net sales excludes credit revenue.
(6) Net sales excludes sales from divested Golden Gallon stores and food-service revenue.
(7) Net sales is an estimate and includes tax.
(8) Net sales excludes warehouse membership fees.
Source: Retail Forward Report, “Aldi & Lidl: Europe's Hard Discount Threat”, 2004, p. 7.

IESE Business School-University of Navarra

21

Aldi: A German Retailing Icon

P-1071-E

Exhibit 11
Price Comparison to Wal-Mart
Pricing Survey, Wal-Mart vs. Aldi

Prices in USD

Wal-Mart
Wal-Mart Lowest-Price
Private vs. vs. Aldi
Aldi Private
Private

Avg price (per unit)
Median price (per unit)
Average difference
Median difference
Med as % of Med Price
Std Deviation
Count

0.17
0.09
0.01
0.01
6.6%
0.09
62

0.30
0.09
0.04
0.01
8.6%
0.15
68

Wal-Mart
Branded vs.
Aldi Private
0.36
0.10
0.09
0.03
36.0%
0.15
47

Source: Christine K. Augustine, Dana L. Telsey and Monika M. Sieber, A Closer Look: Aldi’s
Limited Assorted Supermarket Model and What It Means for Wal-Mart and The Dollar Stores,
Bear Stearns Analyst Report,

Number of Wal-Mart Owned Stores
Discount
Supercentre
SAM'S
Neighborhood
Total U.S.
Argentina
Brazil
Canada
Germany
South Korea
Mexico
Puerto Rico
UK
Sub-total
China J.V.
Japan (Seiyu)
Total

1,353
1,713
551
85
3,702
11
149
262
91
16
679
54
282
5,246
43
403
5,692

Source: Wal-Mart Annual Report, www.sec.gov, January 31, 2005, p. 3.

Category of Sales
Grocery, candy and tobacco
Hard goods
Soft goods and domestics
Pharmaceuticals
Electronics
Health and beauty aids
Sporting goods and toys
Stationary and books
Photo processing
Jewelry
Shoes
TOTAL

%
28%
19%
16%
9%
9%
7%
6%
3%
1%
1%
1%
100%

Source: Wal-Mart Annual Report, www.sec.gov, January 31, 2005, p. 10.
22

IESE Business School-University of Navarra

Aldi: A German Retailing Icon

P-1071-E

Exhibit 12
Comparison of Lidl and Aldi
Aldi Stores, Sales & Market Share by Country in 2003
Stores
All Countries
1 Australia
2 Austria
3 Belgium
4 Denmark
5 France
6 Germany
7 Ireland
8 Luxembourg
9 Netherlands
10 Spain
11 United Kingdom
12 United States

7,208
56
298
376
200
606
4,000
11
10
388
80
268
915

Sales $USM
36,210
225
735
575
500
2,700
24,140
45
40
1,150
250
1,350
4,500

Market Share
3.0%
0.5%
4.9%
2.1%
3.2%
1.3%
16.7%
0.4%
2.5%
4.4%
0.3%
0.8%
1.0%

Lidl Stores, Sales & Market Share by Country in 2003
Stores
All Countries
1 Austria
2 Belgium
3 Czech Republic
4 Finland
5 France
6 Germany
7 Greece
8 Ireland
9 Italy
10 Netherlands
11 Poland
12 Portugal
13 Spain
14 Sweden
15 United Kingdom

5,154
78
200
52
41
990
2,374
85
43
280
142
18
170
349
11
321

Sales $USM

Market Share

22,622
204
356
40
113
4,640
11,882
217
187
775
441
68
385
1,154
10
2,150

2.5%
1.3%
1.3%
0.5%
0.8%
2.3%
8.2%
1.1%
1.6%
0.7%
1.7%
0.3%
2.6%
1.3%
0.1%
1.2%

Total market is retail sales at food retailers.
Source: Retail Forward Report, “Aldi & Lidl: Europe's Hard Discount Threat”, 2004, pp. 10 & 13

IESE Business School-University of Navarra

23

Aldi: A German Retailing Icon

P-1071-E

Endnotes
1

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 16.

2

Christine K. Augustine, Dana L. Telsey and Monika M. Sieber, “A Closer Look: Aldi’s Limited Assorted Supermarket
Model and What It Means for Wal-Mart and The Dollar Stores,” Bear Stearns Analyst Report, November 22, 2004, p. 1.

3

Erin White and Susanna Ray, “Leadership: German Grocer Aldi Rejects Every Frill --- Bare-Bones Service Helps Keep
Prices at Rock Bottom In Highly Regulated Market,” The Wall Street Journal Europe, May 10, 2004, p. A6.

4

Forbes, www.forbes.com, World’s Richest People 2005, Accessed August 1, 2005.

5

Forbes, www.forbes.com, World’s Richest People 2005, Accessed August 1, 2005.

6

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 25.

7

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 26.

8

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 26.

9

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 20.

10

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 152.

11

Aldi Group, Euromonitor Report, January 2004, p. 1.

12

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 201.

13

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 200.

14

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 66.

15

Retail Forward Report, “Aldi & Lidl: Europe’s Hard Discount Threat”, 2004, p. 10.

16

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 35.

17

“Less is More for Aldi,” B&T, www.brandt.com.au, May 28 2002.

18

Student Project IESE MBA 2006, Section A: interviews with Aldi store managers in Europe.

19

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 162.

20

Amanda Young, “A challenge to the supermarket giants,” Monash Newsline, June 9, 2003.

21

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 58.

22

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 192.

23
Jack Ewing, Andrea Zammert, Wendy Zellner, Rachel Tiplady, Ellen Groves, and Michael Eidam, “The Next WalMart?”, Business Week, April 26, 2004.
24

25

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 29, and case writer estimates.

26

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 35.

27

Amy Allen Clark, “Aldi’s Supermarket - The Real Deal?” www.singlemom.com, Accessed August 1, 2005.

28

A famous advertising slogan of Metro Group one of Aldi’s competitors stated “Geiz ist geil” (stinginess is sexy).

29

24

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 58.

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 178.

IESE Business School-University of Navarra

Aldi: A German Retailing Icon

P-1071-E

30

Richard C. Hollinger and Jason L. Davis, “2002 National Retail Security Survey Final Report,” University of Florida,
Published in 2003.

31

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 178.

32

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 29.

33

Nick Markin, “Corporate Scumbag: Aldi’s anti-union empire,” www.greenleft.org.au, Accessed August 3, 2005.

34

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 178.

35

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 178.

36

Student Project IESE MBA 2006, Section A: interviews with Aldi store managers in Europe.

37

Student Project IESE MBA 2006, Section A: interviews with Aldi store managers in Europe.

38

Student Project IESE MBA 2006, Section A: interviews with Aldi store managers in Europe.

39

Student Project IESE MBA 2006, Section A: interviews with Aldi store managers in Europe.

40

Student Project IESE MBA 2006, Section A: interviews with Aldi store managers in Europe.

41

Student Project IESE MBA 2006, Section A: interviews with Aldi store managers in Europe.

42

Case writer estimates based on observations at Aldi North store in Sitges, Spain, July 29, 2005.

43

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 183.

44

Student Project IESE MBA 2006, Section A: interviews with Aldi store managers in Europe.

45

Student Project IESE MBA 2006, Section A: interviews with Aldi store managers in Europe.

46

Student Project IESE MBA 2006, Section A: interviews with Aldi store managers in Europe.

47

Student Project IESE MBA 2006, Section A: interviews with Aldi store managers in Europe.

48

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, pp. 110-111.

49

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, pp. 101-103.

50

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 101.

51

Aldi Group, Euromonitor Report, January 2004, p. 32.

52

Student Project IESE MBA 2006, Section A: interviews with Aldi store managers in Europe.

53

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 46.

54

“Aldi in Australia: What will be the Impact?” Coriolis Research, May 2000, p. 17.

55

Student Project IESE MBA 2006, Section A: interviews with Aldi store managers in Europe.

56

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 46.

57

Student Project IESE MBA 2006, Section A: interviews with Aldi store managers in Europe.

58

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 167.

59

Aldi Group, Euromonitor Report, January 2004, p. 32.

60

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 176.

61

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 176.

62

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 176.
IESE Business School-University of Navarra

25

Aldi: A German Retailing Icon

P-1071-E

63

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 173.

64

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 174.

65

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 174.

66

Beer Can News, www.beercannews.com, Accessed August 11, 2005.

67

Martina Schneider, Aldi – Welche Marke steckt dahinter?, www.suedwest-verlag.de

68

Student Project IESE MBA 2006, Section A: interviews with Aldi store managers in Europe.

69

Case writer estimates.

70

Wal-Mart Company Capsule, Hoovers, www.hoovers.com, Accessed August 2, 2005.

71
Ravi Kalakota and Marcia Robinson, “From e-Business to Services: Why and Why Now?” Addison Wesley
Professional, August 15, 2003, www.awprofessional.com, Accessed August 3, 2005.
72
Ravi Kalakota and Marcia Robinson, “From e-Business to Services: Why and Why Now?” Addison Wesley
Professional, August 15, 2003, www.awprofessional.com, Accessed August 3, 2005.
73

Wal-Mart Annual Report, www.sec.gov, 10-K, January 31, 2005, p. 10.

74

Namita Jain, “When Wal-Mart Met ITC,” The Financial Express, January 20, 2004.

75

Christine K. Augustine, Dana L. Telsey and Monika M. Sieber, “A Closer Look: Aldi’s Limited Assorted Supermarket
Model and What It Means for Wal-Mart and The Dollar Stores,” Bear Stearns Analyst Report, November 22, 2004, p. 1.

76

Measured by cost of sales divided by inventories for the year.

77
Ravi Kalakota and Marcia Robinson, “From e-Business to Services: Why and Why Now?” Addison Wesley
Professional, August 15, 2003, www.awprofessional.com, Accessed August 3, 2005.
78

Wal-Mart Annual Report, www.sec.gov, 10-K, January 31, 2005, p. 10.

79

Wal-Mart Annual Report, www.sec.gov, 10-K, January 31, 2005, p. 11.

80

Pankaj Ghemawat, Ken A. Mark and Stephen P. Bradley, “Wal-Mart Stores in 2003,” Harvard Business School, 9-704430, January 30, 2004.

81

Andreas Knorr and Andreas Arndt, Why did Wal-Mart fail in Germany (so far)? University of Bremen, March 2003,
p. 1.

82

“How big can it grow?” The Economist, April 15, 2004.

83

“How big can it grow?” The Economist, April 15, 2004.

84

Andreas Knorr and Andreas Arndt, Why did Wal-Mart fail in Germany (so far)? University of Bremen, March 2003,
p. 25.

85

“How big can it grow?” The Economist, April 15, 2004.

86

Lidl Corporate Website, www.lidl.ie, About Us, Accessed August 3, 2005.

87

Jan Furstenborg, “The Schwarz Group (Lidl),” UNI Commerce, March 1, 2004, www.union-network.org, Accessed
August 10, 2005.

88

89

“Aldi Stores as Culture,” h2g2, BBC, www.bbc.co.uk, August 4, 2000, Accessed August 1, 2005.

90

26

Rachael Aggarwal, Lidl to Capture Aldi’s Crown in Europe, IGD, Watford, UK, 2004, p. 1.

“Aldi Group”, Euromonitor Report, January 2004, p. 9.

IESE Business School-University of Navarra

Aldi: A German Retailing Icon

P-1071-E

91

John T. Hansen and Michael Kliger, “Europeans warm to bargain groceries,” The McKinsey Quarterly, Number 4,
2004, p. 1.

92

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 29.

93

“Aldi Group”, Euromonitor Report, January 2004, p. 6.

94

A combination of sources: “Aldi Group”, Euromonitor Report, January 2004, p. 9; and, Jack Ewing, Andrea Zammert,
Wendy Zellner, Rachel Tiplady, Ellen Groves, and Michael Eidam, “The Next Wal-Mart?”, Business Week, April 26,
2004.

95

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 194.

96

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 195.

97

Aldi U.S. Website, us.aldi.com, Accessed August 2, 2005.

98
Jack Ewing, Andrea Zammert, Wendy Zellner, Rachel Tiplady, Ellen Groves, and Michael Eidam, “The Next WalMart?”, Business Week, April 26, 2004.
99

Jack Ewing, Andrea Zammert, Wendy Zellner, Rachel Tiplady, Ellen Groves, and Michael Eidam, “The Next WalMart?”, Business Week, April 26, 2004.
100
Christine K. Augustine, Dana L. Telsey and Monika M. Sieber, “A Closer Look: Aldi’s Limited Assorted Supermarket
Model and What It Means for Wal-Mart and The Dollar Stores,” Bear Stearns Analyst Report, November 22, 2004, p. 5.
101

Dieter Brandes, Bare Essentials, London: Cyan/Campus Books, 2004, p. 198.

102

Trader Joe’s Website, www.traderjoes.com, Accessed August 2, 2005.

103

Albertson’s Website, www.albertsons.com, Albertson’s Facts, Accessed August 2, 2005.

IESE Business School-University of Navarra

27

Similar Documents

Premium Essay

Aldi

...3. Is the industry in which Aldi operates attractive? Aldi is now acknowledged as operating the leanest low-cost model in the world. The key to its success is low service and even lower choice. In my opinion, Aldi operate attractive but still have space for improvement. Aldi is a typical ‘hard discounter’, pursuing a cost-leadership strategy. Its approach is to offer a limited number of good quality products at low prices. Due to above reason, customers have limited choices of the products compare with those large chain supermarket eg. Coles. Aldi also offers a selection of ‘surprise buys’, which change every week and are only available as long as the stocks last. The Aldi website states that they focus on their own brands in order to remain independent, enabling them to avoid high marketing costs often associated with national brands and to set their own price, product and quality policies. According to Shoebridge, however, house brands are attractive for grocery retailers because they cost 5–20 per cent less than national brands, depending on the category. In addition, a retailer’s profit margin on house brands is about two percentages points higher than the margins on a national brand. The limited number of products enables Aldi to leverage its impressive buying power and to control the cost of its products by buying in large quantities. According to Brandes, Aldi has 30 to 100 times the buying power of Wal-Mart. Minimising costs at all levels in the value chain is......

Words: 972 - Pages: 4

Free Essay

Aldi

...References 20 Bibliography 21 TASK 1 Since the first store was opened in the German town of Essen in 1913, by Karl and Theo Albrecht, Albrecht Discount has continued to flourish into the successful, global organisation we know as Aldi. Aldi has over 8000 stores worldwide and continues to expand in Europe, North America and Australia. The finance section of The Telegraph (October, 2012) reported that Aldi hope to have 500 stores open in the UK by the end of 2013, 40 of them new stores with an estimated cost of £181m, will create 4,500 new jobs. Despite hours of research on Aldi, it proved extremely difficult to find their mission statement. As an international organisation they have many websites but none appear to display their mission statement; nor does their Corporate Responsibility Policy (Aldi, UK 2013). The reason for this difficulty became clear with the discovery of a book, Bare Essentials: The Aldi Way to Retail Success, Brandes and Brandes (2012). Dieter Brandes contributed for many years to the policies which brought success to Aldi; he was initially a regional general manager and then for 10 years, until he left in 1993, was a managing director for the Executive Board. In his book, he explains how Aldi never had a mission statement, because they never needed one. The company’s goals of lowest prices and best quality are sensible, understandable and simple, so how could anyone else write anything which would make them any clearer?......

Words: 3472 - Pages: 14

Premium Essay

Aldi

...3. Is the industry in which Aldi operates attractive? Aldi is now acknowledged as operating the leanest low-cost model in the world. The key to its success is low service and even lower choice. In my opinion, Aldi operate attractive but still have space for improvement. Aldi is a typical ‘hard discounter’, pursuing a cost-leadership strategy. Its approach is to offer a limited number of good quality products at low prices. Due to above reason, customers have limited choices of the products compare with those large chain supermarket eg. Coles. Aldi also offers a selection of ‘surprise buys’, which change every week and are only available as long as the stocks last. The Aldi website states that they focus on their own brands in order to remain independent, enabling them to avoid high marketing costs often associated with national brands and to set their own price, product and quality policies. According to Shoebridge, however, house brands are attractive for grocery retailers because they cost 5–20 per cent less than national brands, depending on the category. In addition, a retailer’s profit margin on house brands is about two percentages points higher than the margins on a national brand. The limited number of products enables Aldi to leverage its impressive buying power and to control the cost of its products by buying in large quantities. According to Brandes, Aldi has 30 to 100 times the buying power of Wal-Mart. Minimising costs at all levels in the value chain is...

Words: 335 - Pages: 2

Free Essay

Aldi

...Privately held by brothers Theo and Karl Albrecht, Aldi Group is Germany's leading grocery store chain and a top competitor in the global retail food industry. Cited by some as Europe's largest retailer, the chain has found success by going against virtually every standard of supermarketing, from its legendary reticence to the "Spartan atmosphere" of its stores. By the early 1990s the company operated an estimated 3,000 stores under the Aldi, Hofer, and Combi names in Germany, the Netherlands, Belgium, Denmark, Austria, the United States, France, and the United Kingdom. Established in 1913 in Germany, Aldi operates what are known in the grocery business as "limited-assortment" stores or "hard discounters." Aldi has taken this retail concept, which features low overhead and scanty selection, to its leanest, meanest extreme. Unlike the vast majority of supermarket chains, which are continuously increasing their product offerings and selling space, Aldi holds selection at its stores to about 500 items. The bulk of these items are packaged grocery or dry goods. All other grocery formats carry at least ten times Aldi's typical 500-item lineup. Up to 95 percent of Aldi's offerings are sold under private or packer labels, and some of these products are made expressly for the chain. A 1993 examination of the limited-assortment niche noted that successful discounters (like Aldi) work closely with manufacturers to design products that are cheaper to transport, stock, and sell than......

Words: 642 - Pages: 3

Premium Essay

Aldi & Lidl

...Aldi and Lidl: International Expansion: Case study Answer 1 Greenfield Investment strategy is associated with companies expanding its business outside its national borders. Greenfield investment is one such example where the company sets off in an effort to establish its business operations from the scratch. in recent years it is evident that the strategy of these two companies has tilted in favor of the Greenfield investments. There are various factors responsible for both Aldi & Lidl in choosing Greenfield investment as a primary market entry strategy. Some of these factors are as mentioned below:  Degree of freedom: Greenfield investment involves setting up business in the manner as perceived by the investors. They are free to choose their own suppliers, channel of distribution and so this freedom allowed the two companies to change required strategy whenever required in order to adapt to different market conditions in different countries. This strategy involves few rules, regulations, licensing issues that allowed the company to cash in on the brand name, which means ability to attract new customers with relatively low costs.   Resource & efficiency: Since Germany had already been exploited, the companies¶ seeked for ways of acquiring resources at much lower rates. So by choosing this stategy , , would help them to compete in the markets with major supermarkets and hypermarkets as they could drive down the costs of products that would lead to......

Words: 1159 - Pages: 5

Free Essay

Aldi Model

...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.......

Words: 1061 - Pages: 5

Premium Essay

Aldi Example

...* APP update for ALDI * ` * Executive Summary This report involves how information system solves the issues experienced by a leading global supermarket chain and how the proposed plan will be enforced its targets of capturing more market shares and increasing company’s profits. Firstly, our team will describe the main problems to be confronted by ALDI. Then the goals and objectives of the project will be clarified, and the crucial factor for business future development is also listed. The following sector offers a full view of the business case. Specifically, this part contains the reasons and motivations for exploiting the new project, and the business case organizer. Additionally, the relevant environment conditions are described from several aspects in detail. Meanwhile, the current situation and opportunities are analyzed via SWOT model. After that a detailed description of assumption and obstacles about present condition and future projects is shown. Next, we provide two feasible options for ALDI, and we adopts several elements and methods to weigh both options. Then a constructive and enforceable recommendation and opinion is given through previous analysis. Finally, the implementation strategy of project will be identified briefly. * 1. Introduction Nowadays, online shopping in brick-and-mortar stores is a common consumer practice. Mobile devices, especially smart phones, have become a key tool for web shoppers (Turban, Volonino and R.......

Words: 4571 - Pages: 19

Premium Essay

Aldi Case

...Sean Spencer 2/1/2016 BA 427 Business Policy Aldi: The Dark Horse Discounter Should Wal-Mart be worried about Aldi? Should Aldi be worried about Wal-mart? Do you believe Aldi to be at a competitive advantage or disadvantage relative to Wal-mart? Both Walmart and Aldi should be worried about each other because both have distinct advantages over each other in bringing in customers. Aldi advantage is that its stores provide the lowest price in town with their products being on average 15-20% cheaper than Wal-Mart (pg 3). How it does this is by cutting costs and offering its products at the lowest possible price. This practice of cutting cost is best summed up by the Aldi motto “"When you buy a can of peas at Aldi, you're paying almost entirely for the can of peas” (Steen pg 4). How Aldi does this is by skipping or excluding practices that most tradition grocery retail provide or practice. These practices include not spending money on advertising, market research or comparing their prices to their competitors. Aldi also do not invest in highly complicated engineering, the only focus of Aldi is operating their business at the lowest possible cost. By doing so Aldi operating cost is significantly lower than those at Wal-Mart but by focusing on offering the lowest price alone is also Aldi main weakness which Wal-Mart can exploit. Aldi main focus is not to customer service, but to offering their products at the lowest possible price and because their stores focus on offering......

Words: 1382 - Pages: 6

Free Essay

Aldi Case

...April   ALDI offering the ‘same for less’ value proposition Andrian Saputra Njonoriswondo Billy Qian Claudya Vici Yvonne Huang 17 Table of contents Introduction Australian Retail Industry Market Segmentation Product Differentiation Consumer Perception Cost Effective Strategy Potential Future Problems Conclusion Appendix References pg. 2 pg. 2 pg. 2,3 pg. 3 pg. 4 pg. 4,5 pg. 5,6 pg. 6 pg. 7 pg. 8,9 M A R K 1 0 1 2   M a r k e t i n g   F u n d a m e n t a l s   Introduction In present, the number of retailers in the marketplace is uncountable. Hence, it is important for the organisations to understand and satisfy their consumers and customers in order to have a long-run survival in the marketplace. Every organisation is aiming to be efficient and effective in operation. Thus, they have to be sure that consumers and customers have a freedom to choose goods at the best price and perceive a service that match their preferences. To succeed, the company has to be certain about which part of consumers or customers they want to satisfy. In other words, they have to create a more focused target market. This idea is often called market segmentation. Market segmentation can be defined as a marketing strategy that involves dividing a broad target market into narrower target consumers who have common needs and wants (Goldstein 2007). ALDI has been regarded as a successful company that can meet the expectations of customers whereas the other existing firms......

Words: 3253 - Pages: 14

Premium Essay

Aldi and Sainsbury

...Aldi and Sainsbury Grocery store is a shop which the main product sold primarily food HISTORY OF GROCERY SOTRES . They hold an extremely significant value in consumer lifestyle. This essay will compare strengths and weaknesses between Aldi and Sainsbury. Aldi Aldi is a private company which was founded in Essen, Germany 1946 by Karl and Theo Albrecht. Aldi is now a leading worldwide discount supermarket chain with more than 8,500 stores in more than 15 countries. After several years, the owners separated Aldi into Aldi Nord, which operates shops in the north of Germany, and Aldi Sud, which operate the south and the UK. Karl took the Aldi Sud (South), and his brother Theo took the Nord (North) (Rudolph, 2011). Moreover, in times of economic depression were consumers are caring more about the price. Aldi to took advantage of the depression with it being one of the leading supermarkets that offer discounts and lower prices than the main stream supermarkets. This strategy also known as razor strategy was very effective in the UK because when the economic depression hit Europe people felt the need to save and cut down expenses and restore to cheaper options. Aldi before depression. this below shows the number of the shops for people who want to save money for food for , which allows them to offer the best quality products at low prices (Haberer, 2008). According to Mirror Magazine “Aldi won the award of supermarket of the year, and this award for second year in a......

Words: 1610 - Pages: 7

Premium Essay

Coriolis Aldi Research

...ALDI IN AUSTRALIA: WHAT WILL BE THE IMPACT? May 2000 Aldi in Australia Aldi will become a small but significant player in the Australian market OVERVIEW I. Aldi is the world’s lowest cost grocery retailer II. The United Kingdom provides an excellent model for the development of Aldi in Australia III. The arrival of Aldi in Australia will have a focused impact, felt mostly on key line pricing and by Franklins Aldi 2 Aldi in Australia I. Aldi is the world’s lowest cost grocery retailer – Ia. Aldi acts as a category killer in core grocery lines – Ib. Aldi has a low-cost logistics and operational system that works on a 12% gross margin – Ic. Privately owned Aldi has a long investment horizon and plenty of patient capital – Id. There are few threats to Aldi or the limited assortment store. Aldi is immune to competition, even from WalMart Aldi 3 Aldi in Australia Ia. Aldi acts as a category killer in core grocery lines – Aldi is a limited assortment discount grocery store, a format characterized by a high turnover on a narrow range of grocery items in a small space – The main appeal of limited assortment stores is low prices – Packaged grocery accounts for almost 50% of a German Aldi store’s turnover and 50% of an American store’s SKU mix – In Germany, over 70% of German households shop at Aldi, mostly for basic staples Aldi 4 Aldi in Australia Aldi is a limited assortment discount grocery store… TYPES OF......

Words: 9186 - Pages: 37

Premium Essay

Aldi and the International Market

...Aldi in the International Market Foundation & History In 1920 and 1922 Karl and Theo Albrecht, the famous Aldi brothers, were born as sons of a miner which lived in Schonebeck, a suburb of Essen. When the father fell into unemployment the mother founded and started working at grocery-store. Both brothers learned a commercial profession in a retail trade, growing up with the mother owning/working at the grocery store. In the beginning of the Second World War the brothers had to serve for military service. After the war, when returned home, the Aldi brothers took over their parents` grocery-store. Step by step they expanded to a chain of stores. In 1948 they founded the “ALbrecht DIscount” company, which was later on named ALDI. Within no time, the Albrechts had 13 grocery stores, which expanded more and more. In 1955 the enterprise already counted 101 subsidiaries, in the following five years the number of subsidiaries rose to 300. In 1961 the joint brother company came to an end because both brothers went on their separate ways and started separate companies. Karl Albrecht ran the chain of stores on the South side of the Ruhr and Theo Albrecht took over the business in the North. The simple arranged Aldi subsidiaries spread rapidly in the Federal Republic of Germany. In 300 towns the brothers ran 600 Aldi subsidiaries. In 1962 the first well-know “bona fide” Aldi supermarket opened in Dortmund. In 1976 the company developed an international esteem due to......

Words: 1687 - Pages: 7

Premium Essay

Aldi Case Study

...understand what their customers want. Aldi understands that its customers want value for money but do not want to compromise on quality. This case study will demonstrate how Aldi uses a lean approach to its business operations to offer its customers quality products at competitive prices. Since opening its first store in 1913, Aldi has established itself as a reputable retailer operating in international markets including Germany, Australia and the U.S. Aldi has over 7,000 stores worldwide. What distinguishes Aldi from its competitors is its competitive pricing strategy without reducing the quality of its products. In fact, in some cases Aldi’s products are 30% cheaper than those offered by its competitors. Aldi can do this because the business operates so efficiently. Efficiency is the relationship between inputs and corresponding outputs. For Aldi operating efficiently involves reducing costs in all areas of the business. Some of the key areas where Aldi is able to minimise costs are by saving time, space, effort and energy. Aldi’s approach to doing this is to run its business around the principles of lean thinking. Aldi has a no-nonsense approach to running its business. Whereas other food retailers have elaborate displays, additional services and promotions that draw customers into the business, Aldi’s core purpose is to ‘provide value and quality to our customers by being fair and efficient in all we do’. Everything Aldi does is focused around......

Words: 2131 - Pages: 9

Free Essay

Aldi Work Ethics

...The earliest roots of ALDI trace back to 1913, when the mother of Karl and Theo Albrecht opened a small store in a suburb of Essen, Germany. Their father was employed as a miner and later as a baker’s assistant. Karl Albrecht was born in 1920, Theo Albrecht in 1922. Theo Albrecht completed an apprenticeship in his mother’s store, while Karl Albrecht worked in a delicatessen. Karl Albrecht served in the German Army during World War II. In 1946, the brothers took over their mother’s business and soon opened another retail outlet nearby. By 1950, the Albrecht brothers owned 13 stores in Germany. Today ALDI operates over 8000 stores worldwide and over 1400 in the United States alone (Amann, 2010). In 2010 more than 200 ALDI store managers in 32 states filed a lawsuit against the U.S. division of the German discount grocer, saying they were wrongly classified as exempt from overtime and should have been paid for working more than 40 hours a week. The basis of the complaint made by Howard McNelley, a former ALDI Manager, concerns his classification as a Salaried Manager even though his duties were simply stocking shelves, cleaning, running a register, and many times he was the only employee in the store (Martin, 2010). Aldi stores will many times operate an entire work day with less than 3 employees in a store. During slow periods the employee designated as the manager will sometimes be the only employee present and will simply run a register. The hiring, firing, and promoting of......

Words: 1859 - Pages: 8

Premium Essay

Aldi Action Items

...Aldi War Game Call Summary; Discussion Topics, Take-aways Please find the below outline summary of our call and my understanding of the War Game engagement. I have included an outline of my questions “Open Questions” I’m working on answering, steps I’m taking and reference materials. * Could you please elaborate on the deliverable format you’re looking for from me? * When I do store visits, I know you well enough to know but I don’t want to assume fully. Is there something in particular you’re wanting pictures of? Something different from the urban store vs the rural store? * Please note my objectives for the store visits, please add direction accordingly. * Lastly, please add anything I may have overlooked or need to expand upon. ------------------------------------------------- First Steps, Preliminary- Getting up to speed. * Gain background on Aldi operations, discussed further herein * Read Briefing Book, “-- ------------------------------------------------- Aldi is referred herein as, “they”, “their” or the “company” War Game Structure & Objective: * Strategy development and testing multiple hypothetical market scenarios applying simulation techniques to collect & compare theoretical responses by each competitor under various strategic focuses * All with the focus of pressure testing Walmart’s Growth Strategies to estimate/predict how Walmart would respond at each corporate regional and store levels. To determine how......

Words: 1527 - Pages: 7