Question

Aldi, a discount supermarket retailer, has grown from its German base to the rest of Europe, Australia, and the United States by replicating a simple business format. Aldi limits the number of products (SKUs in the grocery business) in each category to ensure product turn, to ease stocking shelves, and to increase its power over suppliers. It also sells mostly private-label products to minimize cost. It has small, efficient, and simply designed stores. It offers limited services and expects customers to bring their own bags and bag their own groceries. As a result, Aldi can offer its products at prices 40 percent lower than competing supermarkets. (350 words)

1. Identify and critically discuss the business level strategy adopted by Aldi to outperform rivals and achieve competitive advantage.
2. Explain the potential pitfalls of Aldi’s strategy and how it can improve company competitive position vis-à-vis the five forces.

Answer 1

The business strategy which is adopted buy Aldi to outperform Rivals and achieve competitive advantage is as follows-
1. It has very limited number of products in its stock keeping units in each category. This in shows each product turn frequently and it also is the stocking shelves.
2. Since the company has Limited number of stock keeping units it also, gets power over suppliers. This is because it frequently purchase material from then and it a sells good quantity of Limited products.
3. It has a very efficient and simple design stores where products can be found out easily by the customers.
4. It sells mostly private label products which are generally low cost as compared to branded products.
5. It offers Limited services and expects the customer to bring their own bags for carrying the grocery.
All this simple but unique steps followed by Aldi in its business strategy has gained it an edge over competitors and it can offer it products as low as 40% at lower price with the competing supermarkets.
Answer 2.
The potential pitfalls of all these strategy can be that it is generally selling price products of private label, so the customer who is looking for branded products will not visit to shop up in the stores. The Other factors is that it is having very limited number of of products so people who try out for new products will not visit this Store. The strategy used by Aldi will attract only those customers who are price conscious and at the same type purchase repeated products.
In order to increase the company's competitive advantage five Force model actors follows-
1 Threat of new entrants- new entrants in any industry has the desire to gain the market share. In this case it is very easy for the competitors to to enter in competition with Aldi this is because the products are mostly sold by private labels and in order to give competitive advantage Aldi has to tie up with the suppliers and make them to sell to them only under their brand name.
2. Bargaining power of suppliers- Since aldi is selling only limited stock keeping units has it has a great competitive advantage over its suppliers this is because it purchases repeated products in sufficiently large quantities to sell its customer.
3. Bargaining power of buyers- there is no scope for bargaining in supermarkets this is because all the prices are fixed and it totally stops bargaining of customers.
4. Threats of substitute products- the company has competitive advantage over other supermarkets by restricting itself to selling only Limited stock keeping units under private labels hence there is list threats of similar products entering into the market because any substitute product will have to work hard to to create a brand image and Aldi has already good image among its customers.
5. Rivalry among existing competitors- Aldi has a distinctive competitive edge over its competitors. This is because it sells only Limited stock keeping unit under private labels its store has simple designs and it encourages people to bring their own carry bag .This unique competitive strength has made it to sell products at 40% less than competitors.
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