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)

A. Identify and critically discuss the business level strategy adopted by Aldi to outperform rivals and achieve competitive advantage?

B. Explain the potential pitfalls of Aldi’s strategy and how it can improve company competitive position vis-à-vis the five forces.?

**N.B In your answer, you should show critical, analytical and justification skills of the subject matter, rather than mere description.

Answer 1

1. The business level strategy adopted by Aldi to outperform rivals and achieve competitive advantage is Cost-leadership strategy. Aldi is a supermarket which offers the products at the lowest price possible. It operates on its business with “Low price philosophy “Strictly no frills” approach. Aldi achieved it by allowing minimum operational costs like buying a single line per item of a particular brand which in turn gives minimum choices to the customer. So, the process is quite straight forward which reduces the overall purchasing expenses which proves that it is a low-cost producer and thus enable to offer customer at a lower price and yet still obtain the profits needed which gives a competitive advantage over others.

Justification and analytical skill-

It has adopted cost-leadership theory as-it gives them competitive advantage by tight cost and overhead control and eliminates the need to compete based on its products. Also,gives them competitive advantage by decreasing productivity.

2. The potential pitfalls of Aldi’s strategy is- limited range of products -While the lack of selection can help consumers avoid overspending on unnecessary items, it also means that customers of certain products will have no choice but to shop elsewhere for them.which can cost Aldi its customer satisfaction and competitive disadvantage.The use of“Just-In-Time” productionsystem. It means that when store runs-out ofany product it’s possible that they may have to wait for a number of days for the delivery.

The five force of model can frame out flaws and ways to overcome them.

Competitive Rivalry-Since Aldi offers the everyday used products in minimum price but of high quality products, Aldi stores and customer has increased in huge number with time. This poses a threat to other competitors.Aldi can still increase its competitive position by providing quality goods at less prices. Aldi can achieve more and more success from their unique strategy's proper implementation.

Threat of new entry-In grocery business it is the most favorable point that there is a low threat of new comers due to the large number of barriers in the way of new entrants in the retail industry.Aldi can increase its competitive position by making its business more profitable business and earn huge profits.

Threats of Substitution: Aldi is facing a substitution threat but it is low to medium but there are chances of it rising in the future  although it is difficult for the competitors to provide substitute on such a low price like Aldi. Still Aldi should implement new strategies to reduce the impact of these threats of subtitutes.Also it can offer specialized products and good services.

Buyer's power- Customers are the king of market. they can keep the value of goods as per their choice as they can move from one store to another, if charged high price.Aldi can cope with this problem and maintain its competitive position through providing high quality in less prices.

Supplier's power- Supplier's bargaining power will mostly be low in front of Aldi as if they charge high price , Aldi can move to another supplier.So this threat is low, but again Aldi can maintain good relations with its suppliers and do not change them frequently which could enable it to win their trust and thus it can purchase in bulk in low prices to increase the competition in the market.