Aldi: A Low-Cost Retail Giant's Distinctive Business Practices

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Case Details:

Case Code : BSTR252
Case Length : 16 Pages
Period : 1945-2006
Pub Date : 2007
Teaching Note : Not Available
Organization : Albrecht DiscountCompany, Aldi
Industry : Retail
Countries : Germany

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Excerpts

The Aldi Way of Working

Aldi's business model was based on simplicity and efficiency. The company's motto was 'Top quality at incredibly low prices - guaranteed.' Although officially Aldi was two separate companies, both of them followed the same strategies and operated with the same business model. All the elements in Aldi's business model were aimed at keeping costs low, so that the company could fulfill its promise of providing the lowest prices to its customers (Refer to Exhibit V for the 11 Secrets of Aldi's Success).

Product Strategy
Aldi's product strategy was based on carrying a limited variety of fast moving products.

The company specialized in selling staple products like food, beverages, and household supplies, which customers shopped for on a regular basis. (Reportedly, many German consumers made their main purchases at Aldi, and supplemented their shopping by purchasing products that were not stocked by Aldi from other stores.) Typically, Aldi stores carried only around 700 different products, compared to around 25,000 products carried by a traditional retailer and almost 150,000 carried by a Wal-Mart Supercenter...

International Expansion

lAldi made its first foray into overseas markets in 1967, when it purchased the Hofer chain of supermarkets in Austria. After that, the Aldi Group expanded rapidly across Europe, as well as to Australia and the US. Most of the expansion was financed from internal cash accruals, and Aldi reportedly had very low debt.

There seemed to have been an agreement between the two Aldi companies as to how the international markets would be divided up between them. Aldi Süd expanded into Australia, the UK, Slovenia, Switzerland, and the US.

Aldi Nord moved into Belgium, Denmark, France, Luxembourg, the Netherlands, Portugal, and Spain. Germany was the only country in which both the companies operated, but even there, the territorial demarcations were clear (Refer to Exhibit VI for the geographical distribution of markets between the two Aldi companies)...

Looking Ahead

While Aldi was one of the biggest and most successful retailers in Germany, some analysts expressed concerns that the company's growth might slow down as the German market became saturated. Reportedly, by 2005, more than 80 percent of the Germans lived within 20 minutes of an Aldi store. Analysts said that this would limit the company's expansion in Germany. Besides, in Germany, shopping at discount retailers was not restricted to the lower income groups...

Exhibits

Exhibit I: A Note on Lidl
Exhibit II : A Note on Retailing in Germany
Exhibit III: The Aldi Logos
Exhibit IV: The World's Richest People (2006) - Top 25
Exhibit V: The 11 Secrets of Aldi's Success
Exhibit VI: Geographic Distribution of Aldi Stores (as of early 2007)


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