Aldi in the UK: Cost Leadership through Operational Excellence
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Case Code: BSTR474 Case Length: 14 Pages Period: 2000 - 2014 Pub Date: 2015 Teaching Note: Available |
Price: Rs.400 Organization: ALDI Industry: Retail Countries: UK Themes: International Business, Globalization |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Strategies in the UK
Aldi entered the UK in 1990 and opened its first store at Birmingham. At that time, consumers in the UK were not used to shopping at discount stores, which offered a small range of goods (mostly own-brands or private labels). Aldi's strategy in the UK was to target the gap in the lower segment of the market and compete with discount retailers like Kwik Save. In the UK, as in the other markets, Aldi operated on the principles of standardization, simplicity, and continuous improvement.
Aldi continued with its model of providing high-quality, exclusive products at the lowest possible prices, and maintaining a limited range of products in the UK too. According to company insiders, Aldi managed without budgets and targets. The products to be stocked in a store were not decided by the central marketing department, as was the case with most of the top retailers. Instead, Aldi started new stores with some of the basic products that consumers would need and stocked them on a trial basis. It then took about a year to finalize the list of products....
Unique Business Model Of Aldi
Each Aldi store occupied around 1,000 sq. meters. The stores were located in areas on the edge of town with good visibility. For opening a store, Aldi needed the population of that area to be around 30,000. It ensured that the store was well connected to the public transport and a number of parking spaces were available at the store. The layout was simple to provide a quick and convenient shopping experience. The checkouts were spacious. All the products had bar codes at three places to enable faster scanning and billing. A double guarantee was offered on all Aldi products and the customers could easily get refunds along with a free replacement for their purchases at the stores. Shoppers were encouraged to bring their own shopping bags...
The Road Ahead
Summing up Aldi's strategy in the UK, Roman Heini, group managing director of Aldi UK, said, "We keep prices constantly low while keeping product quality consistently high, which is exactly what shoppers want. They had become used to thinking you have to pay more for better products. We've shown them this doesn't have to be the case. We work efficiently and responsibly to reduce operational costs. Rather than use these savings to boost margins, we lower prices at the checkout. Shoppers appreciate this and know that, while they're paying less at Aldi, they're getting much more for their money."
The low pricing strategy of the chain had been an advantage. The Grocer's reports showed that on a purchase of 33 items at Aldi, a buyer could get them at 16 percent cheaper as compared to Asda and 20 percent cheaper compared to Tesco. The 'no-frills' feature made no negative impact on Aldi stores. While Aldi reinvested its profits in new stores and products, cutting down on price margins, Tesco, Sainsbury's, and Morrisons had to pay dividends to shareholders. Analysts said that the 'Big Four' paved the way for discounters to creep in by ignoring the hard-pressed consumers, while the hard discounters grabbed market share...
Exhibits
Exhibit I: Market Share of UK Grocers
Exhibit II: Retailers in the UK – Price Comparision
Exhibit III: Recession – Impact on Retail Industry in the UK
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