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1. INTRODUCTION

The first place of Forbes richest people in Germany were occupied by the owner of the discount

retailer, ALDI South. The hard discount business model is threatening the rivalries in the market.

This case study focusses on the important aspects of the ALDI business model and the decision-

making process, operations, demographics and importance of German family owned business in

the Germany economic environment.

2. OVERVIEW

German food industry revenue €195.5 Billion in 2016. The industry sales were increased by 2.3%

which is resulted in €5.5 Billion. The Food and drinks sector employed around 580,030 people in

5,940 companies in 2016(+1.9% from 2015). Food retailing followed by food services sector and

export is the most important distribution channel for the food industry. The leading industry retailers

are Edeka (25.3%), Rewe Group (15.1%), Schwarz Group (15%), Aldi Group (12%), Metro Group
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(5.2%). The revenues of the retail sector distribution channels in Germany as follows.

Figure 2.1.a: German food retailers spread 2016 2


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Figure 2.1.b: Top retailers in German Food Industry 2.

Being at the 4th position in German food retail sector, ALDI with hard discount business model is a

live threat to both domestic and international players like EDEKA, Tesco etc. The business model

innovation, operational excellence are the key factors in ALDI successful business. The objective

of this activity to analyse and put forward the important aspects of the ALDI as an organization

owned and managed by the Albrecht’s family. The business aspects, Innovation,

internationalization cultural aspects were discussed.

3. STUDY FOCUS

The focus of the study is to understand the following topics


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1. ALDI business model. 2. Suppliers.

a. business strategy. a. Supplier assessment

b. market position, market mix b. Sustainability

c. store strategy. 3. Employee demographics.

d. Operations 4. Social Commitment.

e. Quality Management.

3.1 ALDI BUSINESS MODEL

ALDI business model consists of three core values consistency, simplicity and responsibility.

Own Brands – Like Brands Only cheaper

Figure 3.1.i: ALDI business model 7.

Simplicity: Global brand simplicity report says that companies are losing $ 86 Billion for not

simplifying their processes. 61% of the people likely to refer the brand because of the simpler

experience and communications it provides. 64% of the people willing to pay more for simple

experiences. ALDI and Lidl are being the top two brands are providing the simple experiences to it

customers. 10 to 20 % of the customers are willing to pay premium for the simple experience in

retail and beauty industry. ALDI claims simplicity creates the clarity and orientation. Typical

ALDI store has 1500 stock keeping units(SKUs), which are far less than the typical super

market with 40000 SKUs. This approach makes things very clear for ALDI in making which

brand at what price decision making.


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Responsibility: ALDI defines responsibility with a sustained success, which relates the Quality

(Health & safety, Societal, Environmental), employees, suppliers. There are various initiatives

taken by ALDI for sustainable development of its suppliers and employees.

Reliability: The reliability part is defined with the terms, solution oriented, value proposition,

sustained quality standards.

3.1. A BUSINESS STRATEGY

ALDI business strategy is focus on providing the highest quality possible for the cost. The store

contains maximum of not more than 1500 brands in the shelves. Selling large quantities of small

range of products is seemed to be more profitable. Once the product is decided the supplier is

assessed based on the quality. The product quality should be as close to the existing brands in the

market. After the assessment of the supplier the product is purchased and sold in all ALDI stores.

ALDI uses its power of negotiation by backing it up with economies of scale. This approach is

proven successful in driving the product prices low.

3.1. B MARKET POSITION, MARKET MIX

No frills business is the phrase defines the market mix & position. The “Like brands only cheaper”,

which emphasis on the quality of the product than the brand. Almost 95% of the stock keeping

units of ALDI stores are own brands. The value gained from owned branding is passed to

customers by keeping the product price low. According to Rudolf et al (2012, P-142) 1, ALDI adds

only 13% as procurement cost, which consists of 5% for staff, rest for operations. The product,

Price, Place are clearly defined by the ALDI market mix strategy. The promotion of the brands is

done with multiple channels. The promotions are categorized into above line and below line

promotions. Above the line promotion consists of TV, Flyers etc., Below the line promotions are

aimed at social media, targeted emails, awards etc.


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3.1. C STORE STRATEGY

Typical ALDI store is around 1000 square meters, the aisle is of knee height and feels typical street

market set up. The store has 3 to 4 people, one store supervisor and crew. Every employee is

trained at multi functions. Each can perform variety of duties. By this approach the store sale to

spending ratio is optimised. The store is optimised for its operations, in the form of DIY carts &

Bags to save costs. The store place is divided into 80:20 ratio, 20% is allotted for storing the fast-

moving goods, 80% is allotted for sale area. This approach of ALDI considerably reduces the real

estate of costs considerably compared to the other market players.

3.1. D OPERATIONS

A typical ALDI distribution centre caters for stores near about 50 km radius. ALDI follows lean

production principle, products are received just as they needed hence eliminating the stock

maintaining costs. The retail ready packing is great advantage for store staff in refilling the shelves

without much hassle. ALDI have detailed guidelines to its suppliers on how the packaging must be

done for the retail ready operations.

Figure: 3.1.D.i: ALDI straight to shelf Packaging

The lean production principles are planned and implemented in to every business operation. The

lean production systems enable smoother operations in the shop floor with much emphasis on

safety. For instance, Mercedes Benz produces cars uses barcode plate on the vehicle body to

configure the welding procedure just in time before the final assembly. This approach saves lot of
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space and smoother operations in the shop floor. The just in time principle is followed by ALDI,

60% of the fruits are locally sourced which reduces long and expensive transportation. Another

time-based approach is the store operating hours. The store hours are from 8 am to 8pm on

working day. This approach reduces the operating costs and staff expenses. Currently close to

200,000 employees are working in ALDI south and ALDI north. The staff & store operations are

much complex than they seem to be. The lean production principles are very important for

operational effectiveness. The store and distribution centre staff are trained in various functions.

Typical store & Distribution centre employee expected to solve the problems on his own on daily

basis.

3.1. E QUALITY MANAGEMENT

ALDI’s total quality management system addresses the product quality. ALDI products are

subjected to lot of testing. ALDI North uses OKO-Test or Waren test to certify its products quality.

The product certification includes wood, paper, cocoa, fish and sea food. The following tables

shows the % of certified products from ALDI South and North.

ALDI South Certified products in %


Year cocoa Wood & Paper Fish & Sea food Coffee
2015 76.44 70.23 67.19 29.96
2016 78.94 66.41 76.53 39.96
Table3.1. E. i: ALDI South certified products

ALDI North Certified products in %


Year cocoa Fish & Sea food Coffee
2015 48.9 32.9 12.8
2016 78.8 36 19.5
Table3.1. E. ii: ALDI North certified products

The ALDI North keeps track of its product recalls every year, the following table show how many

product recalls has been done in recent years. Though ALDI north did not publish any data on

product recall as such, but the firm is strongly emphasis on product quality by auditing the

production facilities and surprise audit of stores etc.

ALDI North Total Product Recalls


Country 2014 2015 2016
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Belgium/Luxembourg 4 3 1
Denmark 4 2 3
Germany 2 5 10
france 3 14 23
Netherlands 2 2 3
poland 0 0 1
portugal 0 0 0
spain 1 0 3
ALDI North Group 16 26 44
Table3.1. E. iii: ALDI North Food Recalls

3.2.A. SUPPLIERS ASSESSMENT

ALDI suppliers must have at least one of GFSI (Global food safety initiation), SQF (safe quality

food), BRC (British retail consortium) or any other standard food quality certifications. The

suppliers will be subjected to short audits or long audits before on boarding. The audit ranges from

quality checks, insurance, private labelling, packaging etc. Since ALDI offers limited assortments,

ALDI orders in large volumes. ALDI does not want it suppliers to pay for unwarranted deductions,

rebates/promotions, marketing, food shows etc., apart from these ALDI pays on time, no late

payments are entertained.

3.2.B. SUPPLIER SUSTAINABILITY

ALDI taken initiatives to maintain sustainable relationship with suppliers. ALDI South have taken

initiatives to accelerate sustainable growth in its supplier’s production facilities with Aldi Factory

Advancement(AFA) program. The AFA is developed and implemented in Bangladesh to help

management and workers to identify the key challenges in the working environment and develop

solutions together. Approximately 45000 employees were benefited from this program. Below

comments shows the effect of AFA program from Bangladesh staff.

Figure: 3.2.B.i: Employee feedback about ALDI Factory Advancement Initiative.


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ALDI Social Assessment (ASA), is another initiative to check the social well being of the supplier

staff and facilities. The ASA audit thorough checks the facilities with compliance of international

labour laws, Human Rights compliance and child rights adherence. The Audits are done with the

standards of Business social compliance initiative(BSCI), The Sedex members ethical trade audit

(SMETA), etc.

Authors Note: In addition to above mentioned initiatives, I feel the product innovation to be

implemented at supplier level. The benefits will be eventually passed on to ALDI in reducing the

product cost and operational challenges.

3.3. EMPLOYEE DEMOGRAPHISCS

Currently ALDI South has 64000 and ALDI north has 112,666 employees worldwide. Managing

such large human resources is challenge, especially in terms of adherence to the ALDI policies.

The employees were trained in various functions. The diversity within the organization is well

established, 25.8% of ALDI North managers are female, 38% of ALDI south managers are female.

The number of apprentices are increasing year on year, 70% of the apprentices got permanent

roles in ALDU South. The general comments about ALDI daily operations are as follows. Most of

the employees experienced lot of stress during the work, being said that they are well paid.

Figure:3.3.a: ALDI North Employee Demographics


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Figure:3.3. b: ALDI South Employee Demographics

Figure:3.3.c: ALDI Employee Reviews

The other side of the coin, the customers are also stressed out at the check out counters due to

check out speed. They are not able to cope up with the speed of the check out. The below

comments from the customer resembles the stressed situation at the checkout counter.

Figure:3.3. d: ALDI Customer Reviews

The above-mentioned reasons are strongly backing the operational innovation at ALDI, being said

that the time to think of new possibilities from the staff is scarce. In the recent times, many

organizations around the world are driving crowd source innovation to get simple solutions from the

staff to promote the inclusivity and connectedness between the staff. To dwell into more smoother

operations, I feel employees to be given a chance to innovate in their daily operations.

3.4. SOCIAL/ENVIRONMENTAL COMMITMENT

ALDI south & ALDI north committed to food donations. 81% of ALDI South stores are supporting

the food donations to needed. The unsaleable food which is still good, being donated to the

needed. The ALDI north donated 56.7% of unsaleable food to the needed in 2016. Fair trade

policies are developed and implemented in both South and North groups.

Greenhouse gas emissions in thousand Tons


Group 2014 2016
ALDI South 1330 1421
ALDI North 284.8 286
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Table:3.4. a: ALDI Emissions

Figure:3.4. a: ALDI Recyclability.

CONCLUSION

ALDI as an organization, improvised its business model a lot from inception in 1931 to the current

position. The operational effectiveness, Quality Management, Own brands promotion are major

factors for Aldi’s Success. Most importantly, effective execution the economies of scale with strong

backup of product procurement, price, position and promotion will always attracts the customer

who don’t recognise the brand, but the value of the product. Unless the occurrence of disruptive

business model like online shopping (100%), No visits to the store, free and flexible delivery

models, Aldi’s current position seems to be strong and aggressive. Aldi is struggling to prove as

high-quality retailer. The efforts put towards quality management must be marketed well. This

might change the customer perception from cheap retailer to value giver.

References:

1. Rudolph, T., Schlegelmilch, B., Bauer, A., Franch, J. and Meise, J. (eds.) (2012) Diversity in

European Marketing: Text and Cases. Germany: Springer Gabler.

2. Bundesvereinigung der Deutschen Ernahrungsindustrie 2014,2015,2016 reports.

3. ALDI North & South Corporate Social Responsibility Reports, 2015,2016.

4. Customer & Employees reviews, Indeed.com

5. Global brand simplicity report 2016.

6. UK essays, ALDI Marketing strategy.

7. ALDI Case study marketing Mix.

8. ALDI website.
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APPENDIX

Bundesvereinigung der Deutschen Ernahrungsindustrie 2014,2015,2016 reports Plots

Figure A.1: 2012 German retailers Market share.


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Figure A.2: 2013 German retailers Market share

Figure A.3: 2014 German retailers Market share


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Figure A.4: 2015 German retailers Market share

Figure A.5: 2016 German retailers Market share


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Figure A.6: German Food Market Growth.

Figure A.7: ALDI Germany Turn over.