695 words (without questions, bibliography and this sentence)
- Did you choose the company as an example of effectiveness or ineffectiveness? Why?
ALDI operates discount supermarkets in multiple countries and was founded in Germany. It is a great example of a company that aligned its business model closely with its operating model in the sake of simplicity and effectiveness. I chose ALDI for the TOM challenge because of its impressive track record. Since its foundation in 1913, ALDI has grown to over 10’000 stores globally and has such a unique positioning in Germany, that global leader Walmart once had to withdraw its expansion to Germany (DPA, 2014). This analysis focusses mostly on ALDI’s practices in Germany, which are relevant to most of its international businesses.
- Describe the company’s business and operating models. What is interesting about them?
ALDI’s business model focusses on delivery the everyday need for the consumer at the best quality and lowest price possible. It is important to note, that ALDI doesn’t interpret discounter here as being cheap but instead as offering the best value deal to its customers (Stöckle, 2012). In fact, several ALDI products have been rated much higher than more expensive products in other places, such as the legendary ALDI olive oil (Daily Mail, 2011). A unique aspect of ALDI’s business model is that they only accept cash in their stores in Germany. Given the instant payment and ALDI’s ability to pay their suppliers very late, ALDI generates positive NWC allowing it to finance its expansions itself.
While many supermarkets have a different mission, the ALDI’s operating way is very interesting and can be summarized under 4 core topics: Product policy, store layout, organizational structure and continuous improvement.
ALDI only offers a very limited, unbranded product line up to its customers. Often customers will only have two different products to choose from in one product category. While ALDI has continuously added new products to its stores as customer demands have developed, ALDI still only has around 900 SKUs currently in its stores (Stöckle, 2012), which can be compared to approximately 140’000 SKUs at global competitor Walmart (Walmart, 2005).
ALDI’s store layout breaths the spirit of simplicity as well. A typical ALDI store is approximately 16000 square feet large (ALDI, 2013), which is less than 10% of the average Walmart (Reuters, no date). ALDI sells its products out of the cartoons in which they have been shipped, saving the cost of labor intensive shelf stocking (DPA, 2014). ALDI’s stores are kept extremely clean, in contrast to several low cost competitors and the store layout is very logical and simple, also due to the small size of the location (Theisen-Canibol, 2007).
ALDI’s organizational structure is again focused on efficiency. Despite being a global company, ALDI (Germany) still does not have a PR department, do no advertising and do not have annual budgeting. Being a family owned company, ALDI encourages trust, responsibility and self-control among its employees and therefore runs a very lean organization. (Theisen-Canibol, 2007)
Finally ALDI constantly innovates when innovations seem fit to its mission. When ALDI introduced scanners at it checkouts in Germany, they made sure to print the barcode on multiple sides of each product to increase scanning speed and stick to its goal of maximizing speed and efficiency in its store (Theisen-Canibol, 2007).
- Do the models align and support each other? How? What specific features of the operating model are designed to create and sustain competitive advantage? What features of the business model leverage unique capabilities of its operating model? What are the implications for performance?
For ALDI being a discounter means to focus on optimizing and simplifying the core elements of business – and cut everything that is unnecessary (Theisen-Canibol, 2007). Business model and operating model are optimized towards this goal. This unique symbioses enables ALDI to outperform their competition. Illustrative for this is how ALDI’s product strategy creates a competitive cost advantage. Due to its very low number of SKUs (less than 1% of Walmarts), ALDI’s large scale breaks down to very few SKUs leading to unrivaled bargaining power in ALDI’s purchasing. Therefore ALDI can demand high quality at very low prices and consequently pass these to the consumer.
ALDI is a private company and does not reveal any financial data in Germany. To judge ALDI’s success, an example of ALDI’s recent market entry in the UK can serve as an example. While relatively new to the market, ALDI has been ranked as the most preferred retailer by British consumers and managed to raise the percentage of British who are shopping at discounters from 37% to 51% from 2011 to 2014 (DPA, 2014).
ALDI. (13. September 2013). Lot Layout and Location Critera. Von ALDI.us: https://corporate.aldi.us/fileadmin/fm-dam/real_estates/ALDI_Real_Estate_Flyer_9.17.13.pdf abgerufen
Daily Mail. (27. June 2011). Why the priciest olive oil isn’t always the best: Aldi beats an array of dearer rivals in taste tests. Von Daily Mail: http://www.dailymail.co.uk/news/article-2008458/Why-priciest-olive-oil-isnt-best.html abgerufen
DPA. (21. 07 2014). Erfolgsmodell Aldi. Von N24: http://www.n24.de/n24/Nachrichten/Wirtschaft/d/5108898/erfolgsmodell-aldi.html abgerufen
Reuters. (no date). Profile: Wal Mart Stores Inc (WMT.N). Von Reuters: http://www.reuters.com/finance/stocks/companyProfile?symbol=WMT.N#DkaIZyEh0VuPVZOJ.97 abgerufen
Stöckle, F. (30. 10 2012). Zwei auf Augenhöhe. Von Handelsblatt: http://www.handelsblatt.com/meinung/gastbeitraege/warum-coca-cola-zu-aldi-passt-zwei-auf-augenhoehe/7317186.html abgerufen
Theisen-Canibol, S. (14. September 2007). Einfach aus Prinzip. Von Manager Magazin: http://www.manager-magazin.de/unternehmen/karriere/a-505613.html abgerufen
Walmart. (7. Jannuary 2005). Walmart. Von http://corporate.walmart.com/_news_/news-archive/2005/01/07/our-retail-divisions abgerufen