GB580: Management - Strategic Management - The Australian Supermarket Industry - Case Study Analysis Assessment Answer

Management Assignment

Assignment Task

Analyse the following case study, which can be found in Grant et al., (2014) Contemporary Strategic Management: An Australian Perspective, 2nd edn, Wiley.

• The Australian Supermarket Industry (See p.440)

Using the case study as well as up to date sources of information from your own independent research you are required to analyse the strategic management of Aldi’s expansion in Australia.

You need to discuss the following: a) Provide a situational analysis of Aldi in Australia. b) Discuss the fit between the company strategy and its context. c) Analyse and evaluate the current strategic approach of the organisation. d) Discuss the fit between the company strategy and its goals and expectations. e) Outline with recommendations the future for Aldi you have chosen based on their current situation and strategy.

You are expected to use a minimum of 15 references. As a guide these must be authoritative and comprise:

• At least 10 academic articles/papers
• Up to 2 text books (including the prescribed text).
• Up to 3 other authoritative sources of your choice.

Please note. Wikipedia, Slideshare, Businessballs, BizEd, Mindtools and other non-academic sources are not considered to be authoritative and will bring low marks if used. General websites should be avoided. Use journals instead. If in doubt, please consult your lecturer.

Strategic Management of ALDI’s Expansion in Australia

Introduction

The Australian supermarket industry has an estimated market value of $89 billion ("Insights: Latest Market Research Reports and Trends | Nielsen, 2016). With such massive potential, supermarket wars will, theoretically, never end. ALDI Supermarket, a large chain store, is taking on bigger competitors like Woolworths Group and other renowned industry giants. ALDI is a considerably large chain, but it cannot compare with players like Coles Group or Woolworths. Nevertheless, it has been noted to have a steady expansion throughout Australia as evidenced in the recent entry into Western and Southern Australia. This steady expansion amidst vicious competition can be attributed to ALDI’s expansion strategy.

Fig 1: Supermarkets’ shares of the Australian consumer market (Retail Trade, Australia, Aug 2016, 2016).

From the figure, it is evident that ALDI has progressively increased its market share from about 5% in 2008 to 12% in 2016 while most others, including Coles and Woolworths, show declining market shares. This essay explores the strategic management of ALDI’s expansion in Australia. The situational analysis of the supermarket will be analysed and the fitness of the organisation’s strategy in its context evaluated. The essay will also assess the strategic approach that the organisation is currently taking. Also, it will how well-suited is the company's strategy in achieving its goals and expectations. Finally, the essay will propose recommendations that ALDI can implement to enhance chances of achieving its strategic goals and objectives.

Situational Analysis of ALDI

This analysis involves assessing ALDI’s internal and external environments to establish its growth potential, competitors and other factors that may promote or derail the supermarket’s expansion that has already set off. The 5 C’s approach will be used to analyse ALDI supermarket.

Company

ALDI is a discount supermarket that offers all sorts of groceries. It is well associated with its “value for money” idea where shoppers find products of outstanding quality at great value. ALDI’s has numerous discount offers from weekly deals to special-days offers. The store sources, most of its products from within Australia, hence making great savings on input costs which are passed down to consumers. The company’s philosophy is to continually provide groceries that are of high quality at the lowest prices possible (ALDI: About ALDI: Our Philosophy, 2016). This objective is achieved by maintaining efficient operations and consistently innovating their business model. The company prides itself on the efficiency with which it addresses changing consumer needs. Its competitors continue to operate using non-responsive models.

Among the strategies that the company uses to save consumers high service costs include having customers shop using their own shopping bags. This cuts down the business’ operation costs, hence making their services a little cheaper than their competitors. ALDI’s stores are also small and devoid of unnecessary services which reduce their fixed as well as operational costs. Their stores also do not open for 24 hours a day like other similar businesses. This reduces labour costs, which, again, are reflected in product prices (Talluri, Kim & Schoenherr, 2013). In conclusion, the company has a clear philosophy and a well-laid plan for offering products at visibly lower prices without compromising quality.

Competitors

ALDI has three main competitors: Woolworths, Coles and Costco. Costco has similar strategies with ALDI in acquiring new market share, and its strategies have demonstrated success. Costco also offers its customers good quality products at comparatively lowers prices, but its growth with acquisition of the market share has been lower than that of ALDI. Woolworths still takes the biggest portion of Australian supermarket customers and is so far ALDI’s biggest competitor. As of January 2016, Woolworths had a market share of 37.3% compared to ALDI’s 12.1%. This is a gap that ALDI is keen on closing in on it with its expansion plans for Western and Southern Australia. Coles is another big competitor for ALDI as it claims loyalty to 32.5% of Australian supermarket shoppers. Both of the two largest competitors have shown declining market shares after the entry of ALDI and Costco. This means that ALDI’s competition is weakening. However, the gap is still large, unpredictable and a threat to ALDI’s current market share (Makowski, 2014). Moreover, since Costco is employing a somewhat similar strategy to ALDI’s they are a competitor to be watched keenly.

The impact of these competitors to ALDI is that they pose a constant threat to ALDI regaining their lost share (Peppers & Rogers, 2012). While the gap exists, the future remains unpredictable. Besides, following ALDI’s growth trajectory, it has taken them eight years to add 7% to their market share. Since the trajectory shows a linear relationship between time and growth, it may take up to ten years to reach 20%. This is considerably enough time for the competitors to formulate a comeback strategy. Overall, there is a significant threat of competition for Aldi regardless of the fact that Aldi is currently on the rise.

Customers

The market size of the Australian supermarket space is enormous. With an estimated value of $89 billion, it can almost be concluded that there is more space for expansion. The target consumers are mostly adults over 25 years. A study conducted by AusVegs Project in 2014 determined that 55.5% of Australian supermarket shoppers are quality sensitive. ALDI provides quality products in line with this market demand. 54.1% were price sensitive; that is, their choice of the supermarket was influenced by the perceived value they get from that supermarket. Australians also indicated that they preferred stores which were closer to their neighbourhoods than those farther away. The same study found that Australians’ shopping habits have become irregular regarding their shopping frequency as well as loyalty. Reducing brand loyalty was another prominent observation made from the study. Shoppers were discovered to be more likely to buy a store's own product than from established brands if the store offered greater value. The financial ability of the potential customers to purchase products from is high. ALDI’s target customers, who are mainly adult shoppers, can easily be accessed through TV advertising (West, 2013). The company has developed a range of TV commercials that is available highlighting their discounts and special offers.

Given these parameters, ALDI seems to address the needs of the existing market adequately. Concerning quality, the store offers products of high quality. They also satisfactorily meet the demand of customers of seeing value in their purchases. Therefore, to the extent of clients' motivation for buying products, ALDI stands out as a competitive solution provider. ALDI’s stores are less complicated than the stories of its main competitors and thus, more ideal for the irregular midweek shopper (Granzin & Bahn, 2015). In conclusion, ALDI’s strategy suits the customers in so far as satisfying their holistic needs is concerned.

Collaborators

ALDI has established a very cordial relationship with its suppliers. While the relationship between ALDI’s main competitors and their suppliers has been described by commentators as a “master-slave relationship” ALDI has received praise for courting its suppliers (Metzger, 2014). Unlike the competitors who, a lot of times dictate prices at which they procure products, ALDI negotiates their prices with its suppliers. Through this model, ALDI empowers its suppliers and ensures that they will sustainably supply in future. ALDI also pays the suppliers on time ensuring that the supply chain remains efficient (Duffy et al., 2013).

Climate

The technological environment is evolving as rapidly as it is influencing the industry. Woolworths are currently strengthening its online outlet which should worry ALDI. Consumers have sufficient access to these technologies, and therefore, the likelihood that their purchase behaviours may be influenced by the technology options is conceivable. Australians are also currently enjoying slow but stable economic growth. What this means for ALDI and its competitors is that they will continue to have a favourable market to operate in. The stable political environment equally favours the growth of business (Roig-Tirana, Alcázar & Ribeiro-Navarrete, 2015). The regulatory environment at the moment seems to be on a trajectory of stricter quality and food safety. The operating climate for ALDI supermarket is generally favourable. However, it is equally favourable for its competitors. This condition will promote healthy competition among the industry players.

Fit between the Company Strategy and its Context

Above these factors, ALDI runs a lean strategy that greatly reduces their operation costs. This facilitates the discounts and offers that the company extends to its customers. The company’s strategy generally fits in the context. The company’s strategies in the following areas are particularly suitable in the context of the Australian supermarket industry:

• Addressing Australian consumers’ demand for health and safety of food
• Meeting the convenience needs of irregular and weekly shoppers
• Addressing the increasingly price-sensitive and brand-insensitive customers
• Building lasting relationships with suppliers
• Producing and selling its own brand of products

However, ALDI does not seem to have adequately responded to changes in the technological environment. Woolworths are widening their online reach which may reclaim the market share from ALDI and the rest of the players. If the overall circumstances are considered, ALDI’s strategies seem to fit the operating context properly. This goes in the short-term and conceivably in the long run.

Analysis of the Current Strategic Approach of the Organisation

Selling groceries that meet Australian consumers’ demand for good health and safety is not optional in the Australian supermarket (Lang & Heasman, 2015). More than half of the customers, and counting, already show sensitivity to food health and safety. It is only prudent that ALDI has taken measures to enforce quality objectives on its products. The company’s response to irregular shoppers has been practical and efficient so far. As Australians’ shopping habits are continually changing to irregular patterns, with top-up shopping being more frequent than large shopping, ALDI’s simple-layout stores provide an ideal solution for this class of shoppers. The company’s overall philosophy of keeping product prices always low is perhaps their biggest winning point. As Australians have shown that they are increasingly caring less about the brands they consume and more about how much they pay, this strategy is undoubtedly an important success factor (Ahmed, Msaed & Osama, 2015). Allowing suppliers to have an equal say in determining product prices may give ALDI less bargaining power. However, in the long run, this strategy ensures that ALDI has reliable, continuous supplies to meet its customer demands. Therefore, this strategy is also important in facilitating ALDI to achieve its objectives. The company’s strategy of producing and selling its own brands has an overall positive impact on the business. Given that consumers are becoming less brand-sensitive, this strategy can only work in favour of the company.

The fit between Company Strategy and its Goals/ Expectations

The company’s strategy illustrates a perfect fit with its goals and objectives. The company has a very clear and sustainable approach to fulfilling its objectives of providing quality products while maintaining low prices. The small size of the store will keep the company’s fixed costs comparatively lower even in the long term. Its policy of opening stores only during peak hours of the day is an equally sustainable approach to keeping costs low. This will ensure that they continue fulfilling their promise of low product prices to customers. Moreover, the shopping model that encourages customers to reduce service costs by using their own shopping bags is unrivalled. It is an innovative model that achieves the objective of reducing service costs and providing extra motivation for customers to continue shopping at ALDI’s stores (Xu, Thong & Venkatesh, 2014). By producing and selling its own brand of goods, the company saves huge costs associated with established brands. Implementing this strategy means that its customers are shielded from paying extra for brand names for the same products (Biong & Silkoset, 2014). This facilitates achievement of the company’s expectations.

Recommendations

ALDI’s expansion strategy so far seems to be steady enough to ensure that the company will achieve its expansion objectives in Southern and Western Australia. However, a few recommendations can help the firm maintain or improve the growth trajectory. The most important consideration that the company should make is expanding into online outlets. This would be to counter Woolworths’ online expansion that threatens to reclaim a share of the market lost to Costco and ALDI. Since the 2014 study by AusVegs Project showed that consumers preferred a store “that is in their neighbourhood”, ALDI may want to expand into many smaller stores than a few large ones. Smaller stores will ensure that ALDI incurs less fixed costs per store while guaranteeing a larger market share in each of the newly opened stores. ALDI’s current stores are already small as described.

Conclusion

The Australian supermarket industry is considerably wider and thus offers a wide opportunity for expansion to players. ALDI has positioned itself very strategically. In its current dispensation, it can take near full advantage of the business environment and growth opportunities. Increasing price sensitivity, reducing brand sensitivity and increasing demand for good health and safety is the most outstanding factors on which ALDI continues to exploit. These factors point to a paradigm shift in consumer behaviour that the company has identified and taken advantage of. At the same time, its competitors, except Costco, are unlikely to address this shift due to conflicts with their brand identity. ALDI's relationship with its suppliers has also given the company a huge advantage over the main competitors. This relationship has enabled ALDI's suppliers to supply consistently ensuring that the organisation's customers are always satisfied.