ALDI is an Australian-based business that offers a limited range of common household goods based on a low-price strategy. Its operations have continued for the last century since the establishment of its first store in 1913. The ALDI business has undergone numerous organizational changes that have enabled it to expand beyond national borders to the international arena. Today, ALDI owns over 7,100 stores internationally.
Its major stores are in Australia, Germany, and the United States. The business upholds a cost-leadership approach in its pursuit to offer high-quality products at comparatively lower prices than the ones that have been set for national brands. The business focuses on efficiency whilst cutting down unnecessary costs. Every business acknowledges the value of money. However, ALDI’s business never compromises the quality of products in the quest for fast profits that are achieved by delivering substandard products to consumers.
Instead, the business places a strong emphasis on the provision of quality products, which it offers at exceptionally competitive prices. This report seeks to provide an insight into the company’s strategic management and tactical competitiveness by examining its external and internal business environments.
Strategic Management and Strategic Competitiveness
The success of ALDI in the food retail industry is attributed to the business’s application of sound strategic management and premeditated competitiveness. According to Ellickson, Misra, and Nair (2012), strategic management is a commercial practice that involves the assessment of business settings to establish practicable business objectives. The primary objective of strategic management is to facilitate the evaluation of cross-functional business decisions with the view of realizing the intended organizational targets. ALDI has strived to achieve organizational goals through strategic coordination and placement of resources based on its cost-leadership strategy.
On the other hand, strategic competitiveness is a set of inimitable decisions that a business makes to achieve its organizational goals, regardless of the business forces that are exerted by its competitors (Rasheed, 2005). Businesses accomplish strategic competitiveness upon the implementation of management strategies. Enduring strategic competitiveness enables a business to achieve a competitive advantage over other players in its industry of operation.
However, the competitive landscape greatly influences the strategic competitiveness of organizations. Dynamism characterizes today’s business environments. This situation has profound effects on the nature of strategies that organizations adopt in an attempt to achieve their targets. Unpredictable market trends and shifting consumer demands affect business decisions. The unpredictable landscape has affected the strategic competitiveness of organizations. At times, this state of affairs has resulted in the abandonment of management strategies in favor of more relevant decisions. ALDI has established pioneering strategic competitiveness through its cost-effective and low-pricing strategies.
The company delivers high-quality products at competitive prices about other food retail stores. Nonetheless, the response of other food retail stores such as Woolworths and Coles-Myer to the low-pricing strategies through differentiation and diversification of similar products poses impending competition to ALDI. Although ALDI offers most of the common household products, its limited range of products forces consumers to compromise their purchasing decisions. As a result, many consumers have shifted their attention to other retail stores that offer a wide selection of products at similar or even slightly higher prices (Wortmann, 2004).
External Environment (EE)
Notwithstanding the success of the ALDI business, the external business environment has had a significant influence on the operations of the company. The role that the external environment plays to influence the company’s performance can be analyzed using Porter’s five-force model (Grundy, 2006). At the outset, the company’s business strategies have minimized the threat of new entrants into the food retail industry.
Most retail chain stores and supermarkets such as Woolworths, Asda, and Tesco among others offer their products at comparatively higher prices than ALDI. Due to the differentiation and diversification of food products amongst competitors, competition has become increasingly stiffer since ALDI offers a limited number of household foodstuffs. Nonetheless, new entrants into the industry do not have a promising future since there is no possibility that they will match up with the company’s price competitiveness.
Research conducted by Wortmann (2004) to investigate the business sustainability amongst fifty food chain stores indicated that over 75-percent of the giant supermarkets were unable to endure low food price strategies, owing to economic shifts and inflation of taxes in their districts of operation. According to Wortmann (2004), the threat of substitution has become increasingly high for ALDI. The supermarket chains that deliver similar products have posed a high competition for ALDI. Over the years, there has been the development of price wars amongst supermarket stores. This situation has led to the harmonization of prices with some supermarkets that are willing to offer comparatively lower product prices than others as a way of gaining a competitive advantage, especially in the food industry.
Although the adoption of a low-price strategy at ALDI is a unique idea that has attracted vast numbers of consumers who enjoy the availability of quality products at cheap prices, the bargaining power of suppliers has remained low since the company’s industry has many suppliers who provide comparable commodities at close prices. As aforementioned, ALDI assumes a low-price strategy and the delivery of high-quality products. Therefore, it is straightforward that the company goes for the cheapest provider of quality products. The plan is to cut down operational costs as much as possible in an attempt to maintain the profitability of the business through the sale of low-priced merchandise.
On the other hand, ALDI has upheld a modest consumer bargaining potential. ALDI offers quality products at low prices that are standardized across all its functional international stores. Lastly, Grundy (2006) posits that competitive rivalry is increasingly high for ALDI. In addition to the existing player in the industry, technology and globalization have led to the emergence of new businesses that offer similar products at lowered prices. This state of events has elevated the level of competition amongst the companies that operate in the industry.
Internal Environment (IE)
The position that the internal environment holds to influence the company’s performance can be explicated by the use of Porter’s value chain analysis model. According to Popescu and Dascălu (2011), the primary purpose of using a value chain analysis is to maintain the strategic competitiveness of a business. This model also explains the capacity and readiness of a business to generate and deliver products on a timely basis.
One of the most significant internal environmental factors that have influenced the performance of ALDI is its rigorous logistics capability. ALDI has invested hugely in independence concerning matters that pertain to production. The company can purchase raw products in bulk to lower transport costs. Every product in ALDI is manufactured under the company’s brand name. This strategy has promoted the business in local, regional, and international markets.
Business Level Strategies (BLS)
Business level strategies refer to the actions that a business exemplifies to satisfy consumers’ needs whilst preserving its value in an attempt to accomplish its organizational goals and objectives above its set targets. At the outset, ALDI Australia’s primary business-level strategy is cost leadership. Nandakumar, Ghobadian, and O’Regan (2010) unveil that businesses compete for vast numbers of consumers based on product pricing.
Like any other profit organization, ALDI Australia sets prices concerning the company’s internal efficiency to ensure that profitability remains just above the average returns. This strategy ensures that product pricing is achievable by the targeted consumers. The company has a cost leadership strategy that focuses on the standardization of prices across all retail stores for each commodity. The plan is to ensure that the business offers products at the lowest possible prices whilst maintaining profitability by cutting down costs. For instance, ALDI Australia has developed its production lines and transport systems.
This plan has enabled the company to minimize purchasing expenses and logistics costs. Generally, ALDI Australia assumes a low-cost producer approach to business that enables the company to reap profits from low product pricing. The strategy has also enhanced the company’s competitive advantage over other key players in the industry. Another business-level strategy that organizations use to achieve competitiveness is the focused low-cost plan. The organization’s retail chains target its products to the middle-class population for its low-priced products. This strategy has enabled Audi Australia to increase its sales by stocking a limited range of common household products in large quantities.
Business level strategies that are adopted by ALDI have remained relevant throughout its years of operation. Cost leadership has been crucial for the success of the business since it has enhanced its low-cost strategy. The focus on a low-cost strategy has also enabled the company to maintain a sizeable competition gap in the foodstuff industry. However, these business-level strategies have a bleak future for the business, owing to globalization and continued innovation in the food industry, which has resulted in the emergence of smaller-sized food store chains that offer innovative products at similarly competitive prices.
The surfacing of price wars in the food retail industry has also resulted in the harmonization of prices amongst giant retail supermarkets. This situation has compelled businesses that operate in the industry to lower food prices in an attempt to widen their client base. Consequently, continued reduction of food prices and availability of alternatives pose impending risks and uncertainties to ALDI shortly.
Recommendations and Conclusion
This report has presented a critical analysis of the company’s internal and external business environments. The external environment has been analyzed by using Porter’s five-force model whilst the internal environment has been analyzed by using Porter’s value chain analysis model with the view of evaluating the influence of external and internal business environments on the company’s performance. Generally, ALDI has achieved strategic competitiveness in its strategic management endeavors in the food industry. However, competition in the food retail industry has significantly stiffened amongst the player in the industry.
Therefore, I recommend ALDI seek an alternative to its limited assortment strategy such as differentiation and diversification strategies to widen the competition gap between its business and its competitors. Secondly, the contemporary world is technology-driven. Therefore, ALDI should incorporate technology in its business interventions, regardless of the initial costs, to boost production and efficiency. Lastly, there is a need to maintain the ‘high-quality-low-price’ strategy amidst the growing competition to sustain the company’s competitiveness in the food retail market.
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Nandakumar, K., Ghobadian, A., & O’Regan, N. (2010). Business-level strategy and performance. Management Decision, 48(6), 907-39.
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