Aldi: U.
S Markets
Sierra Marques – 21202809
BMGT43510-International Business & Strat
“Great quality shouldn’t come at a high price; rather, great quality should come with
everyday low prices”
ALDI History
ALDI was founded by the Albrecht family and opened its first ever store in Germany
in 1961. It was the world’s first discount store. After having captured 90% of German
shoppers, Aldi entered the U.S market in 1976. Currently with more than 2,000 stores across
36 states where the focus is on Sale of a limited range of mostly private household items,
including dairy products and fresh and frozen fruits, vegetables, and meat. The firm’s total
sales are expected to reach 11.44 billion U.S. dollars by 2021. Where it’s CAGR is expected
to grow 6,6% by 2023 (Exhibit 1).
ALDI’s Porters 5 Forces
• Competitive Rivalry – High
Warehouse Clubs - Costco ($66,5 billion in sales), Walmart’s Sam’s Club ($273,9 billion in
sales) , Kroger’s ($106,2 billion in sales) and Lidl (see exhibit 2) are Aldi's main competitors
in the discount grocery industry. In terms of used grocery stores in the US market it is in the
top 3 (1st being Walmart at 66% and Target at 33%, see exhibit 3). This is a challenge for
Aldi as their products, functions, services, and new technology strategies are quite similar.
In addition to this the pricing policy is another factor to take into account when it comes to
the competitors. The offering high-quality products at low prices (30% below traditional
markets) has been one of the main policies Aldi has followed and is adopted by competitors.
• Potential of new entrants into the industry - Low
The potential of new Entrant is low. To enter the discount store industry requires a large capital
investment and it is costly to reach economies of scale. It is very typical to be a small player
and end up in a mergers and acquisition deal. The main stated competitors are well-known and
hold most of the market share. This would make it harder for new entrants to compete with
these “giants” within the industry.
• Power of suppliers – Low
There is a big number of suppliers in the industry that are able to provide the same product
and the same supplier for half the price of the current market price to big retailers in the
market. This is advantageous for the retailer as they can bargain for lower prices and
favorable deals. Companies like Aldi opt for fixed contracts that leave no space for
renegotiation. Overall suppliers have low power over selling prices due to most of their main
clients are represented by companies like Aldi and Walmart. The exception to this is the
private labels.
• Power of customers - High
The discount store industry’s main focus is providing value to customer for low price, so, low
prices for optimal quality. Lower prices determine customer satisfaction. A customer will be
happier and more attracted towards a brand which prices are lower, yet the quality is
premium. The switching cost is low as they can switch from one retailer to another without a
problem.
• Threat of substitute products - Medium
The threat of substitution is Medium. The big players in the industry sell the same products,
where the same brands are sold everywhere. The switching costs are low as the range of
products can easily be substituted. Products brought up by Aldi can be substituted easily by
other retail stores. However, the private labels are a competitive advantage in Aldi’s case, as
they are able to leverage these premium labels and although having similar characteristics
and prices as other products exiting in the market, they seem harder to replace.
Q1: How Aldi’s R&C relate to 5 forces
Resources & Value Rareness Costly to Non-
Capabilities Imitate substitutable
Financial Yes No No Yes Tangible resources – Competitive
Resources parity: Aldi financing enables the
company to expand internationally
to other countries.
Strong supplier Yes Yes Yes Yes Intangible Resource – Sustained
Network Competitive Advantage : positive
perception of the suppliers in
relation to the company. Provides
security to suppliers and improves
reputation.
Brand Yes No No Yes Intangible Resource – Competitive
Awareness Parity: Strategy is also adopted in
the industry.
Minimal Yes Yes No Yes Tangible & Intangible Resource –
Advertising Temporary Competitive advantage:
Little to no advertising pursued by
Aldi is a differentiation strategy
provided by the company.
Cross -Trained Yes No Yes Yes Capability :
Employees Temporary competitive
Advantage: employees are trained
to maximize the company’s
operations.
Private Label Yes Yes Yes Yes Capability - Sustained competitive
Brands advantage: with their high-quality
control.
Offloading Yes Yes Yes Yes Capability: Sustained Competitive
strategy Advantage – customer participates
actively – self packaging, use of
cash or credit/ debit cards.
Competitive parity is achieved when a company's resources or capacity are not
uncommon and expensive to emulate. Aldi’s financial resources allow them to expand
nationally and nationally. Aldi’s five-year strategy in the US market is set to invest $3.4 billion
dollars to expand to an addition 500 stores nationwide, serving more than 100 million
customers per month by 2022 and creating new jobs. This can relate to the competitive rivalry
as it is high. This type of tangible resource is not uncommon amongst other players, as it is
easy for Walmart and Lidl to invest their resources in national and global expansions.
In addition to this, brands like Walmart and Costco possess similar brand awareness as the
assortment of their products (premium in this case) are identical and easily comparable to Aldi.
This makes Aldi’s brand awareness (intangible resource) a competitive parity and can affect
both the power of customer due to the availability of similar products in the market and
switching costs being low, as well as the competitive rivalry (which is high).
Temporary competitive advantage is achieved when a company's resources / skills are
valuable and infrequent or expensive to emulate. Aldi’s highly competent and trained
employees is capability that can be linked to Porter’s five forces threat of substitutions and
competitive rivalry. The employee capabilities strengthen the company towards its rivals and
are hard to imitate within the industry. This allows the company to have more experienced staff
that can assist in the customer participation process and are able to perform in all areas. This
is expensive to emulate in the industry as well as recreating its value within different
companies. Although products are easy to imitate and substitute, employee training is harder.
Moreover, minimal advertising is an advantage for Aldi in comparison to its competitors. Its
brand positioning is high, yet the resources allocated for advertisement are very low. This is a
temporary competitive advantage due to the fact that brands like Lidl and Trader Joes have
adopted the same method, yet Aldi still manages to generate value from this.
Sustainable competitive advantage when you implement a unique value and when
competitors cannot duplicate that value. Around 90% of the products that Aldi sells are private
labeled. New Entrants will have a harder time to enter the industry as this aspect makes it harder
to emulate. The quality is also related to how customers perceive the brand (as well as its
pricing) making it harder to imitate, as well. Aldi’s supplier strategy is strong due to its fixed
pricing and security that it provides to its suppliers. This decreases the power of supplier and
threat of substitutions. With the brand being recognizable and seen as reliable this increases its
trust within suppliers and provides them an advantage when leveraging favorable agreements
with supplier. Aldi’s offloading strategy is unique and hard to duplicate. This strategy reduces
the workforce specificity and requirements. Customers handle the payment process as well as
the bagging and open the packaging themselves, which makes the experience at stores faster
and rapid inventory turnover. This adds on to the quality of the customer experience,
challenging the competition by adding this element of differentiation.
Q2: How to fight Aldi?
In the US market being an established player goes a long way. Aldi adopts a cost
Leadership Strategy. Given the VRIS and Porters Five Forces it is clear to see that in a US
Market competition is high and all products tend to be substitutable in the discount grocery
market. Aldi does not hold a big market share in the US and therefor fighting against it
should be easier then fighting, for example, Walmart. A well-established brand. Therefor
adopting a similar strategy where Aldi holds a sustainable competitive advantage, such
offloading strategy, private labeled products at low prices and establishing a good supplier
network is essential to be at Aldi’s level. This occurs due to the low switching costs that are
in place in the market.
Opting for differentiated products that cater to customer needs that surpass Aldi’s
current assortment is also ideal alongside deals and promotions that allow client retention and
the possibility of being seen selling at lower prices for equivalent or superior quality in
comparison to Aldi.
Customer data analysis is also essential to collect more info on how to improve
customer experience and cater towards customer’s specific needs.
Exhibit 1.
Exhibit 2
Exhibit 3.
References:
Prahalad, C. K., and Hamel, G. (1990), The Core Competence of the Corporation, Harvard Business
Review, Vol. 69, pp. 275-292.
Winsight Grocery Business. (July 1, 2018). Compound annual growth rate (CAGR) of the top grocery
retailers in the United States from 2018 to 2023* [Graph]. In Statista. Retrieved October 13, 2021,
from https://www-statista-com.proxy1.lib.uwo.ca/statistics/910161/grocery-stores-top-compound-
annual-growth-rates-us/
Bloomberg. (April 11, 2016). Market share of U.S. food and beverage purchases in 2016, by
company* [Graph]. In Statista. Retrieved October 12, 2021, from https://www-statista-
com.proxy1.lib.uwo.ca/statistics/240481/food-market-share-of-the-leading-food-retailers-of-north-
america/
Aldi. (n.d.). Homepage. ALDI US. Retrieved October 13, 2021, from https://corporate.aldi.us/en/aldi-
history/.
