Aldi Case
1. Is the U.S. grocery industry an attractive one?
There are two sides of this industry.
Firstly, U.S. grocery industry is not very attractive for following reasons.
1) Buyer’s bargaining power is strong. Customer does have negotiating leverage since the kinds of product in grocery stores are pretty standard, including food, drugs etc. So the switch cost for customer is very low. Also, because the grocery cost is one of the biggest spending buckets, the customer group is very price sensitive.
2) The threat of new entrance is high to existing players. Even though small players would find it is hard to get into this industry due to first move advantage including location, customer perception etc., the big players from other industries, …show more content…
For competitive advantage, Aldi has advantage on price. Since its cost is very low, it can afford smaller margin on sales while still generate profits from volume. Its cost of operating and admin, as well as cost of goods sold are relatively low for following reasons.
1) HR Management:
a. The payroll/benefit package design for Aldi tends to have higher salary with low end benefit. This package appears to be very attractive for relatively young employees with no additional cost of employer. The package design supports the overall low cost strategy very well.
2) Procurement:
a. Aldi does not sell, thus does not buy fresh produce or meat, or extensive pharmacy products. So the self-consuming cost, such as meat decomposition can be minimized. Also the turn over rate would be higher.
b. Aldi offers only one type, or at most two, of product. This would simplify the managing process. Also since the products it carries are usually private labeled, the cost is relatively lower.
c. No slotting fee but only putting popular products. It makes sure the cash flow runs fast for …show more content…
There are existing competitors, such as Wal-Mart, that are running a similar business model on a bigger scale. Except going further extreme on limited service and limited product choice dimension, Aldi does not have very unique thing to get customers from Wal-Mart, who has better understanding on Americans, established relationship with suppliers, brand perception as price leader, and other first move advantages. If the competition gets intensive or the volume decreases, with the low margin and the mentality to expand only using cash rather than debt, Aldi’s ability to grow can be very
There are two sides of this industry.
Firstly, U.S. grocery industry is not very attractive for following reasons.
1) Buyer’s bargaining power is strong. Customer does have negotiating leverage since the kinds of product in grocery stores are pretty standard, including food, drugs etc. So the switch cost for customer is very low. Also, because the grocery cost is one of the biggest spending buckets, the customer group is very price sensitive.
2) The threat of new entrance is high to existing players. Even though small players would find it is hard to get into this industry due to first move advantage including location, customer perception etc., the big players from other industries, …show more content…
For competitive advantage, Aldi has advantage on price. Since its cost is very low, it can afford smaller margin on sales while still generate profits from volume. Its cost of operating and admin, as well as cost of goods sold are relatively low for following reasons.
1) HR Management:
a. The payroll/benefit package design for Aldi tends to have higher salary with low end benefit. This package appears to be very attractive for relatively young employees with no additional cost of employer. The package design supports the overall low cost strategy very well.
2) Procurement:
a. Aldi does not sell, thus does not buy fresh produce or meat, or extensive pharmacy products. So the self-consuming cost, such as meat decomposition can be minimized. Also the turn over rate would be higher.
b. Aldi offers only one type, or at most two, of product. This would simplify the managing process. Also since the products it carries are usually private labeled, the cost is relatively lower.
c. No slotting fee but only putting popular products. It makes sure the cash flow runs fast for …show more content…
There are existing competitors, such as Wal-Mart, that are running a similar business model on a bigger scale. Except going further extreme on limited service and limited product choice dimension, Aldi does not have very unique thing to get customers from Wal-Mart, who has better understanding on Americans, established relationship with suppliers, brand perception as price leader, and other first move advantages. If the competition gets intensive or the volume decreases, with the low margin and the mentality to expand only using cash rather than debt, Aldi’s ability to grow can be very