Aldi in the UK: Cost Leadership through Operational Excellence

Aldi in the UK: Cost Leadership through Operational Excellence
Case Code: BSTR474
Case Length: 14 Pages
Period: 2000 - 2014
Pub Date: 2015
Teaching Note: Available		 Price: Rs.400
Organization: ALDI
Industry: Retail
Countries: UK
Themes: International Business, Globalization
Aldi in the UK: Cost Leadership through Operational Excellence
Abstract Case Intro 1 Case Intro 2 Excerpts

Abstract

Germany-based, Albrecht Discount, abbreviated as Aldi, evolved over the years from a small grocery store into one of the leading hard discount stores. Karl and Theo, two brothers of the Albrecht family, were responsible for this huge transformation. They took charge of the grocery shop, which was earlier run by their mother to meet family requirements, in 1945. Albrecht Discount was incorporated in the year 1948. At that time, about 13 stores were in operation. Gradually, the store's figures rose. In the same year, the first supermarket under the name 'Aldi' was started. Later, owing to a disagreement between the brothers, reportedly over the issue of selling cigarettes, Aldi was split into Aldi Nord and Aldi Süd. Though they operated in different geographic areas they maintained a common corporate identity. In 1967, Aldi entered Austria, its first overseas venture. It gradually expanded into countries like Belgium, Denmark, France, Luxembourg, The Netherlands, Portugal, Spain, Australia, the UK, Slovenia, Switzerland, and the US.

Aldi entered the UK in 1990 and was one of the first discount retailers in the country. Initially it did not find acceptance as hard discount retailing was not prevalent in the country and customers equated the low prices offered by Aldi with low quality. But Aldi persisted and continued to operate with its model of providing high-quality, exclusive products at the lowest possible prices and maintaining a limited range of goods. Its expansion was slow, but it held on to its model, making only a few minor changes for the UK market. Slowly its impact started to grow, and it achieved a breakthrough during the economic recession during 2008. The economic situation led to a change in customer behavior within the retail sector in the UK. The increase in food prices made the shoppers look for alternatives whereby they could save money. This proved to be an opportunity for discount stores to attract more shoppers.

Aldi gave tough competition to the ‘Big Four' retailers of the UK — Tesco, Morrisons, Sainsbury's, and Asda. In September 2014, Aldi achieved a 65 percent increase in its profits, while the big retailers recorded declining profits.

Aldi's success in the UK retail arena brought with it a revolution whereby the behavior and attitude of the buyers changed. Discount chains which were earlier considered to be cheap and meant for the poor, became the first choice of all. These changes in buying behavior of customers not only helped Aldi flourish and expand in the country but also forced other retailers to redesign their strategies. As a result, a price-war began with other retail chains entering the discount retail arena to guard their respective market share and profit margin.

Issues

This case is designed to enable students to:

  • Illustrate various retailing concepts and various retail formats
  • Highlight the important factors influencing retail operations
  • Discuss the importance of understanding shoppers’ behavior
  • Discuss the role of operational effectiveness in obtaining cost leadership

Contents

Keywords

ALDI, Business environment, Corporate strategy, Retailing, Hard discounters, Operations, Competitive advantage, Cost leadership, Standardization, Localization, Discount supermarkets, Discount retailing

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