Aldi: A Low-Cost Retail Giant's Distinctive Business Practices
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Case Code: BSTR252 Case Length: 16 Pages Period: 1945-2006 Pub Date: 2007 Teaching Note: Not Available |
Price: Rs.400 Organization: Aldi Industry: Retail Countries: Germany Themes: Business Strategy |
Abstract Case Intro 1 Case Intro 2 Excerpts
"There are people who say there is no room to compete with Wal-Mart on price, but Aldi has figured out a way to do it."
- Russ Jones, Vice President at Cap Gemini Ernst & Young, in 2002.
"We certainly recognize Aldi as being a tough competitor."
- Bill Wertz, a spokesman for Wal-Mart, in 2004.
"We run our businesses extremely efficiently and reflect that in the price. There is no such thing as a free carrier bag or a free loyalty point. The cost is always passed on to the customer."
- Tony Baines, Head of Buying for Aldi in the UK, in 2005.
The Land of the Hard Discounter
In July 2006, Wal-Mart Stores Inc. (Wal-Mart), the largest and most successful retailer in the world, announced that it would close down its retail operations in Germany and exit the market. At the time of the exit, Wal-Mart operated 85 stores in Germany. The company announced that it would sell its operations to German retail major Metro AG. The financial details of the agreement were not disclosed, but Wal-Mart reportedly booked a $918 million pre-tax loss on the venture. Other than the South Korean market (from which Wal-Mart exited in May 2006), Germany was the only other international market in which the company had faced major problems.
Wal-Mart had entered Germany in 1998, but had found the going tough from the very beginning. The main reason for this was the clout enjoyed by hard discounters9 like the Aldi Group (Aldi) and Lidl & Schwarz Stiftung & Co (Lidl) in the country. Wal-Mart, known worldwide for its low prices, had not been able to match the prices offered by the German hard discounters. This, combined with the cultural roadblocks it faced in the country, eventually led to Wal-Mart leaving the country (Refer to Exhibit I for a note on Lidl). In the early 2000s, Germany was the third largest retail market in the world behind the United States (US) and Japan. However, the dynamics in the German retail sector differed considerably from those in other major markets. Germany was thought to be the home of the hard discounter.
The grocery retail market was dominated by companies which offered a limited assortment of products at extremely low prices. Besides, unlike in other developed markets, there was reportedly no social stigma attached to shopping at discount stores in Germany (Refer to Exhibit II for a note on retailing in Germany). Aldi was among the oldest retailers in Germany, and was considered to be one of the pioneers of the hard discounter concept. According to a survey conducted in 2004 by GfK, a German market research company, Aldi was the third most respected brand in Germany, behind Siemens AG and BMW AG. Aldi was known for its 'no-frills' style of retailing, which offered customers low prices and nothing else. The company managed to keep prices low with a low cost business model that eliminated all unnecessary expenses and passed on the savings to the customers....
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