Strategic Management - Aldi

Is Aldi being deprived of the German discounter-throne?

Term Paper, 2008

36 Pages, Grade: 1,0





1. Market Environment Analysis
1.1.1. Political
1.1.2. Economic
1.1.3. Socio-cultural
1.1.4. Technological
1.1.5. Legal
1.1.6. Environmental
1.1.7. PESTLE summary
1.2. Porter’s Five Forces Framework Analysis
1.2.1. Barriers to entry
1.2.2. Buyer power
1.2.3. Supplier power
1.2.4. Threat of substitutes
1.2.5. Competitive Rivalry
1.2.6. Porter’s Five Forces Framework Analysis Summary
1.3. Opportunities and Threats

2. Aldi Strategic Analysis
2.1. Resources and capabilities
2.2. Core competencies within Porter’s Value chain
2.3. Aldi - Strength and Weaknesses

3. Strategic Fit Analysis
3.1. SWOT Analysis
3.2. Strategic Fit Improvements





Is Aldi being deprived of the German discounter-throne?


In times of economic recession consumers are more price conscious then ever, which is favourable for Aldi as the low-price leader. However, competitors like Lidl and Netto are catching up. Is Aldi in danger of having to relinquish their leading position or is the business sustainable with their current strategy? In the following report, an analysis of Germany’s macro-environment and its food retail industry, as well as an evaluation of Aldi’s strategic approach within this industry, will be undertaken in order to answer the above raised question.


Aldi is the top-discounter in Germany. In the past they were known as a poor people’s store. However, today there are German’s favourite retailer. The owners Theo and Karl Albrecht have a clear strategy for all aspects of business: to apply Occam’s razor. This enables them to offer best quality products at low prices. The competitive landscape has changed over the years and discounters like Lidl or Netto emerged, challenging Aldi.

Germany’s business cycle is moving to recession, which puts the whole economy in a tough position. In these times companies will struggle to make a profit, contrarily discounters will be the winners.

Aldi is also one of the most secretive companies; this especially raised my interest in conducting an external and internal audit. Is their success sustainable and are they addressing trends and changes in the macro environment and industry, successfully? Or will other retailers outperform them?

The financial analysis as part of the internal audit is very limited, unfortunately. The company is not required to lay open detailed financial reports.

1. Market Environment Analysis


1.1.1. Political

The political situation in Germany is stable. At current the government, led by Chancellor Angela Merkel from the Christian Democratic Union (CDU), is mainly concerned with the financial crisis affecting economies all over the world.

In table 1 below I stated how the government is planning to tackle the financial crisis and how the plans are perceived by economic experts. I outlined recent announcements and changes in the political environment in table 2.

Table 1

Reaction to financial crisis

The government is willing to provide a total of 500 billion € as a bail out packet. Aid will include help for banks, improvement of infrastructure, lowered interest rates on credits for certain branches and currently, discussions are undertaken to support the automobile industry. So far banks have not used the offered help on a large scale, due to the massive governmental obligations involved (e.g. salary, politics on business and dividends) [FTD, 2008; #24, #25] Experts on economy criticise the plan on business cycle. The stimuli are too small and limited to certain sectors. [Christ, H. 2008; #10] Wider and more direct measures need to be taken, generating a relief for consumers and businesses, for example, by lowering the income tax and social insurance contributions. [Fischer, M., 2008; #4]

Table 2

Recent announcements and changes

- The next elections for the Bundestag are in 2009. Polls show that the CDU is leading with 30%, followed closely by the SPD (Social Democratic party of Germany) with 27%. The current chancellor Angela Merkel (CDU) is popular among Germans. 60% of the population would like to see her again as chancellor in 2009. [Lau, M., 2007; #30]

- In various states student tuition fees have been introduced. This means budget constraints for many people.

- In 2007 the VAT rate was raised by 3% to 19%, which led to a noticeable decrease in consumer demand. Private consumer spending was down 0.3% in 2007. The contribution for unemployment insurance was reduced from 6.5% to 3.3%. This implies lowered costs for businesses, which is very positively perceived. [BGA, 2008; #6]

- For January 2009 a raise in child benefits is planned. An additional 10 €/ month per child is under discussion. This would not be an impactful enough change to stimulate an increase in birth-rate. [BGA, 2008; #6]

1.1.2. Economic

The German economy is in recession. After a good start in 2008, shock waves of the financial crisis have hit the economy in the 3rd quarter of 2008, leading to a downturn in GDP by 0.5% to the previous period. [Fischer, M., 2008; #3]

The German economy will be heavily burdened in 2009. The GDP will fall; no impulse is expected from international markets and exports (see appendix 1, page 31) will decrease significantly; private consumption will rise only moderately. The underlying trend for unemployment currently is positive with a decrease of unemployment rate to 7.8% (year before 9.0%) The labour market will be affected with a certain delay in times of recession. The consumer price index is forecasted to decrease in 2009. This situation is an opportunity for businesses at the low-price end of the industry. Petrol and gas prices skyrocketed over the last years. The dramatic slump in price in the third quarter of 2008 is a relief for the industry and consumers. [Federal Statistical Office, 2008, #20]

The economy will probably reach its low point in the spring of 2009. An upturn can be expected the soonest in early 2010. [Bofinger, P.; Franz, W.; Rürup, B.; Weder di Mauro, B.; Wiegard, W.; 2008; #9] A summary of key economic figures with a forecast for 2009 is shown below. German Council of Economic Experts, 2008; #26]

illustration not visible in this excerpt

1.1.3. Socio-cultural

Germany’s population is shrinking and aging (see table 4)

Leading to less qualified people available on the labour market and rising expenses for pensions and medical services. Eventually people will have to finance their pension fully on their own and will have to pay higher contributions to health insurance. Some reasons for the low birth rate are the widening gap between poor and rich and missing measures from the government to increase attractiveness of having children (see appendix 2, page 31) The trend of rising expenses strengthens one special characteristic of the German shoppers even more- their price conscious nature. In table 5 (page 5) I outlined lifestyle trends.

Table 4

Germany’s shrinking and aging population

By 2050 total population will be down 16% to 68,743 persons, in comparison to 82,218 in 2007. This downward trend applies to all age groups except of people older than 65- here a strong increase can be seen (compare figure 1). Germany has the lowest birth rate in Europe with 1.3 children per female. Furthermore, most households consist of 1 - 2 persons, which are forecasted to increase even more. In this context retailers need to adopt their strategy to changing consumer needs. Convenience is very important for small households. The older generation is looking for high quality and service.

Figure 1 Development of population until 2050

illustration not visible in this excerpt

Table 5 Lifestyle trends

Consumer preferences

Many Germans value low prices and convenience over choice. 37% are well motivated by cheap prices, and 75% of adults find a convenient location is the most important factor for the decision on where to shop.

Older people are more inclined to like promotions, in contrast to younger people. Also, regular promotions and loyalty cards score poorly compared to other European countries. Interestingly having a good non-food offer is of little consequence to most Germans when shopping for food. The Germans just prefer the simplicity of low prices. [Mintel, 2007; #33]


Life expectancy is rising and the general health situation is good, but] the number of people who smoke, are too fat, take too little exercise and/or drink too much alcohol is still too high. An active and healthy lifestyle can be found more often in households with higher income and career oriented people (see appendix 3, page 32). In this context organic food is gaining importance. Experts forecast that 30% of Germans will be “eco-consumers” by 2010. However, priority is health and food safety not organic food production. [RKI, 2003; #40] On the other hand, many people in Germany who are heavily involved in family life and securing livelihood are less active and consider convenience as very important, e.g. distance to stores, fast food and chilled food.

This kind of lifestyle is pushing up obesity amongst children. Today 15% of children are

considered as being overweight. [RKI, 2008; #39] More time spend in front of the computer is impacting on this as well. According to a consumer survey 68% of the population use the internet regularly since the age of 10. [Rudolf Wild GmbH, 2008¸#41]

To prevent the obesity rate from rising retailers should offer healthy food and display nutrition facts on products to support balanced diets.

1.1.4. Technological

Consumers are asking for more convenience and technology is a key driver here. Self check- out, in store media, intelligent scales and shelves, electronic advertising displays- these are just some recent innovations in retailing. [Metro Group, 2008; #2] TNS Infratest conducted research on possible future technologies in retailing. Most appealing to Germans were online communities, where consumers buy products in groups. (See appendix 4, page 32) [TNS Infratest, 2008; #43]

The internet plays an increasingly important role. Therefore, retailers need to attract new customers via e-commerce or the web2.0 (blogs and community networks). A further trend is “green” IT. Changing the way energy in buildings is monitored, controlled and consumed can bring down CO2 emissions and reduce costs. [CIES, 2008; #12]

The goal of the German government to invest an amount equivalent to 3% of GDP in R&D by 2010 (see figure 2) will probably not be reached due to the financial crisis. [FTD, 2008; #23]

illustration not visible in this excerpt

Figure 2

[Federal Statistical Office Germany, 2008; #18]

1.1.5. Legal

The German market is highly regulated and the immense rate of bureaucracy can make

market entry difficult. A topic that is concerning the retail industry is the current discussion of the European commission about displaying nutrition facts obligatory on products. EUwide standards will help consumers to a more balanced diet. Most companies already show nutrition facts on their products. [ORF, 2008; #37]

In table 6 below I listed a number of institutions and important regulations concerning the German retail industry.

Table 6

FTA Foreign Trade Association

- Association for European commerce specialised in international trade issues
- issues addressed: WTO, customs and procedures, bilateral free trade agreements, anti- dumping and access to markets outside Europe [FTA, 2008; #22]

ILO (International Labour Organisation)

- fundamental principles, rights and working standards for labour [Aldi Süd, 2008; #5]

United Nations Global Compact

- strategic policy initiative for businesses that are committed to aligning their operations and strategies with ten universally accepted principles in the areas of human rights, labour, environment and anti-corruption [UN Global Compact, 2008; #44]

IFS International Food Standards

- Principles: ensure safety of “own branded” products for retailers and wholesalers, helps to comply with legal food safety requirements and gives common and transparent standards to suppliers
- Goal: common internationally accepted audit standards by the food business in order to improve safety for consumers [HDE, 2003; #28]

BSCI (Business Social Compliance Initiative)

- voluntary initiative
- goal: implementation and independent control of international accepted social standards


- Voluntary initiative of the German trade, industry and agriculture economy
- stands for certified quality control for food
- Products from the QS-system are branded with the blue QS test mark

[QS, 2006; #38]


- sets voluntary standards for the certification of agricultural products around the globe

National organic logo

- logo of the Federal Ministry of Consumer Protection, Food and Agriculture
- logo on products when a minimum of 95% of ingredients were extracted from organic

farming [BLE, 2008; #8]

Regulations on packaging from 1991 (amendment 2006)

- Private disposable system to reduce environmental pollution, by encouraging recycling
- for packaging which is labelled with the so-called „green dot“
- obligatory for trade and industry [Metro Group, 2008, #2]

Compulsory deposit on non-recyclable and recyclable packaging of beverages

- since 01/01/2003 additional 0.25 € on top of the retail price for certain beverages
- amount refunded when packaging is returned
- applies to: non-recyclable packaging of beer, sparkling soft drinks and mineral water
- since 2006 every dealer selling above mentioned beverages is obliged to refund the

amount on return of the bottles [Metro Group, 2008, #2]

Statutory shop opening hours

- Monday-Saturday 0:00-24:00 h
- up to 10 Sundays/ year
- Variations vary in the individual states [Metro Group, 2008, #2]

1.1.6. Environmental

Exhaustive cultivation and mismanagement in terms of energy consumption and resource extraction menace life on our planet. To cope with the increasing risks of climate change Germany wants to reduce CO2 emission by 21% until 2010 (see appendix 5, page 33). The percentage of renewable energies to generate power shall increase from 14 to 30%. [BGA, 2008; #7] CSR (corporate social responsibility) plays an increasingly important role in gaining consumer’s trust.


Excerpt out of 36 pages


Strategic Management - Aldi
Is Aldi being deprived of the German discounter-throne?
Anglia Ruskin University
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ISBN (eBook)
ISBN (Book)
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Aldi, Strategic Management, Retail Industry, Germany, Porter's Five Forces, SWOT, Value Chain
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Jenny Haberer (Author), 2008, Strategic Management - Aldi, Munich, GRIN Verlag,


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