Aldi's Marketing Strategy

Aldi have made great strides in entering the UK grocery market. Please analyse Aldi’s current marketing strategy and provide recommendations for how Aldi can enhance their marketing strategy to gain a greater share of the UK Grocery Market.

Introduction

Marketing in simple terms can be described as offering a right product at a right place at the right time and with a right price. The Management Gurus emphasise on the four Ps of marketing which are often called the marketing mix. These four Ps are Product, Place, Price and Promotion. Marketing mix is an important tool to make an efficient marketing plan for a successful product offering. These four Ps of marketing mix can help achieving the business targets of sales, profit and consumer satisfaction. The essay examines marketing strategies of a German supermarket chain named Aldi, in the UK. The paper is divided in to four sections. The first section gives a brief history about Aldi. The second section talks about its position in the UK market. The third section analyses the marketing strategy of Aldi on the basis of the four Ps. The last section gives recommendations on marketing strategies for the future growth of the company in UK market.

A brief history of Aldi

Aldi, one of the world’s largest privately owned companies, is a grocery supermarket chain with a base in Germany. The name Aldi has come from the abbreviation of Albrecht (family name) Discount. The business started in 1913 with a food store in the town called Essen in Germany. By 1960s this family business was expanded to 300 stores in Germany and that is when the business was separated into two groups Aldi Nord (North) with a headquarter in Essen and Aldi Süd (South) with a headquarter in Mülheim an der Ruhr (Emsell, 2011). The business was separated over a disagreement on whether to sell cigarettes in the stores or not (Ruddick, 2012). These two organisations now operate independent to each other. On international levels, Aldi Nord operates in Portugal, Denmark, France, Belgium, Netherlands, Luxemburg, Spain, and Poland. Aldi Süd is functional in Ireland, United Kingdom, Hungary, Switzerland, Australia, Austria and Slovenia and United States of America with over 8000 stores in total (Aldi UK website, 2015).

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Aldi in the United Kingdom

Taylor and Lee (2007) have stressed the adverse effects on the international buyer behaviour due to cultural disparities. KPMG (2014) states that the shopping culture in UK is associated with the quality and not necessarily with price. It further mentions that higher level of customer services is one of the main attributes of this culture. That is the reason why in spite of the dominance of the ‘big four’ -Tesco, Sainsbury’s, ASDA and Morrison’s – M&S and Waitrose have done huge investments in the grocery industry. However Aldi has not only managed to attract the customers in the UK by overcoming the hurdles but also has acquired a significant market share.

Table 1- Market share of Supermarkets in the UK in March, 2015

Source: BBC, 2015

According to Wallop (2008), Aldi pledged to open one store every week in the UK with a target of opening 1500 stores in the country. Currently there are 500 Aldi stores in the UK (Aldi UK Website, 2015). Aldi has made its position in the top nine superstores of the country among Tesco, Sainsbury’s, Morrison’s, ASDA, Waitrose, Lidl and Iceland. Aldi is now UK’s sixth biggest grocery chain taking over Waitrose’s market share (BBC, 2015).

The Marketing Strategies of Aldi

Aldi is a discount supermarket chain and so cost control is in the culture of the business. The model of Aldi’s grocery retailing has remained unchanged since its initiation in Germany (Emsell, 2011).

Price, Place and Product strategies

The business philosophy of Aldi is to focus on indispensable investments and avoid the superfluous in order to give the customers maximum possible savings. According to Rudolph et al (2012, p-142), ” Aldi’s cost only add 13% to the procurement price, 2% each for logistics, rental, overheads and marketing plus about 5% for staff.” Instead of extending its opening hours like other competitors in the UK, all Aldi stores function limited opening hours, which recently extended to 12 hours ( from 8am to 8pm). In contrast, many other competitor stores are available for shopping for 24 hours, 7 days and 365 days which seems an apparent strategic intention. One cannot see the add on services at any Aldi store, for example lottery terminals, children’s play area, photo booths, lavatory, dry cleaning services, currency exchanges, news agent, tobacco counters on entry and exit, a separate customer service counter or a coffee shop. The simple reason being that these facilities have its cost which would add up to the end cost to the customer (Emsell, 2011). In a typical Aldi store, one can also observe three to seven employees to run the entire functioning of the store which is a different strategy to other supermarkets which have a high staffing level to provide high standards of customer service. The firm can achieve a low payroll to sales turnover ratio with such staffing level which can help the lower the prices.

According to The Times 100 Business case studies (2010), the key idea that makes Aldi’s approach work is the concept of limited assortment. The Aldi store size is relatively small in comparison to the rival grocers with an average floor space of between 650 square meters to 1000 square meters. The usual Aldi store has a common layout with only four shopping aisles also the packaging and displaying products strategy at Aldi is cost effective. However the stores generally have a free parking space which attracts customers significantly. The case study further mentions that while selecting a location for store, Aldi takes in to consideration the population of the area which should be more then 30,000. Also the stores are always at the very good visibility from a main road and with good public transport connectivity.

The sales philosophy of Aldi is very different to other leading grocers in the UK. As the branded products have less operating profit, Aldi has taken an approach to sell products which are equivalent to brands (Wood, 2011). A typical large Tesco or Sainsbury’s store stocks around 50,000 product lines, of which 50 per cent are their own brands (Voberda et al., 2011). The success key for any business is to attract the buyer which certainly depends largely on a competitive pricing. Being a discount retail chain, competitive pricing is at the core of Aldi’s philosophy. Aldi works on economies of scale. In simpler terms it means, buying products in large quantities so it gives leverage for bargaining for the best possible price which allows Aldi to sell at the most competitive prices.

Currently every week Aldi comes with a different range of products on a Thursday for example bathroom accessories, garden furniture, kitchen and other household equipment. These products are different to the usual grocery items in the stores in terms of its availability. These products are limited in stock and not permanently available in the store. One can observe a great deal of excitement in the customers in the stores due to the scarcity and affordability of the products. To promote these product ranges, posters of the items are found in the stores for the upcoming week.

Promotion Strategies

According to the Times 100 Business Case studies (2010), one of the unique marketing strategies Aldi has adopted is the advertisements with brand comparisons. These adverts demonstrate that Aldi brands are of equal quality to well-established brands for example, Pampers diapers, Heinz tomato ketch up and Fairy Liquid. To prove this Aldi ran blind taste experiments amongst a section of shoppers. This experiment suggested that the majority of consumers that preferred the well-known brands also liked Aldi brands. These findings created the basis to Aldi’s most popular ‘Like Brands’ campaign. The advertisements of the ‘Like Brands’ provided the business with a stand to speak about its quality and most importantly its value for money. This campaign was effective in showing the customers how much more their money can fetch by shopping from Aldi with a slogan, ‘Like brands. Only cheaper.’ The campaign provided a character to the Aldi products because the advertisements use humours which help to build confidence and an emotional connection with target audiences. In addition, according to Times 100 Business Case studies (2010), Aldi prints around 1 million copies of brochures per week to distribute in the store as well as to customers living in surrounding areas. These brochures promote products with limited availability and seasonal and weekly offers available in stores. Another campaign of Aldi is ‘swap and save’. The newspaper adverts of Aldi promote the Aldi brands by showcasing the saving customers can have by swapping from the leading grocers to Aldi. This promotion is in the similar lines of Tesco’s ‘big price drop’ campaign or Sainsbury’s ‘brand match’ campaign.

In this era of social media, it has become easy at the same time unavoidable to communicate directly with the targeted audience. One such online campaign of Aldi is ‘Aldi Advocates’. This particular promotion is for consumers who recommend Aldi to others because of its low prices compared to other brands. For example, the ‘I Love Aldi’ campaign asked fans of the Aldi Facebook page, to send a virtual Aldi Valentines card to a Facebook friend, completing the sentence ‘ I love Aldi because…’ This was encouraged by providing rewards of £10 vouchers and a box of Aldi chocolates for their Valentine (Aldi UK Facebook Page, 2015).

Recommendations

The UK grocery industry is one of the most established and competitive globally, however dynamics of such industry change rapidly (KPMG, 2014). In spite of Aldi’s great stride in entering the UK grocery market and taking over a significant market share, one cannot deny the fact that the dynamics of ever changing business world can hurdle this growth. One can also not deny the fact that the competitors are also working towards increasing their market share and exploiting the resources. Though Aldi has managed to reach in to the competition with Waitrose, Cooperative and Morrison’s, the market share of Tesco, ASDA and Sainsbury’s is comparatively very high (Table -1). Also Lidl and Poundland have a similar market strategy of discounted products as Aldi. In such cut throat competition it is challenging to not only enhance the market share but also merely maintaining it. Morgan et al., (2004) in their study have emphasised on product quality as one of the most important determinants of market share. Thirkell and Dau, (1998) revealed that quality and add on services have positive and high correlation with business performance. Thinking on the similar lines, one can recommend the quality enhancement to give a tougher competition to the leading supermarkets. However there is a risk associated with that approach as frequent changes in the business strategy can lead to loss of grip on the monitoring and controlling of the business. Businesses with a lack of clear strategy often face difficulties in customer targeting (Lancaster et al, 2002). However Aldi has a great scope in providing value added services. Facility of online shopping is one such value added service. Home delivery of the shopping items as well as ‘click and collect’ services can be easily implemented in today’s internet era as the other leading supermarkets are also offering such services.

With plenty of options available, even with good quality and low prices, loyalty can be great issue of concern for a grocery firm. Various loyalty cards and point based reward system can be introduced to ensure the market share to be somewhat stable.

UK being a culturally diverse country, a wide range of products such as Indian, Chinese, Caribbean grocery items should be added to attract more customers.

The campaign of ‘swap and save’ can be taken a step further by upgrading the software system. Currently it is showing the price difference on the newspapers and advertisements which should be reflected on the receipt after the shopping to inform the customers personally how much they have saved by shopping in Aldi.

References

Aldi UK Website (2015) https://www.aldi.co.uk/

Aldi UK Facebook page (2015). Available at https://www.facebook.com/AldiUK

BBC (2015) Aldi overtakes Waitrose’s market share. BBC News dated 8th April, 2015. . [Online] Available at http://www.bbc.co.uk/news/business-32218170

Emsell, P. (2011) Aldi – “The No Frills Retailer”. University of Huddersfield. [Online] Available at http://eprints.hud.ac.uk/12404/1/Microsoft_Word_Aldi_case_study_for_Bus_Strategy.pdf

KPMG (2014) The Future of the Grocery Sector in the UK. [Online] Available at http://www.kpmg.com/uk/en/issuesandinsights/articlespublications/newsreleases/pages/the-future-of-the-grocery-sector-in-the-uk.aspx

Lancaster, G., Massingham, L. and Ashford, R. (2002) Essentials of Marketing. Fourth edition. New York: McGraw-Hill.

Morgan, N., Kaleka, A., and Katsikeas, C. (2004). Antecedents of export venture performance: a theoretical model and empirical assessment. Journal of Marketing 68(1): 90- 108.

Ruddick, G. (2012) Billionaire Aldi heir Berthold Albrecht dies at 58. The Telegraph, dated 7th December, 2012. [Online] Available at http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/9729434/Billionaire-Aldi-heir-Berthold-Albrecht-dies-at-58.html

Rudolph, T., Schlegelmilch, B., Bauer, A., Franch, J. and Meise, J. (eds.) (2012) Diversity in European Marketing: Text and Cases. Germany: Springer Gabler.

Voberda, H., Morgan, R., Reinmoeller, P., Hitt, M.A., Ireland, R.D., Hoskisson, R. (2011) Strategic Management: Competitiveness and Globalisation, South Western: Cengage Learning.

Taylor, C.R. and Lee, D. (2007) Cross-cultural Buyer Behavior. Amsterdam: Elsevier.

The Times 100 Business Case Studies (2010). Creating Value through the Market Mix. [Online] Available at http://businesscasestudies.co.uk/aldi/creating-value-through-the-marketing-mix/introduction.html#axzz3gTvS06RA

Thirkell, P. C., and Dau, R. (1998). Export performance: Success Determinants for New Zealand Manufacturing Exporters. European Journal of Marketing, 32(9/10): 813- 829.

Wallop, H. (2008) Aldi pledges to open a new store every week. The Telegraph , dated 30th June, 2008. [Online] Available at http://www.telegraph.co.uk/finance/personalfinance/2792467/Aldi-pledges-to-open-a-new-store-every-week.html

Wood, Z (2011) Aldi effect is back: spending squeeze lifts discounter into profit. The Guardian , [Online] Available at http://www.theguardian.com/business/2011/oct/04/aldi-effect-back-discounter-profit