STRATEGIC MANAGEMENTApril 25, 2016

Austin Kilpatrick & Izmir VodinajProf. Vasudevan Ramanujam

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Current news: Expansion

The global village and how Aldi fits in it

Aldi in the US: Industry Analysis

Aldi’s competition in the US

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Aldi’s Interior Analysis

TODAY’S STORY

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THE EXPANSION STRATEGYFresh & Easy By TESCO

California, Nevada, Arizona Founded in 2007

Opened 200 stores in a year

Bankruptcy in 2013

Target133 locations in Canada

Supply Chain Issues

Over 2 billion in losses

ALDIRapid Growth

Small store size

600 new stores (next 3 years)

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THE GLOBAL GROCERY MARKET

2014 Sales Revenue (Largest Grocery Retailers)

ESTIMATED $2.5 – $4.5 Trillion

16%4%4%3%3%2%2%

67%$2000 B Others $55 B AEON $70 B Metro Group$80 B Aldi $93 B Tesco

$108 B Kroger$118 B Carrefour $476 B Walmart (USA)

Compare it to Automotive $9 Trillion

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ALDI AROUND THE WORLD

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GERMANY 1913

Expanding since 196214 countriesOver 8500 stores$64 billion in sales

Came in 197935 statesOver 1500 stores$10 billion in sales

Came in 2001Over 400 stores$6.4 billion in sales

80%

13% 8%

Europe US Australia

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ALDI IN THE US: COMPETITION

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WalmartKrogerCostcoPublix

AlbertsonsH-E-B

Whole FoodsAldi

0.0%5.0%

10.0%15.0%

20.0%25.0%

30.0%24.5%

12.9%7.6%

4.3%3.9%

3.4%2.4%

1.5%

Market Share 20141500

399363

22001115

48126004500

StoresStrategyLow Price; Efficiency

Organic FoodsCustomer Service/Local

Mergers and AcquisitionsCustomer Loyalty/ Regional

Membership BasedPremium Private Label

Low Price/One stop shop

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US MARKET CONDITIONPolitical

Food SubsidiesMinimum wage changes

Environmental Ethical Sourcing Waste DisposalElectricity/Green Initiatives

Technological Online Sales Electronic Payments

LegalLabeling Laws (Organic/ Natural) Compliance programs

Socio-CulturalEating Trends (Organic) Brand Names Consumer Loyalty

EconomicResilient IndustryLow skill labor Lower labor costs

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US INDUSTRY ATTRACTIVENESS

Threat of Entry High start-up costLow knowledgeGrowing Markets

Power of SubstitutesPrepared foods Higher Costs

Bargaining Power of SuppliersBrand Names Integrated Supply Chains

Bargaining Power of BuyersPrice sensitive Lots of options

Intensity of RivalryLots of Competition Brand Loyalty Geographic Location

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ALDI’S VALUE CHAIN

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Man

ufac

ture

rsDist

ribut

ion

Stor

e Sa

lesLocal

Suppliers

National Suppliers

International SuppliersM

anuf

actu

rers Centralized

Distribution Centers

Almost 90% of products include Aldi labels

Aldi stores all over the country

Well trained and paid sales associates

Supplier Relationships

Social Media

Local CouponsWebsite

Mar

ketin

g

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ALDI’S COMPETITIVE ADVANTAGE

Valuable Rare Hard to Imitate Advantage

Organized to Capture Value

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BRAND NAME

EFFICIENCY

LABELLING, EASY ACCESS

LABOR UTILIZATION, DISTRIBUTION,BAGS, CARTS

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ALDI’S STRUCTURE

Store Management

Divisional Office Support Staff

District Manager

District Manager

District Manager

Warehouse Employees

Warehouse Supervisors

Director of Administration

Director of Purchasing

Director of Operations

Director of Real Estate

Director of WH &

Transportation

Store Management

Store Management

Store Employees

StoreEmployees

Store Employees

• FUNCTIONAL

• MECHANISTIC

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Vice President

ALDI’S STORE EXPERIENCE

AVG US Grocery Store 45,000 sq ftAVG US ALDI store 15,000 sq ft

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ALDI’S SWOT ANALYSISEfficiency(LABOR UTILIZATION, DISTRIBUTION,BAGS, CARTS)

Quick shopping experience

Brand name

Limited goods

Customer service

Quality perception

Continue expansion

Use of technology

Customer relationships

Being noticed by large players

Changes in fuel prices

Online shopping

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Strengths Weaknesses

Opportunities Threats

A FINAL WORD ABOUT ALDI

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Aldi strategy has proved to be successful in developed markets worldwide

Aldi should pay close attention to consumer trends

Aldi should monitor it rapid growth strategy

Questions?15 of 15

STRATEGIC MANAGEMENTApril 25, 2016

Austin Kilpatrick & Izmir VodinajProf. Vasudevan Ramanujam

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APPENDIX 1: ALDI US DIVISIONS

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APPENDIX 2: PESTELFactor Political Economic Socio-Cultural Technological Ecological LegalThese trends areFAVORABLE to the industry

Farm Subsidies,Low fuel costs

Low fuel costs Health food and consumer consciousness

Point of sale systems, inventory management

Less Packaging Accepting WIC and Food stamps,

These trends exert are of NEUTRAL impact on the industry

Import Costs,Zoning laws

Economic Fluctuations, Exchange rates

Employees Storage, less packaging, Self-Checkout

Seasonal Products

Food Safety Standards, Health Regulations

These trends are UNFAVOURABLE to the industry

Selling regulations, licenses

Market Saturation, Competition

Wages paid Online sales High carbon emission,Low Fuel Costs

Food Labeling, Organic/ GMO Labeling

Overall impact of these trends

Favorable Neutral Favorable Neutral Neutral Neutral

Overall conclusions from the above PESTEL

In general the grocery industry is favorable, because it is a very stable industry which tends to remain stable despite varying economic conditions, and technological advancements. The companies that are able to adapt to new trends, are able to be successful in a variety of locations, across demographics, and despite new laws or regulations.

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APPENDIX 3: FIVE FORCESForce -> Threat of Entry Bargaining

Power of Suppliers

Intensity of Rivalry

Bargaining Power of Buyers

Power of Substitutes

These factors increase this force ->

Limited specialized knowledge

Name brand Products Lots of Competition Lots of competitionVery price sensitive

Lots of Restaurants

These trends exert are of NEUTRAL impact on this force ->

Number of stores will likely grow with increasing populations

Integrated supply chains, Consumer Trends

People tend to shop in small geographic area

Brand Loyalty,Shopper Experience

Consumer Trends/ Health Concerns

These factors reduce this force ->

Expensive to start Store Brand Products Brand Loyalty Location/ convenience of stores

Lower Cost

Overall strength of this force,LOW, MODERATE, HIGH

Fairly Low

Medium

High

Medium / High

Medium/Low

Overall conclusions from the above Five Forces analysis ->

The Grocery industry is hard to enter because of the large number of competitors and the high startup costs of operating a large store. Aldi is in a decent position because it has a number of store brand products which gives them some power over suppliers. Competition in this industry is high, and buyers are price sensitive and generally willing to take the lowest cost alternative. It is fairly hard to substitute the grocery industry for anything other than restaurants, which tend to cost more and be less healthy. In general it is a hard industry to enter, but once established competitors can do very well.

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APPENDIX 4: MANAGEMENTJason Hart, Chief Executive officer, Aldi Inc.; He has been the Chief Executive Officer of ALDI Inc. since April 1, 2015. Mr. Hart served as the Co-President of ALDI Inc., until March 31, 2015.

Charles E. Youngstrom, CO-president, Aldi Inc.; He is also known as Chuck, serves as Co- President of Aldi, Inc.

David Behm, Co-president, Aldi Inc.; He serves as Co-president of Aldi, Inc.

Scott Patton, Vice president; Scott Patton serves as Vice President of Batavia Division at ALDI Inc.

Bob grammer, Vice president of Center Valley Division; Bob Grammer serves as Vice President of Center Valley Division at ALDI Inc.

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APPENDIX 5: VRIO ANALYSIS Resource /Capability / Competence

Valuable? Rare? Imitability Organized to capture

competitive disadvantage, parity, or superiority?

Tangible -Physical Stores

YES

NO

Easy to Imitate

YES

Advantage

Inventory YES NO Easy to Imitate Neutral ParityStore Brand Products YES YES Somewhat hard YES AdvantageTransportation Fleet YES YES Easy to Imitate Neutral ParityIntangible –Brand name

YES

YES

Hard to Imitate

YES

Advantage

Low cost operations YES YES Hard to Imitate YES AdvantageCustomer Experience YES YES Hard to Imitate YES AdvantageStaff usage YES YES Hard to Imitate YES AdvantageCapabilities –Low Costs YES YES Hard to Imitate YES Advantage

Environmental Policy YES YES Hard to Imitate YES AdvantageInventory Management YES YES Hard to Imitate YES AdvantageThe firm’s distinctive competence, if any

Aldi is very good at providing low cost groceries, they have very lean operations and do not require a lot of employees which keeps cost down. Because of store size they have a limited selection, but offer the lowest costs on those items. Aldi is good at ensuring their stores run effectively, and they are hard to imitate because of their unique stocking and employment models. Their smaller store size also allows them to expand to areas that don’t have a ton of space, or where large store spaces are extremely costly.

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APPENDIX 6: MARKETING CONTENT

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APPENDIX 7: SWOTStrengths Weaknesses

● Low Cost Offerings● Lean Operations – Low costs● Good quality products● Positive Supplier relationships● Good environmental policy● Innovative sales model● Store Layouts● Store Locations

● Variety of goods offered● Customer service● Size of stores, ability to stock● Quality perception● Consumer Familiarity● Adaptability to technology● Store aesthetics

Opportunities Threats● Expand US and Abroad markets● Increase Brand Loyalty and awareness● Expand into offering Organic and more fresh food options● Expand urban presence● Increase use of technology in stores to improve shopping experience● Focus on customer relationships, and improve customer perception● Develop employees aand cross train them to be effective at all in store positions

● Larger competitors offering lower prices● Changes in fuel prices● Changes in government food subsidies● Changes in Import taxes● Increasing abilities to shop online● Consumers are very price sensitive● Low Brand Loyalty

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APPENDIX 8: Industry Ratios

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APPENDIX 9: Industry Numbers

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REFERENCEShttp://supermarketnews.com/aldi-usa-2015http://www.mergentintellect.com/index.php/search/companyDetails/6940423 M, Paulo. "Aldi Marketing." Slideshare, 10 Oct. 2014. Web. 27 Mar. 2016. Mergent Intellect. (n.d.). Retrieved February 23, 2016, from IBIS World US. Web. 27 Mar. 2016.www.aldi.comhttp://aldiuscareers.com/about-aldi/divisional-structurehttps://en.wikipedia.org/wiki/Costcohttp://supermarketnews.com/aldiStatista (Most of the data about industries and competition was taken from this database)IBISWORLD (Most of the data about industries and competition was taken from this database)