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ALDI offering the ‘same for less’ value proposition
Andrian Saputra Njonoriswondo
Billy Qian
Claudya Vici
Yvonne Huang
Table of contents
Introduction pg. 2
Australian Retail Industry pg. 2
Market Segmentation pg. 2,3
Product Differentiation pg. 3
Consumer Perception pg. 4
Cost Effective Strategy pg. 4,5
Potential Future Problems pg. 5,6
Conclusion pg. 6
Appendix pg. 7
References pg. 8,9
Introduction
In present, the number of retailers in the marketplace is uncountable. Hence, it is important
for the organisations to understand and satisfy their consumers and customers in order to
have a long-run survival in the marketplace. Every organisation is aiming to be efficient
and effective in operation. Thus, they have to be sure that consumers and customers have a
freedom to choose goods at the best price and perceive a service that match their
preferences. To succeed, the company has to be certain about which part of consumers or
customers they want to satisfy. In other words, they have to create a more focused target
market. This idea is often called market segmentation. Market segmentation can be defined
as a marketing strategy that involves dividing a broad target market into narrower target
consumers who have common needs and wants (Goldstein 2007). ALDI has been regarded
as a successful company that can meet the expectations of customers whereas the other
existing firms are unable to fulfill. ALDI was established by Theo and Karl Albrecht in
Germany in 1948 (ALDI n.d.). In 1960, ALDI had opened almost 300 stores between the
Ruhr Valley and Aachen. Theo and Karl then divided the business into two independent
companies: ALDI Süd - to service the South, and ALDI Nord - for the North (Bonn 2006,
p. 60). By now, ALDI has become a successful company with owning over 7000 stores
worldwide and an estimated annual turnover of € 36.2 billion (Bonn 2006, p. 60). ALDI
started its spread in Australia in 2001. Originally opening around 10 stores, ALDI has
expanded rapidly over the years and currently operates over 300 stores across New South
Wales, ACT, Queensland and Victoria (ALDI, 2013).
Australian Retail Industry
Australia has almost 140 000 retailers that accounts for 4.1 per cent ($53 billion) of its
GDP and 10.7 per cent of employment, making the retail sector one of the largest
employers in Australia (Australian Government Productivity Commission, Economic
Structure and Performance of the Australian Retail Industry 2011). Retailing is a business
activity that involves the purchase of goods from suppliers followed by sales to customers
(Peterson & Balasubramanian 2002, p. 10). Within Australia’s retail market, Woolworths
and Coles have dominated Australia’s supermarket retail sector for many years.
Woolworths has the biggest market share with 41.1 per cent of the grocery sector in 2011
whilst Coles is second with 31 per cent (Deloitte Access Economics, 2012). With two
major retailers controlling such a significant share of the market, Australia's supermarket
and grocery sector can be considered a duopoly. Prior to the emergence of ALDI, another
key player in the sector was the supermarket chain Franklins. Franklins competed with the
other major retailers but at the price-conscious end of the market. At one stage Franklins
implemented a marketing strategy to compete with the fresh food retailing concept of
Coles and Woolworths. However this confused its customers and eventually led to its
demise.
Market Segmentation
Market segmentation is necessary to divide up an entire market that comprises of many
individuals who have different motives, preferences and buying habits. To be successful, a
company must target segments that have the right size and growth characteristics.
Appendix A shows how markets can be segmented based on different criterion. ALDI’s
strategic targeting of the lower-middle class or blue-collar workers
has proven to be particularly successful in attracting younger shoppers, who make up more
than one third of their customer base (Greenblat 2010, p. 29). ALDI implemented their
strategy by setting up stores in populated areas of lower socioeconomic status, such as
Sydney’s western suburbs, demonstrating geographic and demographic segmentation
(Merriles & Miller, 2001, pg.10). Unlike Franklins, ALDI solely focused on the price
conscious end of the market and did not attempt to shift their business position to compete
with Coles and Woolworths in the upper end of the market. Franklin’s demise, mainly due
to its confused mission statement, resulted in a gap in the market where the discount sector
was no longer being catered for by any major retailer. This allowed ALDI to enter
Australia’s retail market with little difficulty.
Product Differentiation: Private vs National
ALDI's position statement is straightforward - “All people, wherever they live, should
have the opportunity to buy everyday groceries of the highest quality at the lowest possible
price" (ALDI, 2013). To achieve this product differentiation, ALDI focuses on selling
private label products rather than traditional national brands. This is reflected in the
composition of goods offered by ALDI with 5 per cent of ALDI's stock comprised of
national brands, and 95 per cent consisting of ALDI's house brand (Nencyz-Thiel 2011, p.
629). Private label brands have traditionally been priced below national brands, with ALDI
offering a one price-quality tier with all their private brands priced below the national
brand average price (Nencyz-Thiel 2011, p. 627). This price differential between private
label brands and national brands is solely a result of the lower manufacturer costs of
private label products (Baltas 1997, p. 315). Manufacturers that produce private label
products face a fixed and tight product specification and a fixed price with no returns for
