The Australian food retailing industry is characterized by a high level of competitiveness. The intense competitiveness has led to an environment in which emphasis on cost efficiency has become the critical success factor. In the general environment, the key to maintaining competitiveness has become ensuring cost efficiency through efficient supply chain management.
This efficiency can be promoted technologically. Economic factors are also important in the environment. These factors manifest themselves in high levels of household debt, a low national rate of saving, falling house prices, falling oil prices and increases in unemployment and interest rates. In Aldi’s case, these environmental factors are likely to exercise a negative influence on consumer spending.
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The threat of new entrants is high in this industry. For example, Aldi faces the threat of its main European rival Lidl entering the Australian market. Therefore the threat of substitute products is also high. This threat is underscored by the fact that most competitors are carrying house brands which are enabling them to offer high quality at a low price. This has resulted in a high level of competitive rivalry.
The main competitors currently are Woolworths and Coles-Myer. These are the two major national chains. There are also smaller regional players such Action, IGA and Franklins. These companies are focusing on cost efficiencies and therefore sustainability of competitive advantage has become difficult to maintain. Bargaining power of customers in the FMCG industry is also high. However the bargaining power of suppliers is not that high. Costs in this case have been streamlined through building long term relations.
Aldi’s main strength is the process of decentralization empowering managers. There is a high degree of delegation in the company. The company’s weakness is in its lack of investment in marketing. Currently this is not a problem but in the future, as new entrants stake out a claim in the industry, the company might have to invest in aggressive promotional strategies (cited in Hill, 2008).
However the company is not structured to shift focus accordingly. Lack of market research might also become a problem in case of increased competitiveness. The opportunity for the company is to move into other Australian states and territories.
In the immediate time frame, the company should focus on South Australia because of its proximity to its current locations. The threat is the rising level of competition not only from the existing players but also from new entrants. The competitive threat is being created in terms of cost improvements and product diversifications (cited in Aaker, 2004).
Key resources and capabilities
The source of Aldi’s competitive advantage is cost leadership. Implementation of this strategy has been facilitated by maintaining good relations with channel members and ensuring employee satisfaction.
Channel members include the suppliers and the customers. Aldi’s strategic focus is to ensure maximum customer satisfaction by maintaining a product range that is in alignment with customer tastes and preferences. The company also maintains good relations with the suppliers by maintaining a shared information network.
Its cultural orientation is also unique in terms of facilitating the highest degree of decentralization and delegation. This gives the managers a sense of ownership over their processes and as a result they are committed to the continuous improvement process. This is a critical success factor for the company in the highly competitive environment in which it operates and these resources ensure a sustainable competitive advantage.
What gives Aldi a sustainable competitive advantage is its limited product range that consists of house brands. The advantage of maintaining this orientation is that strategies against the threat of product differentiation can be implemented.
This is particularly relevant in Aldi’s case because it faces intense competition from Woolworths and Coles-Meyer which are major national chains and draw their competitive advantage from maintaining a widely diversified product portfolio.
Therefore Aldi has to position itself as a low cost provider of products of comparable quality. This is facilitated through cutting costs in areas such as not providing free shopping bags, surcharges on credit card payments and motivating customers to manage their own shopping trolleys.
These strategies enable the company to cut down the size of its manpower and therefore reduce costs. Being cost conscious is the first part of its guiding philosophy. The second and third parts of the philosophy are related to ensuring satisfaction with customers and suppliers.
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