Strategic Analysis Of Aldi: Porter's Five Forces, VRIO, Bowman's Clock, And SWOT Case Study

Strategic Analysis Of Aldi: Porter's Five Forces, VRIO, Bowman's Clock, And SWOT

Introduction: Strategic Analysis Of Aldi: Porter's Five Forces, VRIO, Bowman's Clock, And SWOT

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The report revolves around those factors that highly influence the case company while operating in the macro environment of the business. To abstract the view of external factors, Porter's five forces approach is used in the context of the Aldi group. The key strategic issues are discussed in the report to extract the major issues faced while making strategies for the company. The VRIO analysis and Bowman's clock analysis are explained in this study to evaluate the organization’s ability. At last, the SWOT analysis is highlighted in the report for a better understanding of the company's internal strengths.

Aldi was incorporated in 1913 and is engaged in selling retail products. The company was founded by Theo Albrecht and Karl Albrecht. The company’s headquarters is located in Essen, Germany. Aldi's UK operations are handled by the CEO, Mathew Barness. The short form of ALDI is Albrecht Discount. It is Germany-based global discount supermarket chain. In the UK Aldi is operating as a medium type of supermarket.

The company is mainly providing daily essential household products like vegetables, and dairy food along with the alcoholic products such as beer, wine, whisky, etc. Aldi also deals in the clothing products for female, kids, and males.  The company uses strategic position to deliberate and emergent approaches formulating the company’s strategy. The case company’s considered the primary source of differentiation from its competitors or other supermarket chains in the UK.

PART A

External environment of an organization

Porter’s 5 forces

Porter's Five Forces approach is a method of evaluating the functioning environment of a competitive business (Bruijl and Gerard, 2018). Porter mentions these forces as a microenvironment, to differentiate it from the more broad terms of macro environment.

Figure 1: Porter's five forces analysis

Following is the detailed analysis of porter's five forces approach of Aldi company:-

Bargaining power of suppliers - Since, the case company has varied production units; they depend on different divisions for each section of stores. The suppliers are merely price takers, for whom the shifting cost is tremendously high (Cho, et. al. 2019).

Bargaining power of buyers - As Aldi takes extraordinary measures to safeguard customers with the finest price-benefit ratio possible; the power of the customer keeps growing. More cost-saving actions mean more avenues and poor experiences of dissatisfaction (Omillo, 2019).The consumers can easily choose the other retailers over the case company.

The threat of substitutes – The biggest substitute of a case company is online shopping, but Aldi works in that setup too. The Ultra-modern alternates such as 3D printing are still far-fetched substitutes (De Widt, et. al. 2022). Consequently, the threat of substitutes is to be considered a medium force for the Aldi group.

The threat of new entrants – Aldi provides high-quality products to its customers at reasonable prices by applying extreme forms of cost-cutting, and hence it operates on a unique proposition. Though it may be possible for any new company to reproduce a few exterior measures and begin offering high-quality products at reasonable prices it becomes harder to get a grasp of the internal complexities (Khan,et. al. 2022).

Competitive rivalry- The retail zone is tremendously clouded with the several competitors in all over the world. It might difficult for the case company to attract new customers as it highly used private labelled products. Those customers who are new to the store are not able to find their suitable products and regular brand, and because of this they avoid to go the new stores

Mega trends and inflection points in the macro environment

The macro-environment denotes all those outer environment elements that greatly affect business decision-making, strategies, and success. The corporation is not even able to exert any influence over the macro elements because they are uncontrollable and incapable of being controlled (Henry, 2022).The wide-ranging and extensive set of economic situations is referred to as a macro environment. The macro-environment can be generally classified into two parts of the economic environment and the non-economic environment.

The economic environment comprises an economic system, financial system, macroeconomic parameters, different stages of the business cycle, and more. Those macro-environment factors directly affect an economic system and also have some impact on business success. On the other hand, the non-economic environment involves a legal framework, technological development, government policies, political system, demographic factors, social systems, and more. Normally, the non-economic environment has a strong impact on the success of any company.

Impacts of Macro environment on porter 5 forces

As, all companies are surrounded by the complex macro environment in the world, the most important thing that the marketer can do is to keep tracking the changing macro environmental factors in outside the firm. The macro environment contains a wide variety of distinct forces and factors; these can easily create threats for the company but also shape many opportunities. Hence, it is very important for marketers to understand all the contributing factors and stalk macro environment as it grows, only then the business thrives and grows in the current market.

Strategic issues

The exit barriers reflect those factors that make difficulties for the Aldi to leave an industry. The high cost while exiting the industry is the highest barrier for all the company that are operating in the supermarket chain industry. There are many companies that are leading supermarket stores in the international market. It is very difficult for any new company to enter into the industry and beat the giant companies that already placed their position in the market. The selective distribution channel strategy of Aldi appears by applying push advertising procedure inside the business. As the company directly offer its products straight to the end customers, the push marketing techniques normally includes manufacturers offering impetuses to retailers or distributors. The problem is that Aldi is attempting to enter a completely untapped segment of consumers. Aldi has decided to take advantage of its success in the European market after realizing to increase to another continent.

Part B

Based upon above discussion it is acknowledged that the distribution channel of the Aldi group is truly relies on the products that a company is providing to its customers. The evaluation of Aldi is made to sustain the advantage given the issues faced through the Bowman’s clock and VRIO which are described below:

Following is the VRIO analysis of Aldi:-

Valuable - The capability or resource for Aldi is considered valuable if it allows the company to negate threats and exploit opportunities emerging from both macro and micro business environments. And if it is not able to do so, then it does not contribute knowingly to building a sustainable competitive advantage for the company.

Rare - The industry in which Aldi is operating its business has valuable resources that are held by many competitors of the company. The case company needs to have a rare resource to beat its competitors. If the company does not have any rare resources with it then Aldi would not be able to compete effectively in the marketplace.

Inimitable - Both the above factors of VRIO analysis can offer a competitive advantage to a case company for a certain time, as there is heavy competition in the market in which all the competitors are going to try to replicate or imitate the resources. ALDI can generate inimitability by inventing on a product side, decreasing pain points on the service delivery, and also having an operative post-sales servicing plan.

Organization - Along with valuable, rare, and inimitable resources, the company has to expand its organizational capabilities, structure, and expertise to exploit the resources and gain a competitive advantage. If the company is not arranged based on its strengths, then it would not able to effectively utilize all the resources that it holds.

Strategic issues

VRIO is the acronym for valuable, rare, inimitable, organization. It is that analysis tool that focused on a strategic resource (Ariyani, and Daryanto, 2018). This analysis helps the company to do better allocation of resources and construct a defensible supply and value chain. Aldi’s VRIO analysis go through one by one on each internal resources whether this analysis offer a sustained competitive advantage to the company. The VRIO analysis of a case company also signifies on each stage that whether the resources might be upgraded to deliver a greater competitive advantage to a business. At last this analysis summarised the company’s performance as to whether it has temporary competitive advantage, competitive disadvantage, unused competitive advantage, competitive parity, or sustained competitive advantage or not.

Bowman’s clock

Low cost and low value-added- This position has the least competitive location on Bowman's strategy clock. In this case company's value of a products or services is low, and the point of price is as low as it is feasible.

Low cost- This position is also called cost-leadership strategy. Aldi uses this strategy as its weapon against its competitors. This strategy shows cost leadership for the company to attain a competitive advantage.

Hybrid-The strategy is a great choice when the company can find methods to cut costs without immolating value or when it can cut costs associated with economies of scale by enhancing sales in the market with a lot of consumers.

Differentiation- All companies can set their goods apart from those of their competitors through differentiation, which results in better sales. Aldi uses this strategy also.

Differentiation with a purpose- Focused differentiation is all about proposing high-value at the finest price of a product. But this strategy cannot be useful in terms of the technical products.

High-risk margin-The main focus of high-risk margin strategy is to entertain the market at a high price point with little obvious surplus value. Aldi has the potential to enter new markets, in different countries.

Pricing monopoly- As the single firm controls a product and pricing in the monopoly markets, in which other factors like rivals, price-points, and value has less impact.

Market share decrease- This strategy is a riskiest location since it specifies that a company is departing from the market or deteriorating. Aldi adopts this strategy also and gains a rival advantage in the international market.

Bowman's strategy clock is purely the marketing model that analyzes the competitive advantage factor and cost advantage factor of the company. This model helps Aldi to identify its position in the market as compared to its competitors (Echchakoui, 2018). The model has two dimensions one is perceived value to the consumer and the second is price.

Competitors’ reaction to the Key Strategic Issue

The basic and main intention of Bowman’s strategy clock for the company is to understand and analyse that how company’s products has to be positioned in market to attain a competitive advantage. There are three main strategic positions that are related to an uncompetitive in approach and nature as these strategic positions are the one where company’s product price is more than the observed value in the customer’s minds. Since the market is always works on the high competitive level, so there will be rivals that will provide a higher observed value of a product for the identical price or lower the price of a product for the same observed value.

1. Risky High Margins- This strategy is very risky for the company as the position of a business has greater chances of failing in the long-term can be understood through the help of figure 1. The reason of being risky of this strategy is that the customers have many choices to switch to similar products that are provided by the company’s rivalry at a lower cost.
2. Monopoly Pricing- This position of the Bowman’s strategy clock, the company positioned itself as a monopoly leader in the market as the company is only one who produces a specific type of product in the market.
3. Loss of market share- This position of the strategy clock is not very desirable for any company, as it basically define that the business is not able to produce the valuable products and services in the context of customers is explained below in figure 1.

Figure 1 Bowman's strategy Clock

The resources themselves do not create any advantage for a company which is explained through the help of Figure 1. To utilize the advantages and derive values, the company has to organize itself appropriately. Therefore, a company should coordinate and assemble its resources in effective way. For instance the company’s components involve official exposure structure, managing control systems, strategic planning and budgeting systems, logistics network, etc.

The company will not be able to use, monitor, or acquire its resources appropriately without a proper organization. Without organising the resources, a company cannot develop a sustainable competitive advantage. When all the four resource attributes are present, the company has unique competence that the company can used to construct sustainable competitive advantage.

SWOT analysis

The SWOT analysis is a strategic estimating tool that can do a situational analysis of a company which is done by the company’s managers. SWOT stands for strengths, weaknesses, opportunities, and threats (Teoli, et. al. 2019).

Figure 2: Aldi’s SWOT Analysis

Below is the SWOT analysis of the Aldi group:-

Strength- The case company has a greater reach in the international market. The biggest strength of the company is its brand reputation in the industry of supermarkets all over the world. The second and most powerful strength of the company is the long-lasting supplier relationships and reliable distribution network.

Weakness- The highest weakness of Aldi is that it has a low focus on the customer satisfaction as compared to its competitors. The case company has restricted staff in each of its stores worldwide that can handle all customer queries and requests on time (Song, 2021).

Opportunities- As the company is already operating its business on the international level; still it has a lot of opportunities in the market. Expansion to emerging economies such as Brazil and India tends to be a greater opportunity for a company.

Threats- A major threat for a case company is fierce competition in the supermarket industry all over the world. As the pandemic has had a long-term effect on the global economy which influence many countries with numerous challenges and it became a threat to Aldi.

Organizational ability to sustain advantage

Aldi can sustain competitive advantages through the help of porter 5 forces and VRIO’s important approaches explained below:

1. Bargaining power of suppliers - Aldi has low interchanging costs and also has fenced itself in contradiction of disruptions by expanding its network. Hence, it can be inferred that the bargaining power of suppliers has a low force to affect the competitive strategies of Aldi.
2. Bargaining power of buyers - The shifting cost to leftovers is very low. So, the bargaining power of customers seems to be strong in the context of Aldi.
3. The threat of substitutes – Other substitutes for Aldi are the Starbucks and Redbull stores that are on a decreasing route due to investment complexities and operational inefficiencies.
4. The threat of new entrants – the company sells its product at more than 90 percent of items as a private label, which means that they have an enormously well-set-up supply chain to acquire those products. Thus, a threat of new entrants for Aldi is taken as a medium force.
5. Competitive rivalry- When online sales start building a major involvement to sales income, the competition gets even fiercer because other businesses like Starbucks and RedBull will also be able to supply competitive prices for well-known products.

Therefore, it can be said that ALDI's competitive rivalry is a significant factor affecting the retail competitive environment. The VRIO analysis might be applied for company wide area or to the individual units of the company to well-rounded all the aspect of the business while positioning the company in the marketplace. When the company is planning for strategic process, that time is considered as best for VRIO analysis of the company. Performing to the VRIO analysis and developing this analysis over the time will protect the company’s sustained competitive advantages.

Conclusion

Based on the above report, this is concluded that Aldi has a huge market reach on the international level, but also has high-level competition in different countries of the world. The history of a company tells that it has a strong base of implemented and expansion strategies. The case company is highly influenced by the macro environment factors as it is operating in various countries on the globe. Porter's five forces approach signifies a strongest zone of Aldi in the external business environment. In conclusion, the VRIO and Bowman's clock analysis gave competitive advantage strategies to the company. In summary, this paper also argued that the company has powerful strengths to uniquely identify by the customers. Aldi also has high-level opportunities to gain huge revenue through expanding and growing the business into more different countries. 

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