Faculty of Economics and Business

The University of Sydney

Individual Assessment Cover Sheet

(To be completed by students, signed, dated and attached to front of assessment)

Last name: TAO

First Name: YE (TOM)

ID Number: 306257173

Email: ytao6290@usyd.edu.au

Unit code: work 6002_ Unit name: Foundations of Strategic Management

Lecturer/Tutor’s name: Leanne Cutcher Lecture/Tutorial day/time: Monday 8:00-9:00

Full assessment title: CASE Study Report A: External & Internal Analysis Aldi Australia

Word limit of assessment: _2500 Word count:_______2490________________________

Due date: _14___/__04___/__2008_ Time & date submitted: 16:00 __14_/__04/__2008

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Individual Assessment Cover Sheet Semester 2, 2006 (Revised 28/07/06)

Spring 2008 Foundation of Strategic Management Work 6002

Aldi Australia Strategic Analysis Report

-Internal & External Analysis
Question ‘Evaluate our firm’s external environment. Identify the most significant external
factors shaping our competitive position. Also evaluate our firm’s organizational strengths
and weaknesses. Identify the most significant resources and capabilities shaping our
competitive position’.

Executive Summary
Aldi Australia is a new entrant of Australia grocery Market, who had a strong base in German.

Aldi is growing rapidly all over the world, its most famous Philosophy is

Providing people highest quality groceries at the lowest possible price no matter where they

live. (Aldi Australia, 2008), which was represent by over 600 own-brand products. In Australia

Aldi currently have market share of 1%-2% and operates 160 stores national wide.

Grocery Market of Australia is concentrated and hard for new entrant to compete, however,

Moderate economic growth and low unemployment rate will help generate more sales.

On top of its famous low price product, Aldi also owns advanced distributaries technology and

facilities, which shows Aldi’s capacity to compete with the big three and other independent

retailers. Besides, Intangible assets such as reputation and organizational process are also

valuable strength. This report will address Aldi’s Strength, Weakness, Opportunity and Threats

in details. The major Findings can be summarized as. Aldi has Sustainable strength of low price

product, and significant weakness of lack of differentiation.

The significant opportunities form external environment are increase of interest rate and slow

down of economic, however, concentrated market structure is the biggest threat that Aldi

faces.

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Table of Contents
1.0 Part I -Overview
1.1 Introduction

1.2 Mission and Goals

2.0 Part II -External analysis

2.1 General Environment
2.1.1 Economic

2.1.2 Global

2.1.3 Demographic

2.1.4 Socio-Culture

2.2 Competitive Environment

2.2.1 Threat of new Entrants

2.2.2 Bargaining power of Buyers

2.2.3 Bargaining power of suppliers

2.2.4 Threat of Substitute produces & service

2.2.5 Intensity of rivalry among competitors

2.3 Overall threat and Opportunities

3.0 Part III -Internal Analysis

Resource Analysis

3.1 Tangible Resource

3.1.1 Financial

3.1.2 Physical

3.1.3 Organisational

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3.2 Intangible Resource

3.2.1 Human resource

3.2.2 Innovation and creativity

3.2.3 Reputation

3.3 Capabilities Identification

3.3.1 Logistics

3.3.2 Marketing and sales

3.3.3 Product development

3.4 Overall Strength and Weakness

4.0 Part IV -Conclusions

5.0 Part V-Appendix

Reference

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1.0 Part I--Overview

1.1 Introduction

Aldi was first established by the brothers Theo and Karl Albrecht In 1948, which was a

grocery store called ‘Albrecht Discounts’ (ALDI). Today, it becomes one of the world’s

biggest global giants with more than 7000 stores over 18 countries and has an estimated

annual turnover of more than 36 billion euro. (Wikipedia,2008) Aldi Australia belongs to

Aldi Süd who operates in Australia UK, Austria, USA Australia German, Slovenia, Ireland,

and Switzerland. Aldi Australia opens its first shop in 2001 in Sydney, within 7 years time 160

stores has been established across nation. This Report is structured according to SWOT

analysis and detailed in external aspect and internal aspect,

1.2 Mission and Goals

Aldi’s Mission statement and goals was not clearly published like other companies, instead it

expressed its vision by a stand still philosophy of providing highest quality groceries with

lowest possible price to everybody in Australia, which can be extend to huge savings,

guaranteed quality, outstanding value and special buys.( Aldi, Australia, 2008)

Compare with its American philosophy: “Incredible Value Every Day.” Which have been used

since ‘1976’ , the year that ALDI enters the States(ALDI, US,2008) This vision is clear and

simple and it is understood not only through out the company but also well known all over the

world. Aldi is achieving its philosophy by being cost-conscious in every aspect of the

organization’s value chain.

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According to the forecast of AC Nielsen, Aldi could own over 300 stores and capture 10 per

cent of the Australian packaged grocery dollar market by 2010. (AC Nielsen Grocery Report

2006, p. 12.) Which is understand as long term objectives, it is consisted with its short term

aims of goals such as national pricing, refund policies, and the aim of establishing relationship

with suppliers. The attitude of Aldi when dealing with stakeholders are fair and clear, career

opportunities has been offered to Australians

2.0 Part II --External Analysis (Threat & Opportunities)

2.1 General Environment

The general environment is composed of factors that can have dramatic effects on firm

strategy (Dean, T.J., Brown, R.L., &Bamford, C.E.1998) which include Demography, Socio-

cultural, Political, Technological, Economical and Global factors, but it is complex, uncertain

and undergoing rapid change, especially in economic aspect.

2.1.1 Economic

According to Australia’s bureau of Statistic, in 2007 Gross Domestic production (GDP)

increased by 0.6% in the December quarter Through the year growth was 3.9% in both trend

and seasonally adjusted terms (ABS, 2007) but The UN's Economic and Social Commission

for Asia and the Pacific expects economic growth in Australia to fall to 3.2 per cent in 2008,

from 4.3 per cent last year (SMH, March 2008) which means this year Australia’s economic

growth will be beyound focast buy Reserve Bank of Australia. On the other Hand , ABS also

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reported a Consumer Price Index (CPI) of 1.60 of eight capital cities, (ABS, 6410.0) which

means that one doller sixty cents today equals to one doller of last year., with such high

inflation and moderate economic growth, we are expecting strong competitions among

business.

2.1.2 Global

Globalisation is one of the main reason that ALDI Süd Enters Australia, which demonstrates

threats to local business, at the same time it also attract competition from other supermarket

giants all over the world. As it is raised by Berry

“Australia is as far from Aldi's home base as possible. And it has been this geographic

isolation and a relatively small population of 19 million spread over a vast continent that has

kept other big international food players at bay.” (Barry Flanagan, 2000)

But the advance of technology and repaid increase of globalization make competitions

possible.

2.1.3 Demographic

Australia’s population on 13 April 2008 at 14:34:56 (Canberra time), was 21,271,675, which

represents a growth rate of 1.2%, however, compare to the rest of the world it is very small

and , which is growing at very low rate.

2.1.4 Socio-Cultural

Australians are a unique and culturally diverse mix of people (Foreign affair, 2008) as at June

2005, the largest number of overseas-born people in Australia was from north-west Europe,

southern and Eastern Europe, South-East Asia, north-east Asia, North Africa and the Middle

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“culture of Australia at present however, keeping in pace with the changing times, has come to

be more Americanized” (world maps, Australia Culture)

2.2 Competitive Environment

“Australia has the most concentrated grocery market in the developed world. In competitors

aspect, Woolworths and Coles jointly have 79 per cent of sales of branded packaged grocery

products.” ( Share Ken, 2005) .Referring to Figure 1 . Australian Market was domainted by

two Gaints who resprents 78% to 79% of market share and holds 59 billions of turnover

jointly. They have had 1439 stores nation wide. Other competitors include IGA, Frankins (pick

& pay), Food works, Ritchies and other indenpend retailers. Who totally froms 20% of the

market.

In customers aspect,According to PWC’s report to National Association of Retail Grocers of

Australia, Grocery expenditure accounts for about 17.1 per cent of average total household

expenditure and Supermarket and grocery turnover counts about 29 per cent of retail turnover

- the largest component and consistently growing over the past 20 years.(PWC report to

NARGA, 2007)

In supplier’s aspect, Given such concentrated market and big spending on grocery goods ,

suppliers trend to

According to IBIS World’s press releases “Aldi with its private label products becoming

increasingly popular with Australian households. Mr. Baker said that as higher interest rates

continue to affect lower-income households, more and more people may begin shopping at

Aldi. And given the chain’s expansion plans, IBISWorld expects revenue to increase at a

double-digit rate this financial year.” (IBISWORLD, 2007/12/12)

Aldi’s further industry competition analysis and elements of industry structure can be shown

by Porter’s Five-Force Model

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2.2.1 Threat of new Entrants (Low)

Australian markets have considerable high barriers to entry. From a Micro-economic point of

view, capital requirement of investment is relevant high for investors; many private investors

have limited access to distribution channel. From Macro-Economic point of view, given that

Australian market is mature and gradually decline, Economic of scale is deterrent. It as very

hard to enter such a concentrated market (with Woolworth and Coles took 79% of market

share) and already established market structure and consumer trust forms great barrier to

enter. Other factors such as product differentiation and switching cost is also a considerable

barrier because of the strong evidence of brand loyalty and limited access of ‘Own’ brand.

It is believed that there is weak threat of New Entrants,

2.2.2 Bargaining power of Buyers (Low)

According to ACCC’s inquiry there are three major grocery wholesalers, two of which are

vertically-integrated (AAAC inquiry, 2008) therefore due to Australia’s unique industry

structure, Individual retailer and consumer has less power as buyer, alternative product such as

fresh food and frozen ones is available but not popular at all.

2.2.3 Bargaining power of suppliers (Medium)

Suppliers do have some power to bargain because there are some large suppliers in Australia

market, such as Inghams, Nestle, Arnott's, Kimberly-Clark and George Weston. These giants

are big, however, Australia has one of the most concentred grocery market,which means these

suppliers’ channels are also limited , although they have huge weight of suppliers’ market share

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for instance Inghams counts 30% of Australia’s 30 per cent of the poultry

market.(SMH,2008/04/01), compare to retail giants they are still tiny.“….. many suppliers are

unwilling to speak out for fear of putting the retailing giants offside”

(SMH,2008/04/01)

2.2.4 Threat of Substitute produces & service (Low)

In Australia the threat of substitute is very low. High labour rate and culture of families are

main factors. Possible substitute such as restaurant, Take away shops, Fish & chips and salad

Bar do exist but there compete effect as threat are minor to supermarket retailers.

2.2.5 Intensity of rivalry among competitors (High)

Competition of Australia market is very high with already established market structure and

concentrated market share; it is very hard for Aldi as a relevant new entrant to compete with

the big two, furthermore, Referring to figure three which shows that besides the big two there

are still 1209 IGA stores and 1531 of other independent Stores to compete with Aldi. (ABS,

850101)

2.3 Overall Threat and Opportunities

Threat Opportunities
Value of Euro-dollar is greater
Slow Economic threaten sales than Australia dollar
Globalization will attract Increasing interest Rate
more competitors lead more customer to Aldi

Unique Geographical and demographical

Slow Population growth of Australia nature of Australia keeps many competitors
means limitation of Demand away

Medium Bargaining power of supplier Low threat of New Entrants due to high barriers
post potential threat of supply chain problem to enter

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Low Bargaining power of Buyers in

High intensity threatening Aldi to
do its best to survive
Concentrated structure of Australia grocery
Market
Shopper dockets schemes used by Woolworth
and Coles
Market show opportunities
of Margin profit
Less substitutes means
opportunities to expend and sustain
sales and market share.
Diverse socio-culture and
Americanized trends post
opportunities to Aldi to open new market

Mergers and acquisition of Big supermarkets

weaken Aldi's market share attraction of "next door" suppliers

3.0 Part III -Internal Analysis (Strength & Weakness)

When comparing firms within same industry, internal analysis is employed which includes

Value chain analysis, Resource based point of view and evaluation of capabilities, Part III of

this report will address ALDI’s internal issues under each analysis.

Resource Analysis

Under resource point of view of company, firm resource includes all assets, and other value-

added items and non-items, which can be divided into two categories: Tangible and intangible

resources.

3.1 Tangible Resource

3.1.1 Financial

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Aldi’s financial assets includes its cash account which have been minimised because of

company’s “Just in Time” Inventory policy, but Firm’s ability and capacity to borrow is high,

due to its reputation, How ever given that Aldi is privately owned company, The borrow

function from public such as shares haven’t been utilised. Therefore the weakness of financial

disability when requiring large fund is obvious.

3.1.2 Physical

The Physical Resource of Aldi Australia Includes: Its Morden plant and facilities such as

366,000 square feet distribution centre worth $43 million, in sight of the main distribution

centre for Woolworth’s, Australia's largest food retailer (Berry, 2000) other physical asset also

include retail sites of around 75,320 square feet, other machinery and equipment for logistic

and storage.

3.1.3 Organisational

On Organisational point of view Aldi holds effective strategic planning process, Excellent

evaluation and control system such as mentioned before the PDA in store ordering system,

Unique in-store layout and Low turnover Inventory System, These organisational presses and

control system are strength of Aldi.

3.2 Intangible Resource

3.2.1 Human resource:

According to Berry that Adli attract many talented people including retail managers, property

experts and others since its opening, at the same time Aldi Australia is recruiting individuals

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from all aspects such as university graduates, publics and internal employees, Aldi status that

:” we want the best and we're willing to do what it takes to keep you. That's why we offer

extensive training programs at all levels of employment. And to ensure career success and

progression, we recruit internally when we can for management roles. That way, all our

employees are given the opportunity to develop their careers.(ALDI,2008) The company

culture is known as the ‘Aldi way’, we can refer to Figure 4 Aldi’s divisional structure of

United Status, which will give us a indication of organizational structural of Aldi Australia.

Which is relatively simple compare to other global giants, managerial tasks has been divided in

to Warehouse, Operation, Purchasing, Real Estate, and Administration.(ALDI US,2008) These

simple and effective Human resource strategy is a valuable intangible Resource. However the

weakness of these strategies is lack of considering work-life balance in Australia context.

3.2.2 Innovation and creativity

Aldi already demonstrate a unique innovation and creative ability in retail industry, namely:

Self serve packaging, trolley renting system, free-standing, purpose-built structures and

managers are using “a wireless PDA style device that is linked to the back office computer

“(wikipedia, 2008), such intangible assets are valuable strength. On the other hand weakness

appears as lack of innovation on customer service and media advertisement.

3.2.3 Reputation

Originally Aldi stores were often ridiculed as being cheap shops selling low-quality goods and

that Aldi's customers were all poor people who cannot afford to shop from elsewhere

(wikipedia,2008), but due to its strategy of aggressively recruiting managemant staff at top

UK institutions as the University of Warwick and others, publish series of cookbooks that only

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used Aldi ingredients in German and fulfill the void that Franklins ceased trading in 2002 in

Australia.Its reputation havs been changed not only in German but also all over the world. Its

reputation is growing. Nevertheless, its long established reputation of “lowest price” retailer is

worth a good will.

3.3 Capabilities Identification

3.3.1 Logistics

Logistic and supply chain are the most important component of retail business, which was

represented in Aldi’s organisational structure as warehouse department, according to articles

form paper and company information “Aldi will have the capacity to easily service a mooted

100 stores in its initial thrust into New South Wales ...”( Barry Flanagan,2000) which indicated

strong logistic strength.

3.3.2 Marketing and sales

In Australia Aldi is using local give-away newspapers and delivering full color leaflet to

householders letter box as well as e mail subscription of newsletter. But no like other

supermarkets Aldi haven’t spend lots of fund on TV and other high cost Advertisements.

3.3.3 Product development

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Aldi Australia selling more than 600 own-brand product, it strategy and development direction

is focused on own-brand and keeping develop it, which could gain greater market share,

giving the previous example of Franklins.

3.3.4 Alliances, Joint Ventures and Acquisitions

Aldi is privately owned company, it operated in Australia with no Alliances and Joint Ventures

how ever instead of acquire Franklins Aldi full fill the gap that Franklins left.

3.3.6 Core competencies (competitive advantage/ sustainability)

The core competitive of Aldi Australia is its unique Own-brand product and super low price on

grocery items; it is a sustainable competitive advantage, other competitive advantage includes

advanced logistic technology, quality reputation, and human resource asset, but these

competitive advantages are not very sustainable.

3.4 Overall Strength and Weakness

Strength Weakness

Extensive Distribution Network Low royalty in brand Name

Strong Base in German,

--strong physical asset
Consistently recruit talent people
hold valuable human resource asset
Increasing Reputation of
quality and international reorganization
Unique organizational control and process
system from shop layout to ordering and
inventory control
Low borrow Ability from market
low reputation in service
and brand quality
Low level of service
Lack of product differentiation

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wide range of "owned-brand product"

Simple organizational structure

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4.0 Part IV –Conclusion

In conclusion Aldi Australia faces significant threat of concentrated market structure and

High intensity among competitors, but opportunities such as increase of interest rate

and little choice of substitutes means the external environment is still favors Aldi. On the

other hand more than 600 “own-brand” product joint with low price reputation and

advanced distributaries technology Forms strong strength compare with others,

however, according to the Failure of Franklins, service should never be out aside, which

is discussed by this report as significant weakness. To summarize, as an New entrant to

Australian Grocery market, Aldi have sustainable competitive advantage as well as

significant weakness, the External environment shows more opportunities that threats,

with out considering concentrated structure.

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5.0 Appendix
Figure 1

The economic contribution of small to medium size grocery retailer to the Australian economy,
with a particular focuses on Western Australia June 2007.National Association of Retail
Grocers of Australia by PriceWaterhouseCoopers

Figure 2
Break down of components of retail turnover

ABS, Cat. 850101 & 526006. Retail trade calculated on the basis of Industry Turnover, GDP
calculated according to Gross Value Added to the economy.

Figure 3

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Breakdown of store numbers and percentage of stores by operator across Australia

Figure 4
Aldi’s divisional structure of United Status

Source: Aldi United States Employment Information

http://www.aldiuscareers.com/divisionalstructure.aspx

Figure 5

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ABS 5206.0 - Australian National Accounts: National Income, Expenditure and Product, Dec
2007 Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 05/03/2008 Reference
5206.9

Figure 6
Consumer Price Index (Inflation)
CPI, All groups index numbers and percentage changes

Index number(a) Percentage change

Dec Qtr 2007 Sep Qtr 2007 Dec Qtr 2006

to Dec Qtr to Dec Qtr 2007

2007
Sydney 159.5 0.9 2.4
Melbourne 158.5 1 3.3
Brisbane 163.4 1.1 3.9
Adelaide 163.1 1 2.7
Perth 160.2 0.8 3
Hobart 159.2 0.8 2.9
Darwin 157.1 0.3 2.9
Canberra 160.8 1 3.3
Weighted 160.1 0.9 3
average of
eight capital
cities
(a) Base of 1989-90 = 100.0.
each index:

ABS, reference 6410.0 Consumer Price Index, Australia, Dec 2007

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Reference

“A gorilla scares Oz” Barry Flanagan. Grocer. Crawley: Aug 12, 2000.
Vol. 223, Issue. 7466; page. 34, 2 pgs

ABS 5206.0 - Australian National Accounts: National Income, Expenditure and Product, Dec
2007 Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 05/03/2008 Reference
5206.9

ABS, reference 6410.0 Consumer Price Index, Australia, Dec 2007

“Aldi” Wikipedia , 9 April 2008, http://en.wikipedia.org/wiki/Aldi

ALDI group, http://www.hoovers.com/aldi/--ID__54910--/ free-co-factsheet.xhtml

(Accessed 10.04.2008).

ALDI Australia, http://aldi.com.au/ (accessed 1.4.2008).

ALDI USA http://aldi.us/index_ENU_HTML.htm (accessed 1.4.2008)

Aldi driving Australian Private Label growth au.nielsen 10 April 2006

http://au.nielsen.com/news/20060410.shtml

Australian Competition and Consumer Commission inquiry into the competitiveness of retail
prices for standard groceries 11 February 2008

Australia's economic growth to slow: UN March 27, 2008 - 5:39PM SMH

http://news.smh.com.au/australias-economic-growth-to-slow-un/20080327-21v5.html

Australia Bureau of Stastic, 2006 population projections, Australia, 2004-2101, reference

3222.0

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Australia Bureau of Stastic, Cat. 850101 & 526006. Retail trade calculated on the basis of
Industry Turnover, GDP calculated according to Gross Value Added to the economy.

Australian Government, Department of Foreign affair and trade, “A diverse people”

http://www.dfat.gov.au/aib/society.html

“Australia culture” http://www.mapsofworld.com/australia/australia-culture/index.html

( accessed 2008 4/12)
“Business information analysts IBISWorld release their retail forecast for 2008”, 2008
IBISwORLD http://www.ibisworld.com.au/pressrelease/pressrelease.aspx?prid=110

Dean.t.J Brown.R.L &Bamford.C.E 1998 “Difference in large and small firm responses to
environmental context”: strategicimplication from a comparative analysis of business
formation. Strategy management journal19:709-728

Data monitor “Food Retail in Australia” Industry Profile, May 2006 Reference Code: 0125-
2058

“NARGA releases major research report into impact of retail grocery industry on national
economy NARGA news release 2 July 2007

Share Ken “Who determines grocery market shares?” August 2005 Competition Law Reform
http://www.narga.net.au/?p=10

The economic contribution of small to medium size grocery retailer to the Australian economy,
with a particular focuses on Western Australia June 2007.National Association of Retail
Grocers of Australia by PriceWaterhouseCoopers

Vanda Carson “Suppliers to appear at grocery inquiry” Sydney Morning Hearld,01/04/2008 p

24

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