PORTER’S FIVE FORCES ANALYSIS, ALDI ORGANIZATION
PORTER’S FIVE FORCES ANALYSIS, ALDI ORGANIZATION
Albrecht Discounts which is commonly referred to as ALDI is a Germany based retail giant operating globally. It is divided into two sections, North and South based on the operations. The idea of its inception is dated back to 1913 but came to limelight in 1990 in the UK. Currently, it operates as a chain of more than 500 stores worldwide. It operates in an environment full of other retailing giants and therefore prone to severe (Pioch, Gerhard, Fernie, & Arnold, 2009). It has been taking the competitive advantage over the rest of the giants through the strategy of cost leadership and its primary focus on giving the greatest worth of money to its customers. It mainly deals with stationery, grocery, and everyday cheap household goods. As it’s the case with most of its competitors, ALDI has not implemented the policy of minimum purchase hence allowing its customers to always shop at will. As its consumers wish to save money during recession periods, ALDI has implemented a business model that presents them with an opportunity to do so on weekly food shopping while still acquiring healthy food (Pioch, Gerhard, Fernie, ; Arnold, 2009).
Porter Five Forces Model analysis of ALDI organization
Within the sectors ALDI organization has ventured in as its business operation areas, there is a fierce competitive rivalry from the rest of the retailing giants. Following is a comprehensive Porter Five Forces Model analysis of ALDI organization (Dobbs 2014).
Competitive Rivalry- High
Within its operating industry, retail industry; the competition has been fierce as all the plays offer almost all their products at nearly same prices as the rest of the players in the industry (Dobbs 2014). Coles, Wal-Mart, and Woolworth are some of the main competitors of ALDI. All of them have been focusing on cost as their primary competitive advantage in the industry. The comparisons in pricing goods have been the main routine activity to the extent that a difference of few cents results to huge impacts. Market campaigns have been kept active to snatch market share from rivals in the industry. Again, despite the increasing costs of advertising and marketing, the prices of the products have always been low (Dobbs 2014). ALDI has implemented the principle of minimizing its fixed costs just like its competitors. Therefore, overall competitive rivalry for ALDI has remained very high.
Threats of New Entrants- Medium
Substantial capital investments and establishments are required for new firms aspiring to enter into this industry hence raising the entry barriers. To open new stores, establish brands and reaching stock economies of scale also requires investment and time. As such, this has made small players in the industry to end often up being victims of acquisitions and mergers (Dobbs 2014). However, local farmers selling homegrown products like vegetables and eggs or local supermarkets can take ALDI’s market share in small and medium-sized markets and can reduce sales and profits of the organization. The threats of new entrance can, therefore, be considered as medium.
Bargaining Power of Suppliers- low
The retail industry is congested with suppliers who are willing to supply similar products at the same or less prices than the current prices in the market to giant retailers like ALDI. In my trust, this gives the retailers the power to bargain for favorable terms and discounts from those suppliers. Therefore, the suppliers are not in any position to influence the market prices of the products they supply (Arnold 2012). Thus, the suppliers of ALDI do not have enough bargaining power over what they supply.
Bargaining Power of Buyers-High
The retail industry where ALDI operates revolves around offering products to the buyers at the lowest prices possible to attract customers. Each player is always reducing its product prices to attract more customers than the rest of the competitors. This has given the buyers superior bargaining power (Arnold 2012). Again, these stores are located close to each other, and therefore consumers can switch from one seller to another quickly. Most of these stores have adopted the system of offering loyalty schemes with discounts to their return clients. ALDI does not provide those schemes and therefore not in any way can raise its prices or attempt to influence the market prices of the products. As a result, buyers have acquired high bargaining powers over ALDI.
The threat of Substitutes- High
ALDI sells products which are not in any case unique because all the other giant retailers, as well as the local supermarkets, sell exact products. Again, most of the products they sell are brands sold everywhere (Arnold 2012). The other giants have also been laying great stress to the organization regarding marketing, price reductions, and advertising. As such, this makes it very easy for substitution. The products sold by ALDI can also be accessed in any other retail store easily. Therefore, the substitution threat is high for ALDI.
ALDI operates in an industry which is highly competitive as indicated in both macro and micro perspectives. Although new entrance into the industry is low, there is a need for the organization to explore the changing customer buying trends and other interactive measures which can lead to customer loyalty because all other forces have shown fierce battle against the organization progress. Currently, the buying patterns have moved into 24-hour shopping, self-service and online marketing which should be incorporated in the organization’s long-term strategy for competitive advantages.
Arnold, S. J. (2012). Lessons learned from the world’s best retailers. International Journal of Retail & Distribution Management, 30(11), 562-570.
E. Dobbs, M. (2014). Guidelines for applying Porter’s five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), 32-45.
Pioch, E., Gerhard, U., Fernie, J., ; Arnold, S. J. (2009). Consumer acceptance and market success: Wal-Mart in the UK and Germany. International journal of retail ; distribution management, 37(3), 205-225.
(Pioch, Gerhard, Fernie, ; Arnold, 2009).