Constrained consumer spending and continuing controversy over the impact of the euro are damping down growth and squeezing margins in the retail sector. Yet food discounter ALDI is bucking the trend, enjoying huge increases in turnover and record profits. What are the secrets of its success? He shows what the company has in common with other great industry leaders such as General Electric and Wal-Mart, and explains how the ALDI brand of management works. The ALDI system is not exclusively a retail discount system, but a management and organization system that can be applied in any business. Companies in industries as diverse as IT, banking and manufacturing, as well as entrepreneurs and start-ups, all have much to learn from the way ALDI manages its operations.
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It only stocked basic items — fewer than you might find in your local corner shop today — all at very low prices. For many products, including butter, tea and ketchup, only a single, usually unfamiliar brand was offered. Strip lights illuminated the sq metre store, and from the ceiling hung banners listing prices for the goods stacked on wooden pallets or displayed in torn-open cardboard boxes on metal shelves. The store accepted cash but not cheques or cards.
Customers seeking itemised receipts left disappointed. The Albrechts had an extremely popular chain of bleak discount stories in Germany: the brothers had divided the country into separate fiefs, with each controlling the market in one half of the territory. But most people were confident they would fail in Britain, where there was a discernible snobbery about discount stores.
While the major supermarkets dozed, convinced that many people would not be seen dead in a discount store, the German chains quietly turned the sector on its head. Nearly two-thirds of households now visit an Aldi or Lidl branch at least once every 12 weeks, according to the research firm Kantar Worldpanel. Lidl has 5. Tesco, meanwhile, has slashed its product range and bought the discount wholesaler Booker.
But we also follow these stories closely for a more sentimental reason: grocery shopping is an intimate part of our lives. Most of us shop weekly, at the same store each time. Traditionally, we chose a shop for convenience — because a particular store was close by and because we knew along which aisles to find a large choice of our favourite products and brands — and loyalty. Research shows that many of us also chose a grocer because of how we perceived ourselves in terms of class and status.
But the success of Aldi and, to a lesser extent, Lidl, shows that these old conventions no longer hold so true. Aldi, which is still family owned and unburdened by the short-term pressures for profits faced by its stock-market listed rivals, has changed the way we shop.
Today, you will no longer search in vain for avocados and kiwi fruit at Aldi. You will even find sourdough baguettes, prosecco and day aged Scottish Aberdeen Angus sirloin steak, the sorts of items that have attracted customers who previously might have looked down their noses at discount shops.
The total number of products — known in retail as stock-keeping units SKUs — found in all Aldi stores has tripled since the early 90s to nearly 2,, although that remains tiny compared to the 25, or more in a big supermarket. Most of these products are private labels that are made specifically for the company, even if they are designed to appear familiar to shoppers. In the latest Which?
BARE ESSENTIALS: The ALDI Way to Retail Success
Even so, both companies are extremely successful. Just how successful can be measured by the yardsticks of growth and profitability. Both were founded in the post-war period, have operated using similar methods and have achieved similar levels of success. Wal-Mart makes a habit of trying things out to see if they work; trial and error is the ALDI way too. Sam Walton and his managers knew that there is no magic formula for success, but that numerous small things contribute to it, a conviction that ALDI shares. Retail is detail: paying attention to all the success factors over decades. That is the art, and that is no secret.
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Bare Essentials: The Aldi Way of Retailing
Bare Essentials: The ALDI Way to Retail Success