Yet, among all those businesses we can divide them in two categories: discounter and large-scale retail outlet. So we can considerer Lidl as a serious competitor. But there are also Ed, Leader Price, Netto.
The same strategy is used in those companies. They buy in very huge quantities but not too many different products, thus they enjoy the economy of scale and propose attractive costs. On the shelves of big retailers, customers have more choice.
Summary Porter’s five forces:
The French market of retailers is quite closed to new competitors. There is no real threat about that. Nevertheless, a modern way to do shopping is emerging and appeals to people by saving time, it is the shopping online. It can represent a danger for existing retailers because clients have a high power of negotiation. But fortunately they keep good relationship with their suppliers, which permits to not leave the market.
PESTEL analysis
; ; ; ; ;
Pestel analysis identifies the influences of the environment. It permits a global view of the market and its environment, to give priority to attractiveness and to take into account all the data with method.
This analysis goes through 5 aspects: political, economic, social, technological, environmental, legal.
Political aspect:
Purchasing power is the main concern of French people. That is why discount signs like Aldi are successful: they sale the same high quality products as its competitors but the difference is the price. Then, they are more attractive than the ones of big signs. During this election campaign, Nicolas Sarkozy promised to increase the purchasing power with falling down the taxes in France which are more considerable than the average of the EU countries and increasing the salaries and to pay more the overtime.
In his programme, he committed to fight against unemployment promising that students who work won’t pay taxes, retired will work if they want to, and keep their pension. He will encourage also the small companies and the trainings.
About the access to property, Sarkozy talks about more construction of housing to reduce the prices. He underlines also the possibility to deduce the taxes of the interests related to the real-estate loan.
Economic aspect:
The French public deficit is approximately 59.6 million €. At the end of the year 2007, it was 1209.5 million €, namely 64% of the French GDP. So, it has considerably decreased.
Indeed, because of the inflation those last years, household consumption has decreased. French use a bigger part of their budget for transports or accommodation and utilities than for food and drinks. With regard to January 2007, it has decreased of 1.2%, but since October 2008 we can assist to an increase of 2.7%.
In France, the inflation rate is around 1.5% during 2007. This increase could explain partially the decrease of house consumption.
The exchange rate is falling for few months: euro is under the $1.27 and ¥120 barrier. Euro currency is more and more weak because of the use of an expansionist monetary policy. So it can explain the decrease of the exports. During the last 12 months, the exports are 416 billion Euros face to 470 billion for the imports (ONU-COMTRADE, 2007). This is a trade deficit in the balance of trade. (balance of trade = exports – imports)
About unemployment, we can give an assessment of the first year of Nicolas Sarkozy as president. In 2007, the unemployment rate was 8%. In 2008, the unemployment is 7.3% (Le Figaro, July 2007). Sarkozy’s aim is to reach the 5% barrier at the end of his mandate.
Socio-cultural aspect:
Between 2006 and 2007, the French population has decreased. But since 2008, in metropolitan France, the number rises.
The age bracket 24-60 represents almost 60% of the population, 16.5% for the 65 or more, 24.6% for the less of 26 years-old. (INSEE, 2008)
The disposable income of households is reported in this table:
Source: INSEE, 2005
There are more and more people who care of their health and being on form. That is why, still according to INSEE, there are many of them (51%) to be careful to what they eat: as organic foods.
Technological aspect:
Consumers have less time for themselves, so they do the most of the things via the Internet (pay taxes, consult the bank accounts, to do the shopping…). It becomes an important tool in the daily-life. As the mobile phones, it belongs to the daily-life. Nobody can go without it. The access of the Internet is also available on the mobile phones.
The public spending concerning research and development gives almost 20% to civil technical programs and more than 25% to basic research and training. There is also 15% to scientific and technical support for the public policies (health, education etc.)
Environmental aspect:
According to recent reports, global warming is going to involve an important economic recession and will cost more than 5 500 billion €. At the level of health, consequences are dreaded too. Some infectious diseases could appear in Occident as malaria for example, without talking about the risk of wars.
Since 2002, in France, there is a policy of sustainable development which entails the project of the constitutional charter on the environment. The most important goals for the French government are the policies led in the domains of water, nature, pollution, the prevention or the risk, the intensification in environmental evaluation or in socioeconomic analysis. That is why more and more signs don’t propose plastic bags free.
Legal aspect:
According to the consumer protection, the seller has to give all the pieces of information that the consumer needs and to explain all that he is engaged to. It concerns the contracts of consumption as well as credit transactions.
For instance, the committee of Ministers made resolutions to keep an eye on the use of colouring agents and varnish which could come into contact to food.
Summary PESTEL analysis:
Politically, the new government put up a favourable context for the retailers. Helping French families with assistance aid and falling unemployment, they increase their purchasing power. Moreover, the economic context is good because France become less and less in debt.
Retailers in general enjoy this situation and can focus on how to enlarge its activity: with new technologies and reducing costs to maximise profits.
Opportunities and threats
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Summary: opportunities and threats
Hard discounters have a privileged place in retail industry because of its specific costumers. This place creates opportunities as enlarging the business online which is become a very popular way to buy. Thus, discounters could easier compete with bigger brands not including the multiplication and growing of surface area of shops.
The success is ensured especially when the main concern of the French government is to raise the purchasing power.
New specified brands made little by little an appearance. Indeed, thanks to customers’ mistrust we can see now shops specialized in organic foods.
TASK B: Aldi’s resource capability analysis
Value chain analysis:
; ;
Value chain analysis permits to break down the activity of a company within two categories (primary activities and support activities) to identify its competitive advantages.
Inbound logistics:
Aldi does not participate to fabrication of its products in sale. It does not order raw materials but only the finished products that it needs. These needs are not different in regard to each country. Fresh products or finished products are stocked in warehouses.
The technique is to build some stores and a warehouse nearly. Then Aldi builds enough stores to saturate this warehouse. It starts again further. Besides, one of the main commitments of Aldi is to use cold rooms in its warehouses. But since few years, to save energy it prefers to use containers. Thus the use of colds rooms is not necessary in the shops anymore. It is a saving of place and more convenient.
To conclude, its 3000 suppliers send the merchandise to the warehouses thanks to the containers. To save more space, the products stay there and get out only for putting them on the shelves.
Operations:
Aldi’s policy consists of spending less possible of money in packaging to ensure a good final cost of its products. So, the suppliers deliver the products wrapped and packed, they are stocked in the warehouses waiting the delivery. The brand is only buying and selling the merchandise.
Outbound logistics:
As said before, the products destined to sales are stored in the warehouses. These goods are already in state to be sold. That is why the inbound and outbound logistics are merging each other. And in the same way, the containers distribute the good to local stores. There, the products are put on shelves.
Concerning fresh goods, there is no stock in the store itself. But the finished stuffs have a reserve in case it would be a shortage to wait the delivery and so to space the deliveries out.
Marketing and Sales:
About advertising, Aldi does not devote money to it. The only way to be known with low costs is to appear in magazines or newspapers. The distribution of the advertisements is made through mail boxes.
Moreover, the range of products is reduced but the Aldi’s policy consists of buying these products in large quantities. The consumer has not a huge choice but he can buy them at a good price thanks to economies of scale. That is why this business is more attractive than the competitors.
And Aldi does not need to give way to any loyalty card. Its system is basic: to buy and to sell with an attractive cost. This method works in view of more and more people spend time in it.
Table: Market shares of leaders of Hard-discount in France (2005)
Source: adopted from TNS Worldpanel / LeJournalduNet
Service:
First of all, like all the brands Aldi has an after-sales service. More precisely it is the maker’s one. In case of problems with a product, the costumer can turn to Aldi which will turn to the creator.
Moreover, Aldi has a new service which allows people to get their photos developed. This service is called ‘Aldi Service Photo’ and offers online software to touch up the pictures, to create an album or even to choose and to order the favourite photos.
This kind of shops is located in city centre so the use of cars is not necessary to access to it, but in some stores (in the countryside for example) a parking has been converted. Without counting the basic services for a supermarket: trolleys etc.
Procurement:
As I said before, the purchases are made with the suppliers. (cf. inbound and outbound logistics).
Technology development:
Aldi (and the hard-discounters in general) does not spend a lot of money in research and development. The brand offers the essential service, just to propose to the customers the products of everyday (water, bread, vegetables, soap, toilet paper etc.) without letting them a huge choice. It does not really take care of customer relationships management, or development of the activity on the net. As a proof, in Aldi stores, there is no music and no decoration.
Human Resources Management:
When a store needs some staff, the director offers training to ensure that the new recruit will adapt easily to the job. There are approximately about 8 employees per shop. The intern mobility exists but the main policy is to recruit people outside of the company. The main contracts are part-time for sales assistants or cashiers, but for instance for a director of a store it is a full time contract.
The last years, the trade unions and ecologist groups put pressure on the hard discounter because of the overtime unpaid.
Firm infrastructure:
Clear structures permit to turn towards outside and inside. This is why Aldi has chosen a system which is not very hierarchical. It makes easier the communication with the costumers and the employees. The latter are an inexhaustible source of information to answer to the buyer’s needs.
So decisions are not taken in the head of the company but in the appropriate departments.
To draw what has been said above the organisation chart is given below:
Source: organisation chart Aldi
Competitive advantage:
The hard discounters are a complete success. They appeared during an economic crisis and they aimed the low income households. These shops came while the passing on Euro as legal tender. The success was complete because the customers were worried and had the impression that large scale retailers were taking advantage of the situation increasing the prices.
The range of products on the shelves is very reduced (like 700 references against 10000 in the big brands). Thus, the customer had a little choice and can buy at low prices thanks to the economies of scale. Aldi reduces the variety and buy in large quantities. This allows the value to decrease in regard to the large-scale retail.
About the store itself, it is a very basic one: no decoration, no music. It has just shelves, cash desks, trolleys... Under no circumstances the customer feels stifled because the brand does not try to attract them with loyalty cards or any special offer...
At the beginning, this kind of store was established in the suburbs but now they gain around the city centres. Moreover, big brands as Carrefour created franchises with Dia in Spain or Ed in France. The customers themselves changed. From now on, not only the working class but also managers or executives frequent Aldi. Why pay the same products more expensive somewhere else? One of the other advantages of the hard discount is the quickness with which people do the shopping. On average they spend like 20 minutes insofar as we find there only the main things and no the superfluous.
Source: INSEE adopted from
To finish the SWOT begun in the first task, see below the strengths and the weaknesses of Aldi.
Strengths and weaknesses:
Summary of strengths and weaknesses:
Finally for the hard discounters, the advantages and the drawbacks are sensibly the same. Indeed, the fact that the choice is reduced on the shelves can please some and frustrate the others. The hard discounters are seen as complement because only the basic goods are available.
The time spent in the retail is very low and the visits are about 20 on average per year whereas we count about 40 for a large-scale retailer (source: INSEE). Nevertheless, on the whole these points represent strengths more than weaknesses.
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