Aldi focuses on expansion into Anglo-Saxon markets and FMCG brands
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“When times are tough, times are good for Aldi” is a saying attributed to the Albrecht brothers’ mother. While this is undoubtedly true, as the retailer is on a growth spurt in recession hit Anglo Saxon markets, where consumers of the squeezed middle are trading down as never before, it misses a crucial point. The hard discounter is performing strongly in better macro economic times as well. We predict that the retailer will double its market share in many categories over the next five years, as the discounter keeps its store operation fresh, introduces more FMCG A brands but crucially stays true to its principles and invests more into store expansion in the US, UK and Australia.
The discounter format is completely misunderstood and underestimated by many competitors as well as analysts. Much of this has to do with the fact that the retailer does not sell its till roll data to market research agencies and is secretive about all aspects of its business, its financial performance included.
Never Miss a Retail Update!The reason behind Aldi’s outstanding success can be found in a clear strategic principle. Unlike the other successful giants of grocery retailing and their focus on the shopper and customer centricity, Aldi follows a different path. According to Aldi’s principles once the product is right, the customer will come. This means the retailer puts an unrelenting focus on its core promise to deliver the best possible quality at the lowest possible price.
The focus on a tightly edited range of around 1,100 to 1,500 SKUs also means that the retailer is among the world’s biggest buyers for products – and this crucially makes the retailer so attractive to the FMCG industry and the question about introducing more brands into Aldi stores so pertinent to the industry.
In the markets where the discounter has introduced FMCG A brands in store, double digit like for like sales uplifts have been recorded. While the discounter hopes for increased penetration especially among middle class shoppers, brands often act more as a frequency driver.
However some clear risks are inherent in this strategy, for one, Aldi risks diluting one of its key competitive advantages of offering only unique private label products, whose prices cannot easily be compared. Other drawbacks include a weaker margin structure and of course losing a degree of control over the proposition in store.
For FMCG companies the opportunity to supply both Aldi Nord and Sued is truly huge, after all Aldi’s tight selling space means that the retailer is likely to only stock one FMCG brand per category next to its private label offer, guaranteeing exclusivity of access to the Aldi shopper to the stocked brand.
That said, the FMCG industry needs to handle supplying Aldi with their flagship brands with extreme care. When challenged, Aldi will defend its core value, its price leadership position, which means that the discounter will radically cut prices of brands at the drop of a hat, posing a clear danger to FMCG brand equity and a race to the bottom in terms of margin and price. Moreover brand manufacturer relationships with other retailers will become that much more difficult to negotiate, whether standard or non-standard pack sizes are provided to Aldi or not.
For now Aldi has made the strategic decision to refrain from entering new countries and to strengthen its positions in existing markets, where an infrastructure, distribution centres, store networks, relationships with suppliers and loyal shoppers have already been established and to concentrate on the in fill opportunities in the US, UK and Australia. With the backing of some of the richest Europeans the pockets of the discounter are deep indeed and we predict a real growth spurt for Aldi, as new store space (especially in the Anglo Saxon countries), better marketing (social media) and tighter non food promotions will further contribute to rapid underlying growth generated by the introduction of brands and austerity economics.
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