Work 6002 case study new A

Faculty of Economics and BusinessThe 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: [email protected]

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

Academic Honesty

All forms of plagiarism and unauthorised collusion are regarded as academic dishonesty by the

University, resulting in penalties including failure of the unit of study and possible disciplinary

action. If you are in doubt about academic honesty, please consult with the unit coordinator.

Declaration

Tick each box

√ I have read and understood the University of Sydney Student Plagiarism: Coursework Policy and

Procedure.

√ I understand that failure to comply with the above can lead to the University commencing proceedings against me for potential student misconduct under Chapter 8 of the University of Sydney By-Law 1999 (as amended).

√ I certify that this work is substantially my own, and where any part of this work is not my own, I have indicated as such by acknowledging the source of that part or those parts of the work.

√ I have completed the online academic honesty module.

√ The assessment has not been submitted previously for assessment in another unit

√ The assessment conforms to the requirements in the Unit of Study Outline.

√ I have retained a duplicate copy of the assessment

…………………………………………………….. …14../…04/…2008.Student Signature Date

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.

14/April 2008 Ye (Tom) TAO

2


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


3


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


4


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


5

http://en.wikipedia.org/wiki/Switzerland

http://en.wikipedia.org/wiki/Republic_of_Ireland

http://en.wikipedia.org/wiki/Slovenia

http://en.wikipedia.org/wiki/Austria

http://en.wikipedia.org/wiki/Australia


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

the organization’s value chain.

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,


6


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

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


7


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 “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


8


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

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.


9


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 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


10


Threat Opportunities

Slow Economic threaten sales Value of Euro-dollar is greaterthan Australia dollar

Globalization will attract more competitors

Increasing interest Rate lead more customer to Aldi

Slow Population growth of Australia means limitation of Demand

Unique Geographical and demographicalnature of Australia keeps many competitors away

Medium Bargaining power of supplier post potential threat of supply chain problem

Low threat of New Entrants due to high barriers to enter

High intensity threatening Aldi to do its best to survive

Low Bargaining power of Buyers in Market show opportunities of Margin profit

Concentrated structure of Australia grocery Market

Less substitutes means opportunities to expend and sustain sales and market share.

Shopper dockets schemes used by Woolworth and Coles

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


11


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

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


12


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 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


13


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 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


14


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

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


15


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 Low borrow Ability from market

Consistently recruit talent peoplehold valuable human resource asset

low reputation in service and brand quality

Increasing Reputation of quality and international reorganization Low level of service

Unique organizational control and process system from shop layout to ordering and inventory control Lack of product differentiation

wide range of "owned-brand product"

Simple organizational structure


16


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.


17


5.0 AppendixFigure 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 2Break 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


18


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

Figure 5


19

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


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 6Consumer 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 2007

to Dec Qtr 2007

Sydney 159.5 0.9 2.4Melbourne 158.5 1 3.3Brisbane 163.4 1.1 3.9Adelaide 163.1 1 2.7Perth 160.2 0.8 3Hobart 159.2 0.8 2.9Darwin 157.1 0.3 2.9Canberra 160.8 1 3.3Weighted average of eight capital cities

160.1 0.9 3

(a) Base of each index:

1989-90 = 100.0.

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


20


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


21

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

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

http://aldi.us/index_ENU_HTML.htm

http://aldi.com.au/

http://www.hoovers.com/aldi/--ID__54910--/

http://en.wikipedia.org/wiki/Aldi


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


22


http://www.narga.net.au/?cat=5


http://www.ibisworld.com.au/pressrelease/pressrelease.aspx?prid=110

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

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

Work 6002 case study new A

Documents

australia aldi

assessment title

assessment time date

grocery market of australia

unit code

unit coordinator

unit of study outline

university of sydney