1. INTRODUCTION
The first place of Forbes richest people in Germany were occupied by the owner of the discount
retailer, ALDI South. The hard discount business model is threatening the rivalries in the market.
This case study focusses on the important aspects of the ALDI business model and the decision-
making process, operations, demographics and importance of German family owned business in
2. OVERVIEW
German food industry revenue €195.5 Billion in 2016. The industry sales were increased by 2.3%
which is resulted in €5.5 Billion. The Food and drinks sector employed around 580,030 people in
5,940 companies in 2016(+1.9% from 2015). Food retailing followed by food services sector and
export is the most important distribution channel for the food industry. The leading industry retailers
are Edeka (25.3%), Rewe Group (15.1%), Schwarz Group (15%), Aldi Group (12%), Metro Group
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(5.2%). The revenues of the retail sector distribution channels in Germany as follows.
Being at the 4th position in German food retail sector, ALDI with hard discount business model is a
live threat to both domestic and international players like EDEKA, Tesco etc. The business model
innovation, operational excellence are the key factors in ALDI successful business. The objective
of this activity to analyse and put forward the important aspects of the ALDI as an organization
owned and managed by the Albrecht’s family. The business aspects, Innovation,
3. STUDY FOCUS
e. Quality Management.
ALDI business model consists of three core values consistency, simplicity and responsibility.
Simplicity: Global brand simplicity report says that companies are losing $ 86 Billion for not
simplifying their processes. 61% of the people likely to refer the brand because of the simpler
experience and communications it provides. 64% of the people willing to pay more for simple
experiences. ALDI and Lidl are being the top two brands are providing the simple experiences to it
customers. 10 to 20 % of the customers are willing to pay premium for the simple experience in
retail and beauty industry. ALDI claims simplicity creates the clarity and orientation. Typical
ALDI store has 1500 stock keeping units(SKUs), which are far less than the typical super
market with 40000 SKUs. This approach makes things very clear for ALDI in making which
Responsibility: ALDI defines responsibility with a sustained success, which relates the Quality
(Health & safety, Societal, Environmental), employees, suppliers. There are various initiatives
Reliability: The reliability part is defined with the terms, solution oriented, value proposition,
ALDI business strategy is focus on providing the highest quality possible for the cost. The store
contains maximum of not more than 1500 brands in the shelves. Selling large quantities of small
range of products is seemed to be more profitable. Once the product is decided the supplier is
assessed based on the quality. The product quality should be as close to the existing brands in the
market. After the assessment of the supplier the product is purchased and sold in all ALDI stores.
ALDI uses its power of negotiation by backing it up with economies of scale. This approach is
No frills business is the phrase defines the market mix & position. The “Like brands only cheaper”,
which emphasis on the quality of the product than the brand. Almost 95% of the stock keeping
units of ALDI stores are own brands. The value gained from owned branding is passed to
customers by keeping the product price low. According to Rudolf et al (2012, P-142) 1, ALDI adds
only 13% as procurement cost, which consists of 5% for staff, rest for operations. The product,
Price, Place are clearly defined by the ALDI market mix strategy. The promotion of the brands is
done with multiple channels. The promotions are categorized into above line and below line
promotions. Above the line promotion consists of TV, Flyers etc., Below the line promotions are
Typical ALDI store is around 1000 square meters, the aisle is of knee height and feels typical street
market set up. The store has 3 to 4 people, one store supervisor and crew. Every employee is
trained at multi functions. Each can perform variety of duties. By this approach the store sale to
spending ratio is optimised. The store is optimised for its operations, in the form of DIY carts &
Bags to save costs. The store place is divided into 80:20 ratio, 20% is allotted for storing the fast-
moving goods, 80% is allotted for sale area. This approach of ALDI considerably reduces the real
3.1. D OPERATIONS
A typical ALDI distribution centre caters for stores near about 50 km radius. ALDI follows lean
production principle, products are received just as they needed hence eliminating the stock
maintaining costs. The retail ready packing is great advantage for store staff in refilling the shelves
without much hassle. ALDI have detailed guidelines to its suppliers on how the packaging must be
The lean production principles are planned and implemented in to every business operation. The
lean production systems enable smoother operations in the shop floor with much emphasis on
safety. For instance, Mercedes Benz produces cars uses barcode plate on the vehicle body to
configure the welding procedure just in time before the final assembly. This approach saves lot of
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space and smoother operations in the shop floor. The just in time principle is followed by ALDI,
60% of the fruits are locally sourced which reduces long and expensive transportation. Another
time-based approach is the store operating hours. The store hours are from 8 am to 8pm on
working day. This approach reduces the operating costs and staff expenses. Currently close to
200,000 employees are working in ALDI south and ALDI north. The staff & store operations are
much complex than they seem to be. The lean production principles are very important for
operational effectiveness. The store and distribution centre staff are trained in various functions.
Typical store & Distribution centre employee expected to solve the problems on his own on daily
basis.
ALDI’s total quality management system addresses the product quality. ALDI products are
subjected to lot of testing. ALDI North uses OKO-Test or Waren test to certify its products quality.
The product certification includes wood, paper, cocoa, fish and sea food. The following tables
The ALDI North keeps track of its product recalls every year, the following table show how many
product recalls has been done in recent years. Though ALDI north did not publish any data on
product recall as such, but the firm is strongly emphasis on product quality by auditing the
Belgium/Luxembourg 4 3 1
Denmark 4 2 3
Germany 2 5 10
france 3 14 23
Netherlands 2 2 3
poland 0 0 1
portugal 0 0 0
spain 1 0 3
ALDI North Group 16 26 44
Table3.1. E. iii: ALDI North Food Recalls
ALDI suppliers must have at least one of GFSI (Global food safety initiation), SQF (safe quality
food), BRC (British retail consortium) or any other standard food quality certifications. The
suppliers will be subjected to short audits or long audits before on boarding. The audit ranges from
quality checks, insurance, private labelling, packaging etc. Since ALDI offers limited assortments,
ALDI orders in large volumes. ALDI does not want it suppliers to pay for unwarranted deductions,
rebates/promotions, marketing, food shows etc., apart from these ALDI pays on time, no late
ALDI taken initiatives to maintain sustainable relationship with suppliers. ALDI South have taken
initiatives to accelerate sustainable growth in its supplier’s production facilities with Aldi Factory
management and workers to identify the key challenges in the working environment and develop
solutions together. Approximately 45000 employees were benefited from this program. Below
ALDI Social Assessment (ASA), is another initiative to check the social well being of the supplier
staff and facilities. The ASA audit thorough checks the facilities with compliance of international
labour laws, Human Rights compliance and child rights adherence. The Audits are done with the
standards of Business social compliance initiative(BSCI), The Sedex members ethical trade audit
(SMETA), etc.
Authors Note: In addition to above mentioned initiatives, I feel the product innovation to be
implemented at supplier level. The benefits will be eventually passed on to ALDI in reducing the
Currently ALDI South has 64000 and ALDI north has 112,666 employees worldwide. Managing
such large human resources is challenge, especially in terms of adherence to the ALDI policies.
The employees were trained in various functions. The diversity within the organization is well
established, 25.8% of ALDI North managers are female, 38% of ALDI south managers are female.
The number of apprentices are increasing year on year, 70% of the apprentices got permanent
roles in ALDU South. The general comments about ALDI daily operations are as follows. Most of
the employees experienced lot of stress during the work, being said that they are well paid.
The other side of the coin, the customers are also stressed out at the check out counters due to
check out speed. They are not able to cope up with the speed of the check out. The below
comments from the customer resembles the stressed situation at the checkout counter.
The above-mentioned reasons are strongly backing the operational innovation at ALDI, being said
that the time to think of new possibilities from the staff is scarce. In the recent times, many
organizations around the world are driving crowd source innovation to get simple solutions from the
staff to promote the inclusivity and connectedness between the staff. To dwell into more smoother
ALDI south & ALDI north committed to food donations. 81% of ALDI South stores are supporting
the food donations to needed. The unsaleable food which is still good, being donated to the
needed. The ALDI north donated 56.7% of unsaleable food to the needed in 2016. Fair trade
policies are developed and implemented in both South and North groups.
CONCLUSION
ALDI as an organization, improvised its business model a lot from inception in 1931 to the current
position. The operational effectiveness, Quality Management, Own brands promotion are major
factors for Aldi’s Success. Most importantly, effective execution the economies of scale with strong
backup of product procurement, price, position and promotion will always attracts the customer
who don’t recognise the brand, but the value of the product. Unless the occurrence of disruptive
business model like online shopping (100%), No visits to the store, free and flexible delivery
models, Aldi’s current position seems to be strong and aggressive. Aldi is struggling to prove as
high-quality retailer. The efforts put towards quality management must be marketed well. This
might change the customer perception from cheap retailer to value giver.
References:
1. Rudolph, T., Schlegelmilch, B., Bauer, A., Franch, J. and Meise, J. (eds.) (2012) Diversity in
8. ALDI website.
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APPENDIX