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External Environment of Aldi Company
Macro-environment refers to external factors that impact on an organization. They include economic, technological, political, socio-cultural, sustainability, demographic and international trends. The macro-environmental analysis of the Aldi firm has been executed with the help of the PESTLE analysis. It recognizes key trends impacting on the future growth of the grocery market and forecasted rate of change in the industry.
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The U.S government has a set minimum of national average wage that all employers must observe. The employees must also enjoy health benefits as per set guidelines. The United States provides tax relief claim within justifiable reasons. Aldi operates in several states that mandate that the firm should satisfy the legal requirements in those markets. Some of the issues that Aldi must adhere to when operating its stores are employee working conditions, remuneration and any specified health benefits that employees deserve.
General economic concerns include inflation rates, interest rates, unemployment, cost and disposable income. Aldi business model is aware of these factors and maintains low prices without compromising on quality. In a world of high unemployment rates, low pricing attracts critical buyers, and this means that Aldi will continue making sales without a huge cost of advertising and sales promotion. However, low prices can mean low product quality. Therefore, Aldi needs to underscore its high quality low-cost product approach in a bid to win customers confidence and boost sales.
Demand for packaged grocery, especially organic products, is increasing because of changing lifestyle among populations. There is a penchant for the homemade products and brands. People are embracing low spending culture amid the market trends. Moreover, consumers are increasingly health-conscious in purchasing foodtuffs.
There is a great investment in technological capabilities by various retail giants. The use of barcode scanners, credit cards and utilization of the internet such as social media has become increasingly popular. Aldi has embraced social media such as Facebook in an effort to make viral marketing of its brand. Several retail chains have embraced online shopping. Thus, technological advances are expected to cut operational costs such as advertisement.
More retail stores and grocery markets are striving to achieve eco-friendly stores tag. ALDI stands out for minimal use of resources, simple designs and encourages re-use of recyclable packaging.
Porter’s Five Forces
Threats of New Entrants Are Low
The threat of new players in the grocery market is considered low as other giant retailers like Wal-Mart, Carrefour and Tesco have created a significant barrier due to their large economies of scale. Aldi low pricing strategy won in UK, Australia, and German market, making it a robust firm and a threat to others. Aldi direct competitors include Wal-Mart, Tesco and Lidl. Indirect competitors are Walgreens and Home Depot. The fact that Aldi’s model is unique and has worked makes the firm confident of present and future stability to win a competition.
Threat of Substitutes Is High
On a global scale, the threat of substitutes is considered high because of the large number of competitors. The competitors offer similar products to consumers. The switching cost to an alternative product by dissatisfied or price-sensitive consumers may be low. Aldi has a head start because of consumers’ acceptance of the company’s mantra of “low-price, high-quality products.”
Bargaining Power of Suppliers Is Medium
Bargaining power of suppliers iis average since low price approach implies Aldi seeks low-cost suppliers in a bid to pass on the low price and gain profits. Aldi enjoys stable supply of goods and has consistent quality requirements that are adhered to by suppliers. Stable suppliers that adhere to quality has enabled the firm maintain consistent quality products.
Bargaining Power of Buyers Is Low
Aldi has a large number of customers with large product options available to buyers. Therefore, the cost of switching is very low which implies buyers can easily switch from one brand to another. However, Aldi has the advantage of being known to retail at low price that makes it appealing to potential consumers.
Competitive Rivalry Is High
Rivalry among Aldi competitors is high as Wal-Mart, Tesco and Walgreens among others offer similar products as Aldi does. Since Aldi operates on global footing, the firm additionally is in competition with other firms in subject national markets. Competition is bound to be a notch higher as firms emulate each other’s business model, strategy and quality assurance procedures.
Market segments of Aldi include the budget-conscious market customers. Budget-conscious market segment is more sensitive to price changes than quality adjustments. Thus, any slight increase in price will force this market segment consumer to switch to alternative brands or stores. The next market segment is the gourmet focus buyers. Gourmet focus consumers are high-end shoppers with a keen eye for quality at price. Such shoppers look down on low-priced products no matter the quality established. Smart shoppers purchase with respect to any offers, discounts and any perceived economic or quality advantage associated with a product. Smart shoppers consider several factors before making their shopping. Another segment is the variety seeker shoppers who test various products at each shopping spree. Variety seekers are not loyal to any product and bother little with price and quality since they rather focus on branding and marketed mantra of the product.