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Case study
Aldi in Australia
By Ingrid Bonn, Graduate School of Management, Griffith University

Background paid-up capital and plans to invest profits in further

growth.5 This all-cash approach to expansion keeps
Aldi’s risk levels low. In 2004, Aldi owned 44 stores in
In 1948, the brothers Theo and Karl Albrecht opened New South Wales, 20 stores in Victoria and eight stores
the grocery store ‘Albrecht Discounts’ (Aldi) in Essen in Queensland. With these stores, Aldi captured almost
(Ruhr Valley), Germany. The store had a simple 5 per cent of total packaged grocery expenditure in
layout and offered a restricted number of products at New South Wales, 2.5 per cent in Victoria and 1.4 per
a low price. The company grew rapidly, owning 13 cent in Queensland.6 According to AC Nielsen, Aldi
stores in 1950 and about 300 stores in 1961 across could own over 300 stores and capture 10 per cent of
Germany. the Australian packaged grocery dollar market by 2010,
In 1961, Theo and Karl divided the company into if it achieves its planned store rollout program.7
Aldi North (run by Theo) and Aldi South (run by
Karl). The reasons for this division, according to
Dieter Brandes, a former managing director of Aldi in Aldi’s business strategy
Schleswig-Holstein, Germany, were different views
about how to develop the business. However, the Aldi is a typical ‘hard discounter’, pursuing a cost-
brothers regularly exchanged information about a leadership strategy (see figure 1 for characteristics of
range of issues such as performance and cost figures, hard discounters). Its approach is to offer a limited
current and potential suppliers and they also con- number of good quality products at low prices. Aldi
ducted joint negotiations with suppliers.1 In 2003, stores stock about 700 products of the most popular
Theo and Karl stepped down as CEOs. Theo’s son, everyday grocery and household items.8 Such a limited
Theo Albrecht Jr, now runs Aldi North, and Juergen number of items is in stark contrast to a standard
Kroll and Norbert Podschlapp run Aldi South. supermarket which carries between 25 000 and 30 000
By the end of 2003, Aldi had become one of the products. Aldi’s products include frozen food, meat and
world’s biggest global food retailers with over 7000 dairy products, canned food, bakery products, house-
stores worldwide and estimated annual turnover of hold supplies, health and beauty products, nappies,
36.2 billion euro.2 Aldi’s main market is Germany, cleaning products and a selection of fresh fruit and veg-
which accounts for about two-thirds of sales and where etables. In addition to household staples, Aldi also
Aldi has a 40 per cent share of the grocery market.3 offers a selection of ‘surprise buys’, which change every
Today, Aldi still operates in two divisions. Aldi week and are only available as long as the stocks last.
North, based in Essen, manages operations in northern These items include highly discounted hardware, elec-
Germany, Belgium, Denmark, France, Luxembourg, trical items, clothing, sports equipment and toys.
Netherlands and Spain. Aldi South, based in Muelheim, Aldi stocks a few national brands such as Vegemite,
manages operations in southern Germany, Austria, Kellogg’s breakfast cereals, Milo and Nescafé, however,
Great Britain, Ireland, Switzerland, USA and Australia.4 95 per cent of the products are Aldi’s own brands. More
In Australia, the first Aldi store opened in Sydney in than 80 per cent of its products are Australian made
January 2001. The company came with $750 million in and many of its home brand products are produced by

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well-known brand manufacturers. However, manufac- 1200 square metres in size, the biggest Coles super-
turers seem reluctant to be openly associated with Aldi, markets, by comparison, are about 5000 square
fearing that they may jeopardise their relationship with metres.14 The small size of the stores makes new sites
other retailers. According to Walker, it is believed that cheaper and easier to find, compared to other super-
Aldi’s suppliers include George Weston’s Tip Top markets with their jumbo-sized stores. Aldi usually
Bakers, Arnotts, Goodman Fielder, Green’s Foods, starts with locations in lower middle-class suburbs that
Kellogg Australia, Cadbury Schweppes’ Cottees divi- have full employment. Once a store is profitable and
sion, San Remo, Murray Goulburn, Golden Circle, attracts many customers, Aldi tends to open another
Berri, Peats Ridge and Carter Holt Harvey.9 store close by. Stores in Australia are either stand-alone
The Aldi website states that they focus on their own or located in shopping centres, as opposed to Aldi’s
brands in order to remain independent, enabling them European stores, which are mostly stand-alone.
to avoid high marketing costs often associated with Aldi stores typically have only four or five employees
national brands and to set their own price, product and per shop, compared with about 15 at a standard super-
quality policies.10 According to Shoebridge, however, market. They do not employ specialists such as bakers
house brands are attractive for grocery retailers because or butchers, because these products come prepacked.
they cost 5–20 per cent less than national brands, According to Michael Kloeters, group managing
depending on the category. In addition, a retailer’s director Australia, Aldi pays store assistants $19.10 an
profit margin on house brands is about two percentage hour plus bonuses, compared with the industry award
points higher than the margins on a national brand.11 rate of about $15 per hour. Employees are permanent
full time or part time and have signed Australian work-
Figure 1: Characteristics of ‘hard discounters’ place agreements. There are no casual staff or junior
rates of pay.15 However, despite the above average pay
Less than 1200 lines
rates, the smaller number of staff results in Aldi’s
labour costs being about 6 per cent of revenue,
Focus on dry grocery, although new categories are compared with about 12 to 16 per cent at a standard
being added supermarket.16
Focus on own brands and ‘exclusive’ labels Contributing to Aldi’s relatively low labour costs are
Limited national brand presence its restricted opening hours. Aldi in Labrador, Queens-
Strict focus on price land, for example, had the following opening hours in
January 2005: Monday to Wednesday 9 am–6 pm,
Limited in-store fixtures, product often bulk Thursday 9 am–9 pm, Friday, 9 am–7 pm, Saturday
stacked on pallets 8.30 am–5 pm, and Sunday 10 am–4 pm. In contrast,
Woolworths, Coles, Bi-Lo and Action all had the fol-
■ Source: www.igd.com/cir.asp?cirid=463&search=1 (accessed lowing opening hours: Monday to Friday 8 am–9 pm,
6/1/2005). Saturday 8 am–5.30 pm, and Sunday 9 am–6 pm.
The limited number of products enables Aldi to Hence, Aldi’s stores are open for 19 hours less per week
leverage its impressive buying power and to control the than the other supermarkets, which equates to a signif-
cost of its products by buying in large quantities. icant saving in labour costs.
According to Brandes, Aldi has 30 to 100 times the The design of Aldi stores is simple and practical and
buying power of Wal-Mart.12 Fewer products also mean all stores share similar layout and product presentations.
that warehouses can be smaller, that shipping and han- The stores are usually bright, modern and have wide
dling is easier, and that the quality of the products can be aisles. The products are displayed in specially designed
controlled more rigorously. Aldi’s products are tested and cartons that can be stocked directly on to shelves or
sampled on a regular basis, both in-house and in inde- wheeled into place by using pallets. The placement of the
pendent food laboratories. The in-house tests involve pallets is based on logistic considerations, namely to
blind tests by managers who compare their own products improve workflow and productivity. Using pallets makes
with those of leading brands. Aldi’s website states that it easy to restock items, staff simply remove the old pallet
they would withdraw any product immediately if there and replace it with a new one. This approach helps to
were the slightest cause for concerns.13 save on labour costs to stock shelves.
Minimising costs at all levels in the value chain is the Aldi also saves costs by not providing free shopping
key to Aldi’s business strategy. Aldi stores are usually bags. Customers are encouraged to bring their own

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bags or cardboard boxes. Alternatively, they can pur- In addition to minimal marketing, Aldi spends zero
chase new shopping bags at the checkout. Bags are not on public relations. Managers are usually discouraged
packed and payment with credit cards attracts a 1 per from conducting interviews relating to Aldi themes. A
cent surcharge to cover additional costs. Further, the rare public statement was made by Theo Albrecht in
use of a shopping trolley requires a $2 coin deposit, 1971, when he was released by kidnappers after three
which is refunded when the customer returns the weeks in captivity and payment of $13 million
trolley to one of the designated trolley bays. Again, this ransom.19 At that time, it was the highest ransom ever
approach saves costs because Aldi does not need to paid in Germany.
employ people to collect and return trolleys. Aldi does not use consultants and spends very little
Marketing is another area where Aldi saves costs. Aldi money on the development of sophisticated statistics
has no marketing department and its marketing budget and reports. Only the most important data are prepared
is about 0.3 per cent of revenue.17 Advertising is min- for the internal control and information systems. In
imal, relying on catalogues, local press advertising and addition, there are no budgets or annual planning cal-
web updates. It focuses on product-oriented messages, culations.20 This scrupulous attention to minimising
predominantly about price and new ‘surprise buys’. Aldi costs, according to McKinsey and Co., has helped Aldi
usually does not employ advertising agencies and does
to achieve an operating margin of as high as 9.3 per
not spend money on market research. Instead, Aldi
cent in some regions of Germany.21
employees and managers explore what customers may
need and stock them on a trial basis in three stores. Aldi’s Aldi’s business strategy is based upon an idea by
prices are uniform across each country, no matter where Theo, which was developed into a successful business
the stores are located. The prices for the ‘surprise buys’ concept over a number of years. It has changed very
are available on the Aldi website each week. little since its inception, except for a number of minor
Despite minimal marketing, however, a study on adjustments based upon the changing internal and
‘best brands’ by the ‘Gesellschaft fuer Konsumfors- external conditions. Some of these changes involve
chung’ in 2004 showed that Aldi was the third most the inclusion of milk and frozen products, the intro-
respected corporate brand in Germany, just behind duction of fresh fruit and vegetables and the addition
electronics giant Siemens and car maker BMW (table of some non-food action articles. The introduction of
C8.1). About 89 per cent of German households new items, however, did not mean an extension of its
shopped at least once at Aldi in 2003.18 product range. For example, when Aldi introduced 25
new frozen products, it eliminated 25 products, which
■ Table C8.1: Best corporate brands in Germany in 2004
were considered as being ‘weak’, meaning that they
lacked demand or did not fit into the product port-
Rank Best corporate brands folio anymore. This approach ensures that Aldi stays
1 Siemens with its concept of a limited product range, but adapts
to the changing demands by modernising its product
2 BMW offerings.
3 Aldi

4 VW Aldi’s vision and guiding

5 Adidas–Salomon

6 DaimlerChrysler
principles
7 Bayer
Aldi has a clear business philosophy and a number of
8 Deutsche Telekom guiding principles. The business philosophy can be sum-
marised by the following statement: ‘Top quality at
9 Sparkasse
incredibly low prices — guaranteed’.22 In its advertising,
10 Allianz Aldi elaborates on this philosophy by stating five main
■ Source: http://www.gfk.de/index.php?lang=de&contentpath=http
principles, namely (1) huge savings, (2) excellent quality,
%3A//www.gfk.de/presse/pressemeldung/contentdetail.php%3Fid% (3) outstanding value, (4) superb special buys, and (5)
3D543 (accessed 7/1/2005). buy with confidence (see figure 2).

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Suppliers have access to Aldi’s international network,

Figure 2: Aldi’s pledge which potentially enables them to take their products to
a global market.24 To ensure fair dealings, Aldi managers
Huge savings: Our grocery prices are set low and are not allowed to accept gifts from suppliers. To ensure
stay low every day. So you pay less on your fair dealings, Aldi managers are not allowed to accept
weekly shopping. gifts from suppliers.
Excellent quality: We ensure that our quality is as
good, if not better, than the leading brands and
own brands. Aldi’s organisational
Outstanding value: When we combine incredibly
low prices with the best quality products, you know culture
that there is no better value grocery store.
Superb special buys: Every Thursday we Aldi’s culture has been strongly influenced by its
introduce an exciting selection of ‘special buys’. founders. The cultural values and rules clearly reflect
These are always extremely popular, and of course the organisation’s philosophy, guiding principles and
amazing value. business strategy. Brandes describes Aldi’s culture as
Buy with confidence: We are so confident in the one of ‘simplicity’.25 The Aldi model, which is based on
quality of our products, that every store offers a a simple concept, namely the provision of high quality
‘total satisfaction or your money back’ guarantee. products at low prices, is clearly understood by
employees, managers and customers. Employees and
■ Source: Advertising flyer by Aldi, ‘Specials from 27 January [2005]’. managers at all levels of the organisation are very cost
conscious and pay particular attention to economic effi-
Aldi’s pledge outlines its key philosophy and prin- ciency. Waste is not tolerated. The aim is to avoid
ciples, namely to offer their customers high quality unnecessary costs wherever possible. For example,
products at low prices. This is achieved by being cost- Theo is said to personally have switched off lights in
conscious in every aspect of the organisation’s value offices when there was enough daylight from outside.
chain as outlined in the previous section. The approach The concept of ‘cost-watching’ extends into all areas of
is simple and clear, and it is well known throughout the value chain, including the development of new
the organisation. techniques for warehouse management or for the trans-
The second part of Aldi’s key philosophy centres port of goods.
around a strong customer orientation. This involves The strong focus on economic efficiency is accompa-
focusing on meeting the basic needs of its customers by nied by a passion for detail. The aim is to find small
providing high quality products. Brandes argues that improvements in all areas and to develop pleasure in
being credible to the customer is a key issue for Aldi. In achieving small successes. This culture of continual
his view, credibility involves ‘walking the talk’, which improvement is accompanied by a strong focus on the
means that there needs to be a strong alignment development and implementation of solutions. Aldi
between verbal messages, action and reality in order to people, according to Brandes, are practitioners.26 New
gain the trust of the customers.23 Dealing with com- ideas and solutions are tried, rather than being exposed
plaints, for example, is one way in which to reinforce to detailed analyses. If they prove to be successful, they
Aldi’s message. If customers are unhappy with any of are implemented quickly. New products, for example,
the products they have bought or if the products do not are not subjected to elaborate market analyses, but are
meet the required quality standards, Aldi refunds the tested in three shops. If they are successful, meaning
money or provides customers with a substitute. that they achieve a fast, pre-determined minimum turn-
The third area in Aldi’s philosophy involves the estab- over, they are introduced in all other shops.
lishment of fair relationships with suppliers. Aldi guar- In addition to its focus on economic efficiency and
antees payment terms of 30 days net and does not require continuous improvement, the organisational culture is
suppliers to fund rebates or discounts, or to pay listing also characterised by determination and persistence. As
allowances. There are no negotiations after the deals have outlined in the previous sections, there have been very
been made and Aldi does not have annual talks with few changes in Aldi’s business approach since its
suppliers, instead issues are dealt with on a needs-basis. foundation. Aldi has consequently pursued its business

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concept and has resisted temptations such as only 450 products. Aldi North offered frozen products,
expanding the number of products, diversifying into but Aldi South waited to see whether frozen products
other areas or changing its cost-leadership strategy. were successful in Aldi North before they included
This is an important trait of its organisational culture, them in their own shops.28 Decentralisation enabled
namely to continue doing what they do best. the brothers to exchange experience, compare methods
The organisational culture is reinforced by Aldi’s and results and to implement the most successful
selection and recruitment approach. Aldi tends to care- approaches that the other Aldi had tested.
fully select, develop and promote managerial talent Adhering to the principle of decentralisation, an Aldi
from inside the organisation. Important qualities for corporation looks after between 60 and 80 shops. If this
potential managers are a focus on economic efficiency, number of shops is reached within one region, a new Aldi
fairness towards others, including suppliers, modesty, corporation is founded. In 2004, for example, there were
and reservation towards the public and the press. These 65 autonomous regional entities in Germany — 35 in the
behavioural characteristics are reinforced by job Aldi North area and 30 in the Aldi South area.29
descriptions outlining clear goals and competencies. Aldi’s organisation structure is flat and lean. For
Aldi managers have usually been employed in different example, Aldi’s headquarters in Germany employs less
parts of the organisation, including the shops and the than 150 staff.30 Aldi has no planning department and
warehouse. They know how Aldi operates and have no central functions such as marketing, human
ingested the organisational culture. Area managers, for resources, controlling, information systems or public
example, go through a 12-month training program in relations. The responsibility lies with people in line
which they learn about the structural and procedural functions who work on practical solutions and who are
elements of retail management, including store opera- responsible for their implementation as well as the
tions and trading rights, administration, logistics and results. Staff positions do not exist.
property management. An important part of this pro- The principle of decentralisation is accompanied by a
gram centres on Aldi’s management system, including focus on delegation. It is based upon the so-called
its focus on economic efficiency. The first part of the ‘Harzburger Modell’, a concept developed by Professor
training takes place in a store where future area man- Reinhard Hoehn from the ‘Fuehrungsakademie der
agers take over the role of a store manager for several Wirtschaft’ in Bad Harzburg, Germany. This model out-
months. This ‘hands on’ approach aims to acquaint lines three issues that should be delegated, namely the
them with Aldi’s operations, but also its business phi- task, the necessary competencies to enable task imple-
losophy and core values. During the second part of the mentation, and the responsibility for implementation
training, future area managers work alongside experi- and results. Tasks that are delegated are those that (1)
enced colleagues and learn about their role and respon- can be fulfilled in a better and more cost-effective way
sibilities. This includes the tasks of recruitment, by others, (2) make the workplace more interesting for
planning and organisation of the stores.27 employees, (3) include responsibility, (4) are chal-
lenging and contribute to employees’ professional
development, and (5) relieve superiors and allow them
Aldi’s organisation to concentrate on core tasks.31
Aldi delegates to the managers who are in charge of
structure implementation. All managers have clearly defined job
descriptions specifying the goals, responsibilities and
authority of their positions. Control is exercised by
Aldi’s business concept is supported by a decentralised random spot checks and by evaluating the results. The
organisation structure. The first, and probably most control system is also set up to provide information
important decision to decentralise was when Aldi was about whether managers comply with the cultural
divided into Aldi North (run by Theo) and Aldi South values of the organisation and whether they pass on the
(run by Karl) in 1961. This decentralisation created values and rules to their subordinates.
two independent and autonomous organisations and Aldi’s principles of decentralisation and delegation,
enabled the brothers to pursue their own strategic according to Brandes, mean that there is less bureaucracy
ideas, rather than trying to compromise. The result of and conflict due to the small size. Problems can be dealt
this decentralisation was that, for example, Aldi North with quicker and knowledge about the local market
stocked about 600 products, whereas Aldi South had can be used to improve Aldi’s approach. In addition,

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employees are more involved in the development of the food hygiene and safety standards. The ‘Fresh Food
organisation and they have greater potential for career People’ strategy has been an important way of differenti-
advancement. Finally, the individual Aldi corporations ating themselves from major competitors, such as Coles.
can compete with each other in a healthy fashion.32 Woolworths actively advertises through magazines,
newspapers, television and distributed leaflets, aiming to
project an image of providing fresh, healthy and high
Aldi’s competitive quality products at a reasonable price. The second pur-
pose of its advertising campaigns is to communicate a
environment in Australia series of price specials. Woolworths (similar to other
major chains) often promotes ‘loss leader’ specials to
attract customers to the store. Prices are not uniform
The main players in Australia’s food retail industry are across Australia, but depend on the location and on the
Woolworths and Coles Myer. In 2004, Woolworths’ presence of competitors in the specific markets.
supermarkets division, trading as Woolworths and Woolworths’ product range includes the ‘Fresh Food’
Safeway, was Australia’s leading food retailer with 708 offer, well-established national brands, as well as its
stores nationwide. Woolworths operating revenue for its ‘Homebrand’ range, which according to the company’s
supermarket segment at the end of the 2004 financial annual report in 2004, is Australia’s largest supermarket
year was $24 193 million, its earnings before interest and grocery brand by sales.38
taxes $960 million. In comparison, the food, liquor and In 1999 Woolworths launched ‘Project Refresh’, an
fuel segment of Coles Myer contributed $21 279 million Australian-wide program that aimed to improve effi-
to its operating revenue and $678 million to its net profit ciency and to reduce costs by restructuring the com-
before interest and tax during the same period.33 Wool- pany’s supply chain, by adopting new technology and
worths has about 37 per cent of Australia’s $66 billion by introducing the new ‘Every Day Low Price (EDLP)’
grocery and retail alcohol market, Coles has a market strategy into its supermarkets. EDLP involved reducing
share of about 32 per cent.34 prices for many national brands, pushing manufac-
Woolworths supermarket division comprises food, turers to cut their prices. Level 1 of ‘Project Refresh’ has
liquor and petrol. It also operates Internet food been completed and has resulted in an accumulated
retailing via Homeshop (in Sydney, Melbourne and cost savings of 2.85 per cent of sales over the last five
Canberra) and GreenGrocer (in Sydney and Mel- years. In dollar terms, this means a cumulative savings
bourne). In 2004, the liquor operations included 536 of $2.5 billion.39
Dan Murphy’s, BWS (Beer, Wine, Spirits), First Estate The second stage of ‘Project Refresh’ is expected to
and Woolworths/Safeway attached liquor stores. In deliver more cost savings over the next five years, in par-
addition, Woolworths owned 50 per cent of the MGW ticular through improvements to its end-to-end supply
liquor business (a joint venture with the Bruce chain program. This program aims to address store
Mathieson Group) which has 31 hotels and 110 liquor supply chain costs, the number, location and operation
stores. The petrol division comprised 359 petrol sites of distribution centres, transport management, process
including 44 Woolworths/Caltex sites.35 improvements and the development of integrated sys-
Woolworths general merchandise division consists of tems. For example, Woolworths plans to reduce its
Big W discount department stores and the consumer supermarket distribution centres from 31 distribution
electronic outlets Dick Smith Electronics, Dick Smith centres to nine regional distribution centres and two
Electronics PowerHouse and Tandy. Other operations national distribution centres, aiming to reduce costs and
include Ezy-Banking, which offers banking products stock levels and to optimise network efficiencies.
with backing from the Commonwealth Bank of Aus- In addition to the strategies outlined above, Wool-
tralia.36 Woolworths also publishes three magazines, worths has also diversified into new sectors, such as
Australian Good Taste, Woolworths Fresh, and Wool- petrol retailing and credit cards. Woolworths opened its
worths Australian Parents.37 first petrol outlet in Dubbo, New South Wales, in 1996.
Woolworths has positioned itself as the ‘The Fresh Customers who spend more than $30 dollars in one
Food People’, aiming to provide a wide range of fresh transaction at a Woolworths store receive a discount
produce in addition to dry groceries and other merchan- voucher of 4 cents per litre petrol. This approach has
dise. Many farmers in Australia grow their products been very successful; Woolworths had 359 petrol sites
exclusively for Woolworths, adhering to strict quality, across Australia by the end of the 2004 financial year.

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Its banking service ‘Ezy-banking’, a joint project with for their money through competitive everyday prices
the Commonwealth Bank of Australia, was launched in and the promotion of price specials. Unlike Wool-
1999.40 worths EDLP strategy for national brands, Coles pro-
Coles Myer’s largest division is also its food, liquor motes some products (mainly own brands) as EDLP,
and fuel segment. The food division includes Coles and but still relies largely on its high-low pricing strategy
Bi-Lo. In 2004, Coles, a full service supermarket, oper- for national brands. Prices at Coles vary across Aus-
ated about 500 stores throughout Australia; Bi-Lo, a tralia, depending upon the location and on the pres-
discount supermarket retailer had about 209 stores.41 ence of competitors in the specific markets.
Coles also has an online shopping facility, Coles In May 2003 Coles Myer formed an alliance with Shell
Online, which was available in Victoria and New South to match the Woolworths petrol strategy. Similar to
Wales in 2004. Woolworths, customers receive a 4 cent discount per litre
Coles Myer’s liquor business includes 626 Liquor- petrol if they spend more than $30 dollars in one trans-
land, Vintage Cellars and Theo’s stores. Coles Express, action at a Coles or Bi-Lo store. By the end of the 2004
a commercial alliance between Coles Myer and Shell, financial year, there was a national network of 598 stores,
was Australia’s largest fuel and convenience retail oper- branded both Coles Express and Shell. Coles Myer also
ation in 2004, with a national network of 598 stores.42 formed an alliance with the National Australia Bank to
Coles Myer’s general merchandise and apparel brands include a credit card facility and revamped the company’s
comprise (1) Kmart, a discount department store, (2) long-running FlyBuys reward program.
Officeworks, a retailer of office and technology products, Bi-Lo, a discount supermarket retailer that is owned
(3) Myer, a department store offering apparel, accesso- by Coles Myer, also aims to delight its customers. Their
ries, footwear, cosmetics, gifts and homewares, (4) Mega- offer comprises fresh food, national brands and an
mart, an electrical, furniture and homewares store, and extensive Bi-Lo house brand range. Their target cus-
(5) Target, a low-margin, high-volume retailer.43 tomers are those who want value for money and Bi-Lo
Similar to Woolworths, Coles also is a full-service tries to satisfy this segment by offering products at low
supermarket, offering fresh produce, dry groceries and prices. Bi-Lo’s marketing included a ‘Why Pay More?’
other merchandise. Its strategy, however, is less suc- campaign and the use of promotional initiatives such as
cinct than Woolworths ‘Fresh Food People’ strategy. In ‘Red Hot Sale’.
March 2002, Coles announced a major restructuring In addition to the major national chains Woolworths
program, aiming to cut costs by improving its supply and Coles Myer, there are also a number of smaller
chain management, implementing changes to its infor- regional players in the Australian food retail industry,
mation technology, and trying to achieve better syner- namely Action supermarkets (owned by Foodland
gies with the other segments in the Coles Myer Associated), IGA and Franklins.
Corporation. The supply chain changes include
restructuring its distribution centre network and sim-
plifying operations and processes in its stores and dis- ◗ Foodland Associated
tribution centres. In addition, Coles planned to
improve its loyalty programs. Foodland Associated is a retailer and wholesaler of gro-
Coles’ 2004 Annual Report states three major goals, ceries in Western Australia, Queensland, northern New
namely ‘Being the Best Team so that we can Delight our South Wales and New Zealand. Foodland’s largest divi-
Customers and Grow Shareholder Value’.44 Delighting sion is its supermarket segment which operated 230
customers means ensuring that (1) shelves are fully supermarkets by the end of the 2004 financial year. The
stocked, (2) most wanted products are available, (3) staff majority of these supermarkets, namely 149, are in
can focus on customer needs, and (4) customers receive New Zealand. In Australia, Foodland runs 81 ‘Action’
more information on product range and special offers. supermarkets, situated in Queensland and northern
Similar to Woolworths, Coles’ product range New South Wales (43) and Western Australia (38).
includes fresh food, an area that has been improved Foodland’s operating revenue at the end of the 2004
over the last few years, well-established national financial year for its Australian supermarket segment
brands, as well as house brands. Coles aims to concen- was $1329.9 million, its earnings before interest and
trate more on the development of house brands and has taxes $39.1 million.46
set a target of increasing them to about 30 per cent.45 Foodland’s second division is its franchise and supply
Coles also aims to provide customers with more value segment. Foodland is a grocery wholesaler to Western

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Australian independent supermarket operators including Australia, located in Queensland, New South Wales,
its own franchise banner groups Dewsons, Supa Valu, Victoria and South Australia. Davids name has changed
Foodland and Four Square. Foodland also operates three to Metcash Trading Limited and the distribution side of
Cash & Carry branches and ‘Foodlink’, Western Aus- the business is called IGA Distribution.49
tralia’s largest food service operator, supplying caterers, All IGA stores are independently owned and operated.
hotels, restaurants, cafes, institutions, schools and mine The IGA network unites formerly independent retailers
sites. In Australia, the franchise and supply division that traded under many different names under one
achieved operating revenue of $1000.9 million and earn- brand. This has led to better economies of scale and
ings before interest and taxes of $45 million at the end scope, better buying power and consistency in mar-
of the 2004 financial year.47 keting, merchandising, information technology, and store
Foodland’s main strategies are to satisfy changing design. There are three types of IGA stores: Supa IGA;
consumer demands by combining innovation with IGA and IGA Everyday; IGA X-press and Friendly Grocer
value and to reduce costs through greater efficiency and IGA. Supa IGAs are full-service supermarkets, catering to
better use of technology. To achieve these strategies customers who want to purchase all groceries and fresh
Action supermarkets have upgraded their fresh food food in one location. IGA and IGA Everyday are
departments and continued to develop their own house medium-format stores with a mid-sized supermarket
brands. They have refurbished many of their existing range. IGA X-press and Friendly Grocer IGA are small-
supermarkets, tested new store formats and acquired format stores, that attract a convenience market.50
new sites. In addition, Action has launched a customer The IGA Distribution business, owned by Metcash
loyalty program in Western Australia in November Trading, supplies the IGA stores as well as more than
2003. In Queensland, Action has entered into arrange- 3300 other independent grocers. Major achievements for
ments that will allow customers of 27 Action super- IGA Distribution by the end of the 2004 financial year
markets access to petrol discount offers. Foodland has were sales of $3.96 billion and earnings before interest
also agreed to purchase 16 Mobil service stations in the and tax of $131 million. In addition, IGA Distribution
Perth, Western Australia, metropolitan area. In 2005, improved its customer service levels, reduced the costs
Foodland aims to continue improving their fresh food of doing business and developed an innovative ‘reverse’
departments, their innovation in store design and their fuel offer.51 Motorists can fill up at a petrol station of their
development of exclusive house brand ranges. In addi- choice and are reimbursed 4 cents per litre when they
tion, the company plans to improve supply chain effi- shop at an IGA store. IGA Distribution plans to under-
ciencies, to make more effective and profitable use of take further cost reductions over the next few years by
store space and to better use new technologies, both at overhauling supply chain, distribution and technology
store and corporate level. Unlike Woolworths and arrangements. One key supply chain project for Metcash
Coles who are centralising their distribution, Action is setting up mega distribution centres in each capital
aims to strengthen its ties with regional producers and city. Previously, Metcash had separate warehouses for
wholesalers who are close to the regional retail centres liquor, dry groceries and perishables in three different
and who can provide good quality products at low suburbs. Central distribution centres will enable Metcash
prices. The purpose of this approach is to save on dis- to take advantage of asset and labour sharing and is
tribution costs required for long distances and to get expected to result in substantial cost savings. Another
quickly to the market with products that are very fresh. major initiative is called ‘Project Collaboration’ and
involves improving and streamlining Metcash’s relation-
ship with manufacturers, again with the aim of cutting
◗ IGA costs. Finally, Metcash is in the process of implementing
a freight movement efficiency program which aims to fill
IGA is another supermarket organisation with a transport vehicles to 95 per cent of capacity by consoli-
regional presence in Australia. It has a market share of dating orders, decreasing turnaround times and better
about 13.5 per cent.48 IGA stands for Independent Gro- managing delivery schedules.52 At the time of writing,
cers of Australia and was brought to Australia by Metcash has launched a takeover bid for the Australian
Davids Holdings in 1988. IGA was originally founded section of Foodland Associated. If successful, this acqui-
in the US in 1926 and represents an alliance between sition would create Australia’s third largest food and
wholesalers, retailers and manufacturers. By the end of liquor chain with an annual wholesale and retail sales of
the 2004 financial year, there were 1138 IGA store in $18.2 billion.53

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◗ Franklins Aldi’s challenges

The third regional player in the Australian retail
industry is Franklins, a discount supermarket chain, Since its entry into the Australian market in 2001, Aldi
that was founded in 1941 by Frank Lindstrom. In has been very successful. They have established 72 stores
1954 Franklins was acquired by Harold Cornock and in NSW, Victoria and Queensland and are in the process
Norman Tieck and in the late 1970s it was sold to of opening more stores in these states. Aldi’s strategy of
Hong Kong company Dairy Farm International. In cost leadership seems to resonate with customers and
May 2001, Dairy Farm International exited the busi- supermarkets in close proximity to Aldi have tried to
match their low prices for basic commodity-type items
ness and many of the stores were sold to other
such as milk, flour, sugar and butter. The prices for more
retailers and wholesalers. Pick ’n’ Pay, a South African
‘luxury’ items, such as free-range eggs or bananas, how-
retailer, purchased 50 stores and the rights to the ever, were not matched, and Aldi was clearly cheaper
Franklins and No Frills brands. Pick ’n’ Pack (e.g. 12 extra large free range eggs cost $3.99 at Aldi,
relaunched the Franklins chain in May 2002. In the $5.09 at Coles and $5.65 at Woolworths; 1 kilogram
beginning of 2005, there were 77 Franklins supermar- bananas cost $1.69 at Aldi, $2.75 at Coles and $1.98 at
kets across New South Wales and in ACT. Franklins Woolworths).55 Since other supermarkets have taken up
strategy concentrates on providing value for money, the price challenge, it is important for Aldi to ensure that
quality, friendly service, speedy checkouts and a good its prices are lower or at least equal to the ones of its com-
overall shopping experience.54 Like all the other petitors and that its products develop a reputation for
supermarkets, Franklins also aims to improve supply high quality. This is particularly important considering
value chain management and update administration that the competition in the food retailing industry is
systems. likely to increase, due to a number of economic factors
The above discussion has shown the competitive that may influence consumer confidence and consumer
environment in which Aldi operates. It is characterised spending over the next few years. These factors include
high levels of household debt, a low national rate of
by two major national chains, Woolworths and Coles,
saving, falling house prices, high oil prices and possible
both full-service supermarkets that are trying to differ-
increases in unemployment and interest rates. These fac-
entiate their product offerings and to provide more tors are likely to have a negative impact on consumer
value for their customers by adding new retail services spending and hence the competition for the consumer
such as access to discounted petrol and to banking dollar is likely to become more intense.
facilities. They offer house brands as a cheaper alterna- A possible second challenge is the entry of other
tive to national brands and are aiming to increase the global players into the Australian market. According to
number of products they sell under brand names they international experts on global retailing, an entry of
own. Both Woolworths and Coles are in the process of international players is unlikely in the short term; how-
overhauling their supply chain management, ware- ever, they predict that in the medium term, interna-
house and distribution systems in an aggressive bid to tional players such as Wal-Mart (US’s largest retailer) or
cut costs. Price is an important issue and both claim to Tesco (UK’s largest retailer) might decide to move into
provide customers with competitive prices and more Australia.56 In addition, it is also possible that Aldi’s
value for money. major competitor in Europe, Lidl, decides to follow
The regional retail operators Action, IGA and Frank- Aldi to Australia. Lidl, which belongs to the Schwarz
Group, has copied the Aldi approach in many aspects.
lins pursue a similar approach. They are in the process
It also offers high-quality products at low prices, places
of addressing supply chain efficiencies and improving
great emphasis on economic efficiency and has mini-
logistic arrangements, also with the aim of cutting mised costs at all levels of the value chain. Apart from
costs. Similar to Woolworths and Coles, all three Germany, Lidl currently is present in the UK, Ireland,
regional operators offer house brands and are likely to France, Portugal, Spain, Netherlands, Belgium, Fin-
increase their number over the next few years. Price is land, Poland, Czech Republic, Austria, Italy and
also a major issue for the regional supermarkets and Greece.57 Due to the similarity of its approach, an entry
they all state that their prices are competitive and that of Lidl into Australia would clearly present a major
they provide value for money. challenge to Aldi.

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32. Ibid.
References 33. Woolworths Ltd., Annual Report 2004; Coles Myer Ltd.,
Annual Report 2004.
34. Metcash Shareholders Back Foodland Bid, www.xtramsn.co.
1. D. Brandes, Konsequent einfach: Die ALDI-Erfolgsstory, 3rd
nz/money/0,,5487-4034756,00.html (accessed 21.1.2005).
edn, Campus Verlag, Frankfurt, 1998.
35. Woolworths Ltd., Annual Report 2004.
2. http://english.lz-net.de/retailers/rankings/pages/
show.prl?id=83. 36. Ibid.
3. ALDI group, http://www.hoovers.com/aldi/--ID__54910--/ 37. Online shopping, www.woolworths.com.au (accessed
free-co-factsheet.xhtml (accessed 21.12.2004). 21.1.2005).
4. Welcome to ALDI Australia, http://australia.aldi.com 38. Woolworths Ltd., Annual Report 2004.
(accessed 20.12.2004). 39. Ibid.
5. J. Walker, ‘Inside Aldi’, Business Review Weekly, July 17–23 40. Our history, www.woolworthslimited.com.au/aboutus/
2003, pp. 41–45. ourhistory/index.asp (accessed 12.1.2005).
6. ACNielsen, Grocery Report, 2004, www.acnielsen.com.au/ 41. Coles Myer Ltd., Annual Report 2004.
files/GroRptCon04.pdf (accessed 20.12.2004). 42. Ibid.
7. Ibid. 43. Ibid.
8. Welcome to ALDI Australia, op. cit. 44. Ibid, p. 5.
9. Walker 2003, op. cit. 45. R. Clow and R. Gluyas, ‘Food Fight’, Weekend Australian,
10. Welcome to ALDI Australia, op. cit. 13–14 November 2004, pp. 33 and 36.
11. N. Shoebridge, ‘House-brand horrors’, Business Review 46. Foodland Associated Ltd., Annual Report, 2004.
Weekly, 28 October–November 3, 2004, p. 59. 47. Ibid.
12. L. Hamson, ‘Inside Aldi’, The Grocer, 29 November, 2003, 48. S. Lloyd, Grocery growing pains, Business Review Weekly,
pp. 28–30. 22–28 April 2004, pp. 60–61.
13. Welcome to ALDI Australia, op. cit. 49. About IGA Australia, www.iga.net.au/info/aboutus.cfm
14. Walker 2003, op. cit. (accessed 18.1.2005); Metcash Trading Ltd., Annual Report
15. Ibid. 2004.
16. E. White and S. Ray, ‘Leadership (A special report); Bare- 50. About IGA Australia’, op. cit.
Bones shopping: Germany’s discount retailers are among the 51. Metcash Trading Ltd., Annual Report 2004.
world’s most successful; Here’s how one does it’, Wall Street 52. Lloyd 2004, op. cit.
Journal, 10 May, 2004. p. R6.
53. J. Whyte, ‘Foodland readies response to Metcash’, Australian
17. Brandes 1998, op. cit. Financial Review, 24 January 2005, p. 12.
18. J. Ewing, A. Zammert, W. Zellner, R. Tiplady, E. Groves and 54. About us, www.franklins.com.au/aboutus.html (accessed
M. Eidam, ‘The next Wal-Mart? Like the US-based giant, 12.1.2005).
Germany’s Aldi boasts awesome margins and huge clout’,
Business Week, 26 April, 2004, p. 60. 55. The price comparison was done by the author on 22.1.2005
at Aldi, Coles and Woolworths in Labrador, Queensland.
19. Walker 2003, op. cit.
56. Annual report, global retailing 2004, www.igd.com/analysis
20. Brandes 1998, op. cit. (accessed 6.1.2005).
21. Ewing et. al. 2004, op. cit. 57. Angriff des Super-Kraemers’, Manager Magazine September
22. Advertising flyer by Aldi, ‘Specials for 27 January [2005]’. 2003, pp. 38–47.
23. Brandes 1998, op. cit.
24. Welcome to Aldi Australia, op. cit.
25. Brandes 1998, op. cit.
26. Ibid.
27. Area manager, http://uk.aldi.com/recruitment/recruitment
_2.html (accessed 6.1.2005).
28. Brandes 1998, op. cit.
29. D. Brandes, ‘Uncompromisingly simple – the ALDI success
story’, ERA Packaging Conference, Freiburg, Germany,
October 2004.
30. Walker 2003, op. cit.
31. Brandes 1998, op. cit.

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Aldi in Australia —
Discussion questions

1 What is Aldi’s competitive

advantage?

2 Discuss some of the trends in

the Australian food retailing
industry

3 Is the industry in which Aldi

operates an attractive industry?

4 Should Aldi make changes to its

current business strategy?

5 Should Aldi move into the other

Australian states and territories,
e.g. South Australia, Western
Australia, Tasmania, ACT,
Northern Territory?

CASE STUDY 8 • Aldi in Australia C11