This is the detailed Porter’s five forces model or Porter’s Five forces analysis of Aldi. This analysis will cover the factors which could have positive or negative impact on the company. Aldi is one of the famous supermarket chains which has been operating in retail marketing since 1913.
Aldi is a global company with supermarket chains. The headquarters for Aldi are located in Germany and is present in almost 18 countries throughout the world. The supermarket chain consists of 2500 stores that include many top global brands. One of its major locations includes United Kingdom, where it now has many branches located in different cities. Aldi claims to provide its customers with a shopping experience that is different from others and value for money. The business model is based on providing the customers an opportunity to save money on basic commodities by following a low cost leadership strategy.
Applying the porter’s five forces model on Aldi, we will study the company’s position in the market of supermarket industry as well as how competitive is Aldi when considering other competitors in the industry. This will be analyzed by observing the effect of these five external forces on the operations and position of Aldi:
Industry Rivalry
The business model of Aldi focuses on keeping the fixed cost low so that the prices of the products sold inside the store are kept low, which is also their competitive advantage or the factor at which they compete with other competitors in the industry to gain their fair market share. For this reason, Aldi focuses on keeping the advertising cost low as well which kind of gives a slight disadvantage to Aldi as compared to other competitors who spend on advertising and benefit from it in one way or another. The competitors of Aldi compete on the basis of cost which leaves the industry to a fierce competition. The major competitors for Aldi include Tesco, ASDA, Sainsbury, Morrison’s, The Co-operative and many more where Aldi is placed at sixth position according to the statistics of 2015.
Threat of New Entrants
There are many well-established brand names or big players in the supermarket industry which leaves it difficult for new brands to enter the market. These big players in the industry have been there for a long time now and have developed their own customers and gained their loyalty so it will not be easy for new entrants to pose a threat to the position of Aldi. Moreover, there are many barriers to entry for new entrants including the entry cost or the capital required to establish such supermarket, access to distribution channels, gaining the right target market, and bringing in the point of differentiation. So there is very low threat of new entrants for Aldi.
Threat of Substitutes
Small conveniences stores are increasing in almost all countries and these can be considered as substitutes for big supermarket chains like Aldi. With consumers having the option of buying anything they need from these convenience stores, Aldi is under the threat as consumers can easily switch to its substitutes available in the industry. Moreover, in supermarket industry, it is about having substitutes for different products that customers can switch to. But, it should be noted that there can never be a complete alternative for superstores because of the diverse range of products that they offer. So, Aldi is facing a moderate threat of substitutes.
Bargaining power of Suppliers
Big market leaders in this industry are at advantage because they have developed their brand image, which makes the suppliers bargaining power less because they would not want to lose out on these big supermarkets. Brands try to keep good relations with names like Aldi as it definitely is a huge determinant for their sales. So suppliers in case of Aldi have low bargaining power.
Bargaining Power of Buyers
Customers may have different requirements or criteria when it comes to choosing which supermarket they want to shop from. They decide that based on the offers that these super markets are providing if they are price sensitive or the quality of products if they prefer quality over price. But the fact is that the switching cost for buyers is very low as these stores are located in multiple locations. Consumers can conveniently switch from Aldi to other supermarket chains as they have multiple options to choose from in this industry. So the customers have high bargaining power over Aldi.
References
Aldi’s Marketing Strategy. Retrieved July 16, 2017, from https://www.ukessays.com/services/example-essays/business/aldis-marketing-strategy.php
Correspondent, H. W. C. A. (2008, June 30). Aldi pledges to open a new store every week. Retrieved July 16, 2017, from http://www.telegraph.co.uk/finance/personalfinance/2792467/Aldi-pledges-to-open-a-new-store-every-week.html
Vizard, S., Rogers, C., Hobbs, T., Roderick, L., Gee, R., Woollen, P., & Joy, S. (2017, February 7). How Aldi became Britain’s fifth largest supermarket. Retrieved July 16, 2017, from https://www.marketingweek.com/2017/02/07/aldi-fifth-largest-supermarket/