Aldi’s Innovative Grocery Business Model Vs Walmart Case Solution
The case study shows an iterative strategy used by ALDI, a United States grocery chain, in order to enter the grocery chain industry and compete with large industry players like Walmart, by powering an innovation based business model. ALDI’s business model enabled it to deliver its products at lower prices and earn reputation in providing private label products at high quality standards. These differentiating factors further challenged the large players, offering discounted prices. The case explains the stumbles by Walmart in its strategy and business model, which led to its entry and getting its foothold established. Such actions had started the supermarket wars between various grocery chain, which had the potential to lead the supermarket chains towards bankruptcies or liquidations, according to the analysts.
ALDI attained its competitive advantage by adopting a low cost strategy as its differentiating factor. Not only had the supermarket chain provided its products at discounted prices, but also differentiated itself from other large supermarket chains (such as:Walmart), by focusing on the niche and the unversed potential markets. The hard factors which allowed ALDI to differentiate itself in maintaining the competitive advantage included the stumbles in Walmart’s business model.
Firstly, Walmart focused on branded products in large volumes, but completely ignored the local products preferred by the middle class population, which became a factor for ALDI’s differentiating point, as ALDI started offering private label products, while maintaining the products’ standards. Secondly, Walmart started rationalizing its business model, which disrupted its relationship with the suppliers, while ALDI maintained long term partnerships with local vendors, ensuring the availability of the products on shelves, unlike Walmart.The other factors that contributed to ALDI’s differentiation points included discounted pricing, which was 30% less than the other players, including: Walmart, and the well-trained human resources at ALDI.
The US market is very diverse with lower,middle and upper class consumers. Almost 19% (See Appendix 1) of the US population belonged to the upper class segment, while 52% belonged to middle class and 29% belonged to lower class segment in 2016. (Frankenfield, 2019) ALDI offers private label products to its target market of middle class customers, which include basic products.
The diverse population in the United States comes with its diverse needs, whereby the upscale customers seek for branded products with different customer loyalty programs and credit card service, which are not offered by ALDI.
Moreover, the upscale customers are hesitant to purchase the private labelled products at discounted prices when compared to the branded products offered by giant retailers like Walmart at lower rates, slightly higher than ALDI. Such business model is difficult to be completely adopted in the US market, as the super market chain needs to adapt itself according to the diverging needs of the diverse US population.
Expanding in the mainstream food merchandising is challenging for ALDI, because it is competing with the large supermarket giants, especially Walmart, whose business model stumbled for a short span. Walmart is able to cope up with such short term stumbles and it has an ability to cover all of its shortcomings using the lean philosophy. In order to remain competitive among the giant industry players in food merchandising; the company has to deal with the five principles of strategic differentiation or strategic positioning……………………
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