Bare Essentials
The Aldi Way to Retail Success
By
Dieter Brandes
Aldi is a retail success story. The
discount chain has gained a leading share of the German grocery market and, from
there, has grown to have a major impact on grocery retailing in many other
countries. Furthermore, Aldi has also started to make waves in the non-food
sector including becoming the number two retailer of personal computers in
Germany.
The success of Aldi has spawned
imitators and even non-discount grocery chains have changed their strategy to be
able to resist the onslaught of the discount revolution. However, the
organisation has remained deeply secretive and the reasons for its overwhelming
impact on the grocery market and popularity with consumers have been elusive.
Dieter Brandes has changed all this, to
some extent. He is not just a former Aldi employee but an employee who reached
the higher levels of the organisation and, thus, is able to provide a broad
perspective on the organisation and the key to its success. He is not a former
employee with a grudge who is looking to “spill the beans” but one who is,
without doubt, still in awe of the Aldi culture and uniqueness in retailing. His
in-depth analysis of Aldi does not reveal any secrets or magic formula but makes
it clear that there is one crucial element that underlies the entire Aldi
operation and that is simplicity.
The simplicity of Aldi stems from the
limited range of products that is carried by the stores. A range of 700 products
is very small compared with other retailers. While this may indicate that the
company is unable to take advantage of margins offered in fast-growing sectors
or by adding line or brand extensions, it does imply and require a very strong
focus on what it sells. The 700 items will turn over very quickly and this means
the turnover per item is very high. This reduces the need for high levels of
inventory. A second area of benefit is management attention. The focus on a
limited range means that management time and effort is not diverted through
in-depth data analysis and other management tools so loved by other
organisations.
Focus is simplicity. Although there has
been a recent move to broaden the product range, this is seen as a possible
mistake as the previous adherence to the limited range has been crucial. If the
company wishes to introduce a new line, then an existing product has to be
removed to make way for it and the overall size of the range is not increased.
Simplicity also means low cost. The
operation is designed to drive towards the lowest possible cost. Waste is
eliminated at all levels so that these savings can be passed on to consumers as
lower product prices. These lower prices are not at the expense of quality. Aldi
has also maintained a reputation for quality with a highly pro-active
product-testing programme in place and ensuring that quality is never
compromised in the desire to offer the lowest possible prices. Clearly,
forsaking quality would ultimately lead to a loss of customers. Everything is
geared towards efficiency and low cost. Stores are placed in low rent locations
rather than necessarily high traffic as consumers will travel to gain Aldi’s low
prices. The use of pallets and boxes instead of expensive merchandising or
in-store shelving is not low cost for the sake of low cost or intended to
provide a perception of low cost but is used in order to make the logistics of
supplying the store simpler and more efficient.
Who gains from Aldi? Naturally,
consumers are offered good quality at low prices. The chain itself is highly
profitable but suppliers also benefit. While Aldi may like to negotiate low
prices, the company does not renegotiate (lower) prices and fosters long-term
supplier relationships thus enabling the supplier to make necessary investments
with a guarantee of sales as long as the product quality and delivery conditions
continue to be met. Aldi is loyal to its suppliers and the volumes offered can
make supplying Aldi a very lucrative business.
Bare Essentials is more than a
biography of Aldi or a book about efficient grocery retailing but it contains
insight and ideas that can be applied to any business. Key lessons here are the
elimination of waste, the benefits of focus and simplicity and the dangers of
diversification. All in all, this is an easy-to-read work that is certainly
eye-opening and interesting.
Review
by Martin Payne
