Technology Capabilities And Role In Competitive Advantage

ALDI

Discuss about the Technology Capabilities and Role in Competitive Advantage.

Strategic management involve a series of stags including setting organizational objective, mission, vision, strategies, implementing necessary changes to achieve goal and long term success. Businesses are operating in global market; there is huge impact of both external and internal environment on business decisions and strategic actions. To ensure business success organization needs to give in-depth consideration towards strategic planning and decisions. It helps in taking an organization in the right path, directing towards success through a series of decisions. This case analysis aims to evaluate supermarket industry scenario in Australia and correlate it with Aldi’s expansion in Australia. This paper aims to evaluate industry scenario in Australia, its scope and then move towards internal scenario within the company, its strategies, mission, goals and there alignment. Further this paper also present strategic recommendation for Aldi to ensure successful business and sustainability in Australian market.

Aldi is a well-known supermarket chain operating in eighteen countries with 10000 stores since 1946. Major markets include Europe, US and Australia. It is operating in Australian market since 2001, aims to expand its business in south and Western Australia. Three primary brands owned and sold by the company include core products that include grocery, personal care, cleaning, and beverage products. Second is fresh produce that include fruits, vegetables, bread. Third is special buys that are seasonal and are sold once or twice a year in the stores.

Prior to make any strategic action, it is crucial to evaluate present scenario in context of internal organization, external business environment as well as industry scenario, which are discussed below.

Political

Australia has a strong legal system that supports ethical business practices, common law practice executed in the region. Australian retailer association is legal body responsible for promoting and managing retailers in Australia. There is presence of liberal capitalistic democracy; numbers of government interventions are to protect economy, environment and customers. Different type of government interventions includes quota, tariff, subsidies, currency control, anti-dumping rules, and administrative policies. It has good trading policy and terms with UK which is a favorable factor.

Economic

Economic scenario starts with present financial position of the home country, in the year 2015; GDP of Australia was 339.54 billion US dollars, 2.1 percent of world economy. This year growth rate has been 0.5 percent (tradingeconomics.com, 2015). There is dramatic change in customer buying behavior due to reduction in disposable income; there is conservative spending pattern due to high cost of living and economic uncertainty. However the market is recovering with rising consumer income in year 2016. Present unemployment rate is 5.6 percent.

Social

Situational analysis in Australia

Age and demography have strong impact on purchasing behavior, according to World Bank data, total population of the country is 23.13 million with 1.8 percent growth rate. There is problem of ageing population in region with fewer children below 15 years of age and majority on average 36 years of age. This also bring shift in type of products in demand, it will also impact labor availability, economic growth and spending nature of customers. There is also shift towards higher health consciousness in the market with rising purchase of organic food items, organic retail sales increased by 50 percent leading to rise in organic food brands and private labels (Grant, et.al, 2014).

Technological

Tremendous technological development also help in growth of supermarket businesses, it helped in reducing queues in the stores, easy payment methods, quick check out from counters, easy purchase etc. Different technological advancement includes iPhone application, mobile applications, contactless card payment method, automatic billing etc. There is increasing use of online advertisement, ecommerce which helped in increasing total market sales (Bhatt, Grover, & Grover, 2005).

Legal and environment

Strict legal rules in regards to business policies, there are designated authorities appointed by government to manage business regulations. Environmental concerns in regards to packaging and waste management, there is implementation of carbon tax to reduce emission.

Strengths

Aldi is the lowest cost grocery in the market, which makes its market position strong, ability to offer products at comparatively lower prices. It also has a low-cost logistic and operational system that works on 12 percent gross margin. Other strengths of the brand include efficient operation, powerful pricing point, private labeling and low break-even stores. Company has strong presence in 18 countries. It also offer everyday low price.

Weakness

Aldi is encountering hug market problem due to its internal services issues such as offering limited range of products, there is lack of services in order to maintain cost effective offerings and there is also absence of value added meals. There is rising spend on discounting but lowering of sales (Micthell, 2015). Aldi does not sale its products online.

Opportunities

New technologies such as automation of check out, cashless purchasing, online shopping can help in increasing services by Aldi and also enhance its business. It is also expanding its business in developing market like Asia to increase its revenue. Company also increases its investment in advertising and customer services. Aldi is also entering into organic food market at low price product availability (Peterson, 2016).

Threats

PEST Analysis

Intense market competition from established brands in local markets; it fail to offer complete shopping experience to customers due to its limited assortment strategy; private label brands get tough competition from established brands.

This tool aims to evaluate overall industry scenario, it helps in analyzing different components that facilitate or impact operation within industry.

Present rivalry

Presence of intense rivalry impose risk in this industry, there are more than 3500 competitors. However almost 70 percent market shares are occupied by Woolworth and Coles, ALDI has 3 percent market share, making market highly concentrate, there is presence of aggressive market competition on the basis of price.

According to given case study threat for new industry entrant is low as industry is at matured stage of lifecycle; however there are low entry barriers and good returns which also attract investors in the industry. In the year 2012 annual growth rate was 3.4 percent, but it is expected to reduce by 2.4 percent in coming years. Different barriers that new entrant might encounter include limited sites, strict foreign investment rules and huge capital investment.

Threat of substitute is pretty low in the market due to wide range of product availability in supermarkets, convenience stores fails to offer such wide options. Convenience stores are major substitute of Supermarkets but not a major threat.

The bargaining power of buyer is strong with high impact on business in this regards, be it suppliers for supermarkets or consumers who are buyers for supermarkets both have strong purchasing power. There are low switching rates with large number of options which make competition intense. However, suppliers have little alternative as without displaying their product on supermarket, they might lose 40 to 60 percent of their revenues. Company also can opt for backward integration and launch own label.

Bargaining power of supplier is low in this industry due to intense competition, supermarket own label of products which offer quality at comparatively lower prices. There is tremendous market shift with MNC purchasing direct from farmers and delivering bottom line profits to processors. Supermarkets are in direct contact with customers, therefore its leaves very low power with suppliers.

Primary competitors of Aldi in Australian market include Woolworths and Coles Myer; these two brands have 71 percent of market share. Woolworth has 933 stores in Australia whereas Coles have 741 stores. In terms of private label sales, Woolworth total sale is 10 percent, colas 25 percent and Aldi 95 percent. However, Aldi have strong supplier relation due to low credit time, it also accepts the losses on sales without passing it to suppliers. In terms of market presence Woolworth and Coles stores are larger in size, have large number of items to offer and products are also sold online through e-commerce sites (Dunford, et.al, 2015). Apart from this, it also faces competition from local players in Australian market, it includes Franklin, IGA and Foodland associated.

SWOT

Vision of the brand is to provide highest quality of products at lowest possible prices. It is also include wide range of innovation and technologies to its operations to enhance customer value. Business goal of Aldi in Australian market include

• Increasing its market share
• Opening new stores in Australia at various locations at standalone sites; target is to open 500 more stores and expand in western and south Australia.
• Providing quality products at low prices
• Increasing its offering of branded products in stores

It is crucial to use market opportunities in optimal manner by integrating it properly with company resources, it also facilitate in overcoming threats. It is crucial to match organizational strategy with its internal skills and resources; it can be done using resource based approach to strategic analysis (Hoffman, 2000). Resources in simple terms can be defined as firm ability, two types of resources that organizations have include tangible such as financial resources, physical resources and technology. Another is intangible resources such as talented workforce, brand image, customer loyalty etc. Organizational capabilities can be developed through proper resource utilization (Hill & Jones, 2009).

Long term success of the company depends on its resources, company aim to ensure sustainable resource purchase with minimization of environmental impact. Aldi used its strategic capabilities effectively, two of its major competitors Woolworth and Coles compete on the basis on wide product rang but Aldi offer limited product range. It also sale products with no brand name which are similar to branded products at immense low price (Barney, 1991). Three qualities that make a strategy competitive advantage include its value to customers and company, rare and must be difficult to imitate.

Aldi opt for a low cost value proposition strategy to compete in Australian market, which is clearly valuable to customers, as grocery is a daily product customers prefer to opt for a value for money brands. Further, economic conditions also shows customer trend towards low cost purchase. Offering such low price strategy and limited product range was a rare strategy to imitate, however not impossible as Franklin, Action supermarkets also opted this strategy; however these brands were highly limited on geographical terms than Aldi.  Its strategies were difficult to imitate as this brand is highly focus towards its own generic brands and private labeling products to control cost and offer products at low prices. Generally, Aldi is flexible about its location as it opts for a low space in stores; further there is low operating cost strategy that gives advantage over its competitors, there is very low investment made on advertising and administration cost that helps the brand in achieving its cost leadership in the market. Therefore Aldi has managed to establish a proper fit between organizational strengths and opportunities to overcome its threats and weaknesses (Hubbard, et.al, 2014, p.111).

Cost leadership strategy

Porter’s five forces

Primary market advantage that Aldi enjoys over its competitors is that it offers hard discounts to customers. It offer limited range of products with the goal to offer best quality at low price, in general trend it stock around 700 grocery items. Majority of its products (95 percent) are its own brand with availability of few well known and local brands. House brands also attract customers as they are 5 to 20 percent less than branded products. This strategy also helps Aldi to make its buyer position strong, as it can purchase in large quantities at very low price. It also helps in reducing warehouse cost, inventory management and operational efficiency. In general Aldi stores are of 1200 square feet, whereas competitor stores are 5000 sq. feet. In terms of human resource also Aldi stores have only 4 to 5 staff at each store leading to control management of human resource, it also able to give better remuneration and motivated staff (Hatch & Dyer, 2004). Apart from this it also save cost by using all store sharing layout, it does not offer free shopping bags to customer and encourage them to bring their own recycle bags. Therefore Aldi manage to reduce cost at all levels (Kloeters, 2004).

Major strategic shift

Aldi has adopted change in its strategic approach in Australian market, it is moving away from its low-budget brand image to new stores concepts that offer wide range of products, expansion of fresh produce; it also made dramatic changes in its product displays by launching new layouts that also helped in improving navigations (ausfoodnews.com.au, 2015). To overcome its customer service problem due to more waiting time is also being taken care through technological innovation and implementation. Company is also showing its deep concern towards environmental issues; therefore new stores include LED lights to reduce energy consumption (Peterson, 2016).

It is crucial to evaluate whether company manage to bring synergy between its goal, principles and strategies or not. Five key principles that Aldi aims to deliver to its customer include huge saving through cost management, offering high quality products, outstanding value, special buys and purchase with confidence (aldiuscareers.com, 2016). Primary goal of Aldi is to achieve customer satisfaction by delivering what they want, at their price and methods. To achieve its strategic goal, company managed its culture, structure and employees accordingly. Organizational culture of Aldi is very simple, employees, supervisors, manager’s aims to ensure cost efficiency to achieve economies of scale. No waste is allowed, every employee is personally responsible for ensure proper use of energy like electricity, water etc. To do so, Aldi tries to develop its talent internally from the organization from its lower to higher level staff, intense training program is offered to employees to understand business processes, operational efficiency, and responsibility and work methods.

Competitor analysis

Another key factor is execution of decentralized approach of management, organizational structure of the company is flat (Chan, Shaffer, & Snape, 2004). There are no centralized departments for planning, marketing and other such functions; organization operates with very few staff.

Conclusion

Above analysis helped in understanding present market scenario for Aldi in Australian market, the company key advantage is its cost management strategy. However, to achieve such low prices company need to adjust its operations are various levels starting from planning to execution; this is impacting customer service adversely. Aldi opts for a focused approach on cost and quality management due to very nature of product it deals with. However, intense market competition is present from global and local players. Therefore, Aldi has recently adopted a shift in its strategy to enhance customer services through marketing, technology implementation and there strategic actions.

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