“ALDI use a proven world wide formula for success”

MARKETING TIPS

by Ken Mitchell

18 Feb 2002

ALDI (the German Grocery Chain) is the new kid on the block taking on the big guns -  Woolworths and Coles - who have majority market shares in Australia, big budgets and a track record of providing competition to drive out lesser competitors.

Why will ALDI be so effective?

When you compare ALDI with the big guns, you should have the following marketing expectations:-

1. ALDI rely on ongoing repeat customers (loyalty) and word of mouth by satisfied price conscious customers (post purchase satisfaction) convincing their friends that ALDI is good and that the unknown brands are good, thus ALDI’s customers remove the key barrier of “fear of the unknown” and grow the market for ALDI and at no cost to ALDI.
2. Expect fewer advertisements.   Traditional grocery companies allocate say 8% of gross revenue to all manner of advertising whilst the new kid on the block allocates less than 2% toward advertising.   This represents company savings because point 1 above works.
3. Expect “Block Buster” advertising such as low priced non-grocery products such as cheap TV’s as the hook to attract interest in their advertisements and induce trial shopping.
4. The range of goods is smaller at ALDI - they have about 2000 lines of goods in a store compared with 20,000 for Woolworths and accordingly their overheads, rent, administration costs, etc are much lower.
5. For most lines you are dealing with brands relatively unknown in Australia - thus ALDI have bargaining power with overseas suppliers to drive Australian prices down.   This means that you will not get premium brands such as Dick Smith brands in ALDI.   It also means a new lower price benchmark if Australian manufacturers/suppliers wish to do business with ALDI.
6. ALDI compete by selling high volume generic commodities (ie butter, bread, flour, yogurt, etc at low prices and thereby do not need to compete for “established brand price” with competition.   Every commodity line is orientated to the low end of price competition.
7. ALDI focus on the key commodities that represent 80% of consumers weekly wants – ie designed to meet basic repeat demand.
8. Your total shopping spend WILL be much lower than at a comparable traditional store because of the cumulative effect of the above marketing strategies.
9. ALDI are well researched and enter the market by locating in regions and suburbs that best match the profile of very price conscious family consumers.   This segment is highly receptive to brand-switch to ALDI and trial unknown brands if it saves money.

ALDI’s proven world-wide formula for success will progressively achieve a large market share in Australia and over time force changes for the big guns as they will have to react to ALDI to avoid excessive shrinkage of their market share.  

The side effect of such multi-national globalisation growth strategies in the long term usually means a further decline in Australian ownership, fewer Australian jobs, and a lower value of the AU$.   However from our brief research ALDI appear to have sourced Australian suppliers to most goods and thus can be a catalyst to real growth in Australia.

Ken Mitchell is the CEO of Australian Marketing & Research Services and can be contacted on 62576677w, or kenmitch@austarmetro.com.au