Is ALDI Really That Special?
Is ALDI Really That Special?
the values and the rules and the conviction: retail is detail: paying
techniques we’ve relied on have stayed attention to all the success factors over
the same the whole way. Some of them decades. That is the art, and that is no
are such simple common-sense old secret.
favourites that they hardly seem worth
mentioning.” Finally, Sam Walton had one guiding
principle: “I’m sure you’re sick to death of
ALDI founders Karl and Theo Albrecht it,” he said. “But I’m going to say it again
would have agreed with Sam Walton on and again anyway: the secret of successful
this - and many other core principles and retailing is give the customer what they
techniques. Sam was obsessed with detail. want.” ALDI concurs with this guiding
So were the Albrecht brothers. At Wal- principle, 100%. But there is one way in
Mart they say: ‘We are different’; ALDI which ALDI and Wal-Mart are poles apart.
says much the same. Sam Walton declared
‘we think small’ and referred to his Wal-Mart offers customers everything
‘simplicity concept’. Simplicity is one of they want to find under one roof at low
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ALDI’s guiding principles too. Wal-Mart prices. ALDI offers only a very limited
makes a habit of trying things out to see if range. Consider these numbers:
they work; trial and error is the ALDI way • ALDI sells 700 items, generating a
too. Sam Walton and his managers knew turnover of US$44 billion
that there is no magic formula for success, • Wal-Mart sells 100,000 items,
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26
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frozen goods present no problems. The
What makes ALDI tick? personnel do not require any special
ALDI was born out of a poverty regime of background knowledge about ALDI
post-war Germany when hard times and products either.
enforced frugality demanded the
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avoidance of waste. The end result of this When you have just 600 items, each
‘poverty regime’ was the ALDI concept. item is an individual and can be treated as
This was not a sudden invention. Albert such by everyone all the way up to the top
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Einstein once described his way of management. “People know” each
working as ‘I grope my way forwards’. individual item personally when there are
That’s what Karl and Theo Albrecht did only 600. Even starting from 2,000, and
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too. They literally groped their way certainly when the range goes up to
forward to their sales system, which can 20,000 items, managers at other retailers 27
be summarized by these five points: must resort to blunt instruments of
• a limited product range, quality assurance and product range
• goods which reflect basic consumer control. All business systems, the
needs, organization, communication, even the
• easily handled goods in terms of scope and type of business of meetings are
ALDI’s limited number of items enables Too many companies give too little
it to profit from those consumers who like thought to core questions. More important
their products simpler, more durable, than the question of purchase prices is
cheaper and plain, and who are tired of something else:
being confronted with new products. The “Why should customers shop in my store?
enormous variety of products on offer Why should the customer select my product?
today is quite a burden for customers.
Today, many customers are glad on This question - the core question for all
occasion to do without the enormous marketing and corporate strategy - applies
selection, if they can be sure that the in all companies and institutions, from
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then it is by far the largest cost category and practices which have nothing really
28 in retailing. 60 to 80 percent is very to do with customer demand. Take the
common. But it would be wrong for attempt to tempt customers with special
companies to conclude they have made a discounts.
decisive contribution towards business
success if they secure respectable Purchasers and vendors meet and
purchasing prices. work out their annual programs.
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success is anybody’s guess. Perhaps too departments of the manufacturers.
much was paid. But if the purchaser by
the end of the year has saved up a nice The consequences of such a retail policy
pile of money, then it is a success. Such are simple:
sums are even included in the annual • High advertising expense benefit +
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budgets. But the advertising expense weak mission = modest success
benefits reveal nothing about whether the • Low advertising expense benefit +
purchase price is generally “appropriate”. strong mission = major success
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And of course the vendors include such
extras in their budgets in advance. But manufacturers aren’t much better.
They feel compelled to give in to retailers,
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Retailers’ lack of real customer focus afraid that they might lose their business
shows up time and time again in the many contact. But the real reason is that often 29
ways they seek to compensate for their their products are similar to the point of
own lack of conceptual creativity. Some being interchangeable, and the use value
examples are: manufacturers being they have for the consumer is not very
required to pay contributions to make distinctive. In short, they have failed to
sure that an item already in the product answer the basic question: ‘why should
shelves?’ All this is a product of poor what most experts mean by “purchaser
leadership and organization, and poor use power” is in fact “vendor power”: the
of employee creativity. ability to achieve high sales figures.
Vendor power is not the result of
Another example of this general lack of purchaser power, although purchaser
any overview is aggressive manufacturer power in this context can provide support.
promotional campaigns whose shop The main factors of purchaser power are
displays and eye-catchers clash with the different: sales concept, products,
store’s layout and upset business qualities, prices, locations, marketing.
organization, quite apart from the usual
over-supply of items which, after the Easily handled goods
campaign, end up in the store’s back It is often argued that “sales psychology”
rooms or are somehow squeezed onto the is the basis for ALDI’s decisions regarding
regular shelves. Such developments - merchandise placement. The interiors are
which have continued for decades - result kept so simple on purpose simply to create
from mistaken ideas about what the real the illusion of being cost conscious. This is
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success factors in retailing are, and these wrong. ALDI does not focus on
have also led repeatedly to mistaken appearances. ALDI’s focus is on costs and,
“explanations” of ALDI’s legendary in addition, making the customer an
success. honest offer, without any “show”.
Customers are not supposed to believe
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ALDI does not pursue this sort of ALDI is low-price. ALDI is low-price. The
“discount policy”. The purchase price is purpose is not to suggest this. It is a fact
stated as net/net - after subtracting all the which customers experience when they
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their customer needs, on their company’s durable and low-cost materials. Shelves,
30 most immediate mission. Vendor lanes, and - if possible - even the length
conditions do not play any role at all in and width of the store itself should be
the product range strategy (while at determined solely in terms of logistics
ALDI’s vendor-oriented competitors this is (box size, pallet size, the maneuvering
often the only “strategy” they have). space needs for forklifts and similar
matters).
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market you can see what it means. Sugar, process. A higher purchase price is
flour, beverages, milk, laundry detergent accepted for higher quality.
and other items are presented for sale,
untouched, on the same machine-loaded Nearly 95 percent of all the items on
pallets as they were shipped out by the ALDI’s shelves are private-label, which
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manufacturer. All the other items are put however are often made by well-known
on pallet once and moved to their position brand makers such as Bahlsen, De
in the store. At that point it is usually just Beukelaer, Blendax, Trumpf, Nestlé or
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a matter of opening the box and the Unilever. No one else has pursued this
merchandise is ready for sale. None of policy so fanatically. Vendors know the
ALDI’s employees need to unpack ALDI quality requirements. They must
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individual packages or decorations. ALDI meet them. The best raw materials and
did not introduce refrigerated items, for excellent processing are expected. Since 31
example, until the refrigerator cases and the vendors do not have long-term
the cardboard boxes matched its contracts, ALDI can also immediately
requirements. The cases had to have terminate business relationships without
enormous capacity and boxes had to be the the need for interminable legal wrangles.
right size so that they could be placed Nevertheless, ALDI has rarely proceeded
endangered. This is why ALDI is not Of course the company’s basic principle is
interested in making vendors dependent to sell products at prices lower than
on its order quantities. Often an anywhere else, in contrast with many
additional vendor is tapped in advance. other retailers whose goal is to get the
highest possible prices without
Private labels require confident, endangering the company’s
knowledgeable consumers: quality and competitiveness. This pays in terms of the
price as rational arguments against the company’s standing in the eyes of the
irrational “brand” idea. ALDI customers customers.
do not need labels to boost their feelings
of personal adequacy. Consumers are very No one disputes the fact that ALDI sets
well capable of judging quality prices in the food retail trade. The market
themselves, independent of brand price is determined by ALDI. If the
advertising campaigns. Product value has purchase price drops, ALDI nearly
the priority. automatically lowers its sales price. ALDI
achieves its best values for prices by cost
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There is hardly a competitor of ALDI cutting in all areas - with the exception of
who carries out such extensive quality wages and salaries which generally are
controls, at least in the course of my among the highest but, due to the high
professional life. When it comes to productivity of staff, generate the lowest
freshness, ALDI can hardly be beat. Its personnel costs. Higher wages are as much
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rapid transport and distribution system a part of ‘lower cost’ as anything else:
makes it practically impossible for creating a low cost structure depends on
competitors to offer fresher wares. the extent to which the company’s
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Reliable, uniformly perfect quality was management and its employees are
and remains decisive for ALDI’s success - prepared to and capable of working on
more important than any specific details.
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the detriment of customer assistance?
ALDI also faces these dilemmas: how to Nor is there any intention of making
avoid long lines at the cash registers when any vendor completely or even
these lines are frequently only substantially dependent on ALDI. This
temporary? may seem like a good idea: it means the
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retailer can exercise greater influence on
Dealing with vendors: consistent and vendors or depress their prices. But this
fair would also make ALDI dependent on
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ALDI could not have achieved its current fluctuations in quality, internal problems
success without close working of all kinds in the vendor’s business up to
relationships with its suppliers. So how do and including capacity breakdowns. Even
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ALDI’s five guiding principles translate a collapse caused by the vendor himself
into the way it manages supplier could easily be blamed publicly on ALDI. 33
relationships? Under these circumstances it is essential
to make use of an intelligent alternative.
In contrast to a view often expressed in
the trade, ALDI does not conclude any For retailers it is basically more
long-term agreements with vendors as a interesting if the vendor market is made
companies. Each company can only exist in business in the future as well.
over the long term if their profit margins
are wide enough, so it simply does not The points I have listed below are from
make any sense to drive a partner into my experience the most important for
insolvency or - one step in that direction - successful negotiations with vendors:
to kill his appetite for business. This has • Drop what is known as the annual
been one of the most important issues on conferences. The end of the year is an
the agenda between manufacturers and accidental and random date. Issues
retailers for many years. Here too, ALDI should be handled as they arise and
has had a positive impact, in addition to negotiations should not have to start
its inflation-braking effect on the under the pressure of a deadline.
economy. Manufacturers and retailers could
The company is a fair partner: agree to periodic meetings for specific
• A price - once it has been agreed to - is product categories.
not open to ‘re-adjustments’ • In fact, every “annual conference” is a
• No discounts are demanded afterwards strategic conference. The purchaser
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retailers and manufacturers. The current but rather conceptual ideas (e.g.
negotiating practices could be loosened up replacement of vendors, items or
and focus more on the facts. Putting on similar matters). A clear distinction
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the pressure and playing poker are not the must first be made between concepts
34 best approaches if people want to continue and conditions.
working together in the future. A good • Nearly every vendor’s sales can be
guideline for successful negotiating is increased by 20 to 50 percent. The
offered by the Harvard Concept whose question is whether this is really wanted
most important principle is that and how to go about it. At issue are the
negotiations are successful when both concepts, alternatives and options.
✔ 5. No budget forecasts
✔ 7. No scientific analysis techniques for all questions related to supplying the market
✔ 8. No customer surveys
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✔ 11. No differentiated price policy by sales area or store area
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✔ 14. No games involving qualities to optimise profits
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✔ 16. No product placement in stores based on psychological analysis of shopper behaviour
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✔ 18. No public appearances
✔ 19. No publicity 35
Summary
Companies should be capable of
developing their own business principles
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in line with their own cultures. ALDI has
succeeded in doing this. Although ALDI
kept an eye on the competition, the
competition was never a source of
“benchmarks” for ALDI’s own practice.
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ALDI has always set its own course. Many
specific elements of ALDI’s business model
can be copied. But there is one thing that
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others find very hard to copy: a fanatical
and no-compromise corporate culture
focused on consumer value and supported
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by people who think, feel and act
accordingly. 37
Further reading
This article is an edited extract from the
author’s book Bare Essentials: the ALDI way to
retail success, Cyan/Campus, 2004