Aldi, softing hard discount?

5 Septiembre 2012 | Sin comentarios

The discount format for a supermarket is known for giving just the product, no service, but good prices. It’s a very popular format in Germany, it fits their way of thinking: being an intelligent buyer is buying good quality at a low price, no matter your social class. It may be also an intelligent choice for the retailer: few items, few employees, low complexity… low cost for a similar margin! Just one thing to solve: How to like new customers when you expand to other countries!

Here I present the case of Aldi in Spain. It’s been a long time since we first knew the discount format in Spain by Dia% which has been mainly positioned for a low class. Not many people say to be proud of buying here, no matter if the quality is good. Many years later came Lidl. I think it’s known for being German, its temporary non-grocery offers (one day you can suddenly buy, let’s say, a tent at a “good” price, just during a week) and its low prices.

Here comes Aldi, 2004, getting established in Catalonia, probably the only region where it is quite well known. A month ago I asked a group of about 15 people; just one of them knew the shop, although they were students of german! The teacher, of course, told proudly how convenient is buying there. And believe me, a teacher in Goethe-Institut is class!

Aldi has a hard market in Spain because, in retail, time is an important factor because it allows opening a high number of branches, which means the strength of the retail brand. For brand manufacturers, hard discount represents a nightmare. They can deal with the suggested retail price not being respected, let’s say, by Carrefour. But, what to do when a retailer just sells their own brands?

That’s Aldi’s policy. Think of the most popular brand in a grocery shop: Coca-Cola. Well, they don’t sell it in Germany, just its own brand cola. Of course, Spain is different, spanish market is more addict to brands (they do sell Coca-Cola in Spain). Or maybe it’s that the market is changing. Without being a discounter (pretty nice place with mid service level) we have an “Always Low Prices” model, the Wal-Mart’s way, in Spain: it’s called Mercadona.

Aldi is number 13 among the world’s retailers, with almost 10.000 stores and €57 thousand million sales (Walmart 352, Carrefour 108, Tesco 84, Mercadona 16), 43 of them in Western Europe, 25 in Germany. Very different picture in Spain: €600 million (13% growth) and 250 stores. Aldi manages just 700 items (vs 60.000 in big supermarkets); 2 or 3 people do all the work in the store. That’s low cost! Almost every product is their own brands but around 70% are regional products, 15% spanish ones and just 15% german (try its salami with black bread!). Purchasing is a key issue (they call purchasers their marketing staff).

The business model works or, at least, is been working. But it is probably not good enough to grow in the world. Traditionally reluctant to alter its model, Aldi is now following the example of its competitors who have proved changes can successfully be brought into the hard discount model, adapting to meet customer requirements. Customers have got used to good quality at good prices, and want to make decisions. In central Europe, Aldi is developing a new kind of store: it’s nicer, with steel nice shelves enhancing bakery, big pictures for the fresh products and natural light (see picture above). Significant investment has been made to change the appearance and in-store environment of its stores in order to improve the shopper experience. They’ve recently opened a new distribution center in Madrid. We are going to see them around for sure. Hopefully in a more spanish version!

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