Chapter 5 Competitive Rivalry And Competotove Dynamics 169mini Caseth ✓ Solved

Chapter 5: Competitive Rivalry and Competotove Dynamics 169 Mini-Case The Ripple Effect of Supermarket Wars: Aldi Is Changing the Markets in Many Countries Aldi started as a small, family-owned grocery store located in Essen, Germany, in 1913. Two sons, Karl and Theo, took over the store from their mother in 1946; soon after doing so, they began expanding the business. They emphasized low costs fro m the very beginning, allowing them to offer their products to customers at low prices relat ive to competitors. Ove r time, Aldi expanded to other European cou ntries, and it entered the United States market in 1976. Currently, there are rough ly 11,000 Ald i stores located in 20 countries; 1,750 of these u nits arc in 35 states in the United States.

In th e United States alone, the firm serves 4 0 million custom- ers on a monthly basis. Aldi holds its costs down in a variety of ways. It largely sells its own brand-label products in "no frill" stores. The company limits the number of external brands it sells (usually one or two per product), and it has low packaging, transportation, and employee costs. To sell products in its stores, Aldi posit ions them in ways that are similar to the approach warehouse stores use, for example, placing products on pallets and in cut-away cardboard boxes.

In Germany, Aldi advertises very little, but it does advertise in the United States. It produces its own ads in-house (no external agency) and advertises mostly through newspaper inserts and a few television commercials. Aldi and another discount store, Lidl, have hurt the largest four supermarkets in the U. K. market- Tesco, Walmart's Asda, J Sainsbury, an d Wm. Morrison Supermarkets.

Ald i and Lidl have captured market share from these reta ilers, especially Tcsco and Morrison, and held approximate ly 8.6 percent of the U. K. market in 2016 . Aldi plans call fo r it to reach about 17 percent share of the market by 2021. Tesco has controlled about 30 percent of the discount supermarket market, but it has been declining. Morrison's recent poor perform an ce has precipitated turnover in most of the firm's top exec- utives.

In addition, the new CEO, David Potts, has been making major changes-largely cutting costs in order to compete on prices. Because of reduced costs, Morrison cut its prices on 130 staple items such as milk and eggs. Likewise, Tesco reduced prices of 380 of its brand products by about 25 percent. Yet, because of gains in its market share, Aldi plans to invest about 0 million to open 550 new stores in Britain by 2022. Aldi is having similar effects on the Australian market.

It has gained market share from the two largest supermarkets in Australia-Coles and Woolworths. In response, Woolworths ind icated that it plans to reduce its pr ices to avoid a perception among customers as the "expensive option." Th is action docs not seem to con - cern Ald i in that the firm intends to spend 0 million to add stores by 2020 to its cur rent number of 300 stores in Australia. Aldi appears to be harming some competitors in the United States as well. For example, a rival discount food retailer, Bottom Dollar owned by Delhaize from Belgium, closed all of its stores (located in New Jersey, Pennsylvania, and Ohio) and sold the locations and leases to Aldi. Aldi does have stiffer competition in the United States from Walmart, Sam's (Walmart's ware- house stores), and Costco, among other discount food retailers.

Yet, Aldi is not only surviving, but also flour- ishing and growing in the U.S. market as well. In early 2018, Aldi announced that it would spend .6 billion to remodel and expand 1,300 U.S. stores by 2020. Desiring to have 2,500 stores in the United States by 2022, the firm announced in 2018 that it would spend up to