How Aldi Sells at Low Price ? – Adli Business Model

ALDI is a global chain of no-frills supermarkets offering a limited assortment of groceries for the best prices in town. Brothers Theo and Karl Albrecht opened their first food store in 1948 in the Ruhr Valley, Germany. The chain is made up of two separate groups, ALDI Nord (North - operating as ALDI MARKET), headquartered in Essen, and ALDI Süd (South - operating as Aldi Süd), headquartered in Mülheim an der Ruhr.

 They honed their unique approach to retailing over the years to become one of the world’s biggest grocery chains with reported annual sales of E 29 billion (US$ 27B).

The privately-held ALDI Group today operates around 4,400 supermarkets under the ALDI banner (the name is short for “Albrecht Discounts”). About 3,000 stores are in Germany, but the chain has stores in nine other countries and is now spreading throughout Western Europe, Australia and the US.

Why we head for Aldi, leaving the big fancy stores behind? The answer is simple; shopping in Aldi gives a customer heavy shopping basket without making a painful hole in their wallet.

While the recession has certainly given a tough time to many supermarket giants, it has proved a profit accelerator for the “Discount No Frill” stores like Aldi.

Let’s examine their business model strategy:-

To deliver the right value to their Customer the Aldi store has stood on the three basic pillars , that are :-

• Cost Control
• Low price
• Limited selection of the quality products

Cost Control

Aldi has taken each of those steps that helps it to minimise the cost like :-

• Store Size - Typically measures 15,000 sq.ft , which is way less than many famous supermarket stores.

• No frill product display strategy – The Products are not stocked on shelves. Rather, they are merchandised in their original shipping cartons with the lids cut off and placed on a row of wooden or steel pallets on either side of an aisle. The idea is to save on labour to stock shelves and saving on luxury display facilities.

• Shopping bags - The shopper can bring their own bags, or buy paper, plastic, or insulated bags for a very nominal charge. Aldi clearly explains that they don’t hide the cost of the shopping bags in their prices.

• Green Saving – In their small store, Aldi saves on electricity, recycling of the bag and cartons.

• Cart on rent – The shopper need to rent the cart by inserting the coins and after shopping they need to get back to the cart deposit place to get their coin back. This system cuts down on the labour of collecting carts left in the parking lot, damage to cars, and they pass the savings on to the shopper in the form of low price products.

• Most of the Aldi stores don’t keep the hand shopping basket at the store to save the staff from arranging it after a customer leaves it on the point of sale.

• Limited store hours – Open only during regular shopping hours and save on electricity and Staff wage.

• Less store staff and less overhead cost.

• Avoid to stock Special licence product on every store – They stock wine and beer in very few of their store where the customer demand for those products are high because these kind of products require licence , which also means extra cost.

• Store Location – The stores are opened only on the profitable locations.

Low Price

• Bulk buy at good price - Aldi buys in great bulk to cut on the cost price. Aldi keeps limited product than the other super market but they keep strict eye on the regular supply of the products, thats make them a strong and big buyer with continuous and sure demand, that means  losing Aldi as a buyer could prove as a disaster for some suppliers and that gives Aldi the enormous negotiation power.

• Strong and Good relationships with the buyers - Aldi is famous for their great purchasing power and strong relationship with the supplier. Which allow them to negotiate low prices, which at the end means low price product for the customers. 

• National Brands but only on less price mode - Some time you see some national brands at Aldi; these are usually “special buys”—limited-time offers of products that get the shopper huge savings, but are only available while supplies last. This also means that Aldi keep the national brands at their stores only if they get them on Aldi’s low price frame. 

Limited selection of the quality products- 

• Product Assortment - ALDI stocks 700 to 1,000 of the most often used items for the average household unlike other supermarkets with around 25 000 products.

• Brands & private labels - Only 15 percent of the goods are national brands that too those which are agree to supply their brands to Aldi on Aldi’ s  business model of low price. The rest is private label products sold under a variety of exclusive names.

• Quality Suppliers - ALDI partners with the best suppliers in the country—often the same ones that produce national brands. In addition, they have a test kitchen to ensure that their products meet or exceed the quality and taste of the national name brands.

• Commitment for the good quality - They back every regularly stocked food and non-food item with their Double Guarantee. If the shoppers are not satisfied for any reason, they can simply return the unused portion (or even the empty package) with the receipt to the store; and Aldi will refund their money and give them a replacement product.

Despite their low price model, Aldi has created a pool of loyal Aldi customers. These customers feel happy and proud while shopping in Aldi ; because they are not only saving the almost 50% money on their shopping but also indirectly helping the society by going “green”.