Why is Aldi Süd so successful?

Aldi success story Paul Foley FRC

Many articles are written about successful retailers – sometimes by professional business gurus, sometimes by ex-managers. I am from the latter category, having spent 23 years with the company Aldi Süd. Since selling my retail knowledge in the form of a consultancy I am often asked (normally in the process of selling a project) what is my opinion on why Aldi Süd is such a successful business wherever it sets up.

Like all broad questions there is not one simple answer – in trying to define the core strength of any huge operation, there are a number of factors that fit together as a winning formula. Here is my top 4:

1. People, the HR policy

There was always a phenomenal pride in telling your friends or acquaintances you work for Aldi Süd. It didn’t matter if you were a cashier, a mid level manager or the boss! This you must give top management and the owners the credit for. They created some rules, which are basically company ethics, and no matter what pressures are upon them, these rules are not compromisable. Ever!

The company’s stance on “doing the right thing” was easy for most employees to mentally align with, and so the pride thing to work for a company that does what is morally right, is not so difficult to imagine.

In 23 years I never saw the top management do anything that was against these basic rules of treating all employees and business partners in the same way you would like to be treated yourself.

2. Concept of good quality for a good price

Food retailers always try in some way to claim this for their business. After all, you can argue every product has a “fair” price for it.

But the Aldi concept is a bit easier to sell this notion. Within each product category there is almost no overlap. Every individual product has a unique position with no similar item next to it. The Aldi private label product is always presented as comparable to the most popular quality profile of the product in that country and normally at a price 20% below the market price. This is much more believable than a hypermarket that sells every product available at all levels of quality, even if their prices are fair when you really examine them.

3. Operational cost control

The first thing I learned in 1989 was, if you wanted to procure a really great product you will not get it cheap, you have to pay the right buying price! So if you want to sell this great product cheaper than everyone else, then you better have lower operational costs to sell it or you will make no profit.

Therefore the basic rule of every Aldi manager was to be efficient. It didn’t matter which cost you spoke of, the idea is that the cost of operation should be lower than anyone else in the industry. Increasing sizes of barcodes to scan products faster at the till, the number of cases transported on a pallet, the life of a lighting fixture, free air miles being used for business trips, … The list was endless of attempts to engineer cost out of the process of ensuring the product was positioned, so the customer put the product in their trolley because it was great value. Aldi always believed the consumer only ever took the product home, the shopping environment was never the primary reason for coming.

Even the customers themselves are trained to work in an “Aldi way”! Putting the items onto a fast moving belt and then putting them back (at speed!) in their trolley and going off to a separate place to pack bags at their leisure whilst not holding up the next customer.

4. Financial patience

Absolute belief by all experienced Aldi management that the business concept will work, is a fantastic confidence installed in all new managers and staff. This manifests itself at Aldi as almost an arrogance that, whilst the concept needs time to work in a new country (if the conditions are correct in the first place), there is no long-term chance of failure.

Aldi will have done its homework way before the first $ of investment is spent, on how much will need to be spent to build up scale to be able to buy local product at competitive prices. Coupled with the company’s experience of how long it takes to build local strength in management means, this is a business that has no problem with the fact you will not see large returns in the first 5 years. That’s financial patience!

 

Paul Foley is founder and partner at Foley Retail Consulting.

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