German supermarket chain Aldi entered the Australian market in January 2001 with a simple plan to gain as large a portion of market share from the main players in the market such as Woolworths and Coles. Aldi’s pricing objective is sales-oriented as they offer a selection of groceries and other items at everyday low prices which the company achieves not only from focusing on the cost of their goods but also their costs of doing business.
Less is More
Aldi has a focused range core of around 1350 products, 90% of which is private brand, in comparison to Woolworths and Coles who can hold up to 35,000 product line. A study conducted in 2000 found that consumers were 10 times more likely to buy jam when provided with 6 options opposed to 24 options. The focused range helps the company achieve buying efficiencies with its suppliers meaning that with fewer product lines comes greater concentration of purchases (bulk purchasing) and optimised buy prices. Other advantages with a smaller stock file comes fewer supplier relationships to manage and also a smaller store footprint which reduces property costs and gives the company greater options in finding suitable locations for new stores. Other efficiencies that contribute to Aldi’s lower costs of doing business are shorter trading hours which lowers utility costs and also payroll, which is also assisted by the requirement for few employees in each store.
Aldi’s competition in the supermarket battle for price supremacy is Woolworths and Coles who have both come under scrutiny for their tactics in trying to achieve every day low prices and a competitive edge. As reported by Lucy Buttersby of The Sydney Morning Herald, Woolworths and Coles will run a promotion lowering the sale price of a suppliers goods but will then invoice the suppliers a 3% marketing charge to help soften the losses whilst Aldi’s marketing campaigns are absorbed into their own profit margins. Suppliers also claim that when questioned on pricing by Woolworths and Coles that they are made to compete with overseas suppliers where as Aldi will only compare pricing from supplier within Australia. The ACCC has gone as far as investigating bullying tactics from both of the majors asking suppliers to fund marketing campaigns with the threat of being called into meetings with senior management if they do not comply.
Attack of the ‘Value Shopper’
Kate Emery of the West Australian refers to Aldi’s value proposition to the Australian market as cheap and no frills and also that its appeal to the supermarket consumer is rooted in price. The timing of Aldi’s market offering was timed perfectly with a large percentage increase of ‘Value Shoppers’ in the Australian consumer market. Thanks to event such as the global financial crisis, 68% of market consumers would now be categorised as ‘Value Shoppers’, a segment of the consumer market who’s purchasing decisions are primarily made based on value and price alone. This value and price based consumer movement opened the doorway for private brand products, once considered to be an item you didn’t want seen in your cupboard, to become not only socially accepted but sort after by a large percentage of the market who are more than happy to sacrifice the appeal of the popular brand purchase to save money on a comparable product at a cheaper price. This plays into the hands of Aldi who assisted in the change in perception of private brands in Australia with their 1200 core range lines dedicated to private brand products.
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