Aldi, a German supermarket chain, entered the UK market in 1990 and now operates a network of over 500 stores (Aldi, 2014). The competitive landscape for UK supermarkets is fierce (Sandberg, 2013) with many different strategies being adopted, each aligned to a different segment of the market. Aldi focuses on delivering a basic, value for money shopping experience (Naslund, 2013).
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Such a cost leadership strategy and lower cost structure enables discount companies to enter and take a larger percentage share of the market (Harvard Business Review, 2005). As consumers focus on saving money in times of recession, the business model used by Aldi presents an opportunity to save money on weekly food shopping whilst still buying healthy food. Supermarkets following a low cost leadership strategy often stock the same product as their rivals but deliver it under a different service model (Harvard Business Review, 2005). Smaller companies, such as Aldi, do not spend as much time publicising their plans or marketing their products, this can create competitive advantage as they are less exposed to public opinion. This leads to an information gap, however it also allows them to develop and grow quickly whilst adapting to the changing trends (Skordili, 2013). The increased demand for cheaper food is better served by discount retailers. It also removes a significant cost associated with in store branding, technology and functionality, enabling the same or similar products to be offered cheaper. The external business environment is made up of two elements; the general macro environment which takes a wide lens view of the environment in which the business operates and the micro view which focuses on the specific industry or sector in which the business operates (McLean, 2005). The external environment refers to events or trends, which are relevant to the business, as well as being uncontrollable by the business. The external environment directly contributes to the success or failure of the business, for example in 2010 Aldi left the marketplace in Greece citing unfavourable external factors as the reason (Skordili, 2013). By understanding the external environment leaders make better decisions (Kefalas, 1981); knowing the likely impact of that decision and knowing what might affect the organisation in the future. The external business environment is changing faster than ever (Mason, 2007) and therefore being able to understand, anticipate and adapt to changing trends is a key leadership skill (Kotter, 1996). This essay presents an analysis of the external business environment in which Aldi UK operates. Analysis of the general macro environment using PEST before a more focused analysis of the retail supermarket sector is conducted using Porter’s Five Forces Model in order to draw conclusions.
Stacey (2011) explains that the dynamic of this macro external market place can be categorised into a number of headings for the purpose of analysis.
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