Tuesday, September 9, 2014

Lean Foods: An Aldi Case Study

Have you been to the Aldi here in Pittsburgh? Welcome to a land of off-brand foodstuffs, 25-cent deposit shopping cards, and, of course, lean manufacturing. Having originated in Europe in the early 1900’s, Aldi has built a reputation in the US as an extremely cost-effective alternative to traditional supermarkets. However, behind the dollar jars of pasta sauce and 89 cent frozen peas is a complex process based on lean manufacturing principles, a process which is ultimately designed to minimize waste.

A recent case study on Aldi identifies several features of the store which exemplify their use of lean methodologies.[1] For example, the 25-cent deposit on shopping carts ensures that Aldi employees spend less time hunting down errant carts and more time serving customers. The lack of shopping bags encourages shoppers to bring and pack their own reusable bags. This cuts down on the costs of purchasing and maintaining bag inventory. Aldi stocks a limited selection of off-brand products at any given time, and employs just-in-time ordering to manage their supply chain. By relying on substitutability over brand loyalty in their product selection, Aldi is able to keep a highly agile, responsive supply chain. Even the placement of the barcodes—repeated all over the package for easy scanning—works to eliminate wasted time in the checkout line.  When taken together, these factors allow Aldi to cut prices by up to 30% relative to other supermarket chains.

Aldi experienced a recent surge of success during the financial crisis of 2009, as shoppers became more price-conscious in the wake of recession.[2] Whether or not it can keep this larger market share in a better economy may depend on maintaining a competitive advantage through strategic differentiation. On the other hand, the cost of developing a new strategy may be too high, especially if it moves towards a niche already occupied by more traditional grocery store chains.

What is the demographic make-up of Aldi shoppers? In other words, if you can save a buck by going to Wal-Mart, while continuing to buy the brands you know and love, why would you shop at Aldi instead?

Given that the economy is in recovery, do you expect Aldi to lose the market share that it gained during the recession? What strategic direction might it employ that wouldn’t compromise its core values of bargain-basement prices and lean production methodologies?

[1] Competitive Advantage Through Efficiency: An Aldi Case Study. <http://businesscasestudies.co.uk/aldi/competitive-advantage-through-efficiency/#axzz3CpMSCPd2>
[2] What Will Happen to Aldi and Lidl as the Economy Strengthens? <http://www.marketingweek.co.uk/opinion/ritson/what-will-happen-to-aldi-and-lidl-as-the-economy-strengthens/4011383.article>

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