When Aldi arrived in 1990 nobody expected it to conquer the UK.
But within 20 years it had disrupted an industry and changed the way a nation shops.
Today, Aldi holds nearly 8% of the market and is closing on the Big Four.
Here's how it did it.
//THREAD//
But within 20 years it had disrupted an industry and changed the way a nation shops.
Today, Aldi holds nearly 8% of the market and is closing on the Big Four.
Here's how it did it.
//THREAD//
1/
For those that don't know, Aldi is a German discounter chain that prides itself on low cost.
It looks cheap. This is done deliberately.
Merchandise is stacked on pallets and basic shelves.
Aldi doesn't want you to think any expense has gone into aesthetics.
For those that don't know, Aldi is a German discounter chain that prides itself on low cost.
It looks cheap. This is done deliberately.
Merchandise is stacked on pallets and basic shelves.
Aldi doesn't want you to think any expense has gone into aesthetics.
2/
Aldi's SKUs are kept low due to economies of scale.
Aldi will often run its own brand where it can buy in bulk and sell it cheap.
For example, other supermarkets sell multiple brands of the same product. Aldi sometimes sells only one.
Aldi's SKUs are kept low due to economies of scale.
Aldi will often run its own brand where it can buy in bulk and sell it cheap.
For example, other supermarkets sell multiple brands of the same product. Aldi sometimes sells only one.
3/
These two key principles of narrow product range and low price are the core of Aldi's model.
It keeps costs down and cash flowing.
This is used to invest in new stores.
With sizes comes scale.
Aldi is the #1 buyer of many of its SKUs which are often its own brand.
These two key principles of narrow product range and low price are the core of Aldi's model.
It keeps costs down and cash flowing.
This is used to invest in new stores.
With sizes comes scale.
Aldi is the #1 buyer of many of its SKUs which are often its own brand.
4/
Aldi's business model made it perfect to disrupt the UK supermarket sector in the 1990s.
The Big Four avoided price wars and focused on large supermarket roll-outs to grow profits.
This kept the front margin (selling to customers) high and overall profit margins lofty.
Aldi's business model made it perfect to disrupt the UK supermarket sector in the 1990s.
The Big Four avoided price wars and focused on large supermarket roll-outs to grow profits.
This kept the front margin (selling to customers) high and overall profit margins lofty.
5/
But the Big Four also used their size to pressure suppliers on back margin too.
A toilet roll manufacturer might pay money to have their product placed in the best selling position delivering a boost in sales.
Brand advertising with high SKUs is a big part of the business.
But the Big Four also used their size to pressure suppliers on back margin too.
A toilet roll manufacturer might pay money to have their product placed in the best selling position delivering a boost in sales.
Brand advertising with high SKUs is a big part of the business.
6/
Aldi's biggest advantage is that it is privately held. It's not beholden to stockholders to perform every quarter.
It entered the UK, grew steadily, and waited for the catalyst.
The catalyst was the 2008 Global Financial Crisis, when Aldi was close to 400 stores nationwide.
Aldi's biggest advantage is that it is privately held. It's not beholden to stockholders to perform every quarter.
It entered the UK, grew steadily, and waited for the catalyst.
The catalyst was the 2008 Global Financial Crisis, when Aldi was close to 400 stores nationwide.
7/
The Big Four were hooked on high profit margins despite jobs being slashed and wages cut.
They raised prices in line with inflation.
The market was blown open.
The B4 bosses were asleep at the wheel and drove customers into the welcoming arms of Aldi and its low prices.
The Big Four were hooked on high profit margins despite jobs being slashed and wages cut.
They raised prices in line with inflation.
The market was blown open.
The B4 bosses were asleep at the wheel and drove customers into the welcoming arms of Aldi and its low prices.
8/
It's crucial to point out that the German invasion could've been contained here.
The B4 were strong enough to fight on price.
But bosses don't want lower bonuses.
And shareholders were unwilling to abandon the golden goose of expansion that they had milked for years.
It's crucial to point out that the German invasion could've been contained here.
The B4 were strong enough to fight on price.
But bosses don't want lower bonuses.
And shareholders were unwilling to abandon the golden goose of expansion that they had milked for years.
9/
Aldi exploits high wage economies to its own advantage effectively.
Labour makes a high proportion of operating costs.
Low SKUs and smaller stores boost employee productivity, who are trained to be all-rounders.
Barcodes are splashed everywhere to increase scanning speed.
Aldi exploits high wage economies to its own advantage effectively.
Labour makes a high proportion of operating costs.
Low SKUs and smaller stores boost employee productivity, who are trained to be all-rounders.
Barcodes are splashed everywhere to increase scanning speed.
10/
Aldi also pays higher wages than its competitors.
This has two benefits:
1) Reduces employee churn
2) Drives industry wages higher
This is a constant knife in its competitors' margins which have larger workforces and higher costs.
Aldi also pays higher wages than its competitors.
This has two benefits:
1) Reduces employee churn
2) Drives industry wages higher
This is a constant knife in its competitors' margins which have larger workforces and higher costs.
11/
Aldi was also helped by its competitors moving to online delivery.
Customers now could click online and pay a small charge for groceries to be delivered.
Only until the coronavirus pandemic has this business begun to reach enough scale to be profitable in its own right.
Aldi was also helped by its competitors moving to online delivery.
Customers now could click online and pay a small charge for groceries to be delivered.
Only until the coronavirus pandemic has this business begun to reach enough scale to be profitable in its own right.
12/
The key takeaway from Aldi's success is that if a disrupter attacks an industry then the defenders must pivot.
Delay only serves the disruptor.
However, most corporate boards do not have long-term plans because they are highly paid employees and not company owners.
The key takeaway from Aldi's success is that if a disrupter attacks an industry then the defenders must pivot.
Delay only serves the disruptor.
However, most corporate boards do not have long-term plans because they are highly paid employees and not company owners.
BONUS FACT:
Aldi tried and failed to copy Nestle's KitKat for its own knockoff.
Nestle UK refused to stock Aldi.
Aldi bought from Nestle Germany instead.
Soon after, Nestle UK started receiving complaints about the taste of its (German) KitKats.
Aldi refused to cooperate.
Aldi tried and failed to copy Nestle's KitKat for its own knockoff.
Nestle UK refused to stock Aldi.
Aldi bought from Nestle Germany instead.
Soon after, Nestle UK started receiving complaints about the taste of its (German) KitKats.
Aldi refused to cooperate.
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