Aldi is a discount grocery store that is upending the retail industry in a quite unsettling way to more prominent and prosperous brands.
So, what is Aldi’s secret? If you would like a comprehensive Aldi SWOT analysis, read on to find out more about its strengths, weaknesses, opportunities, and threats!
What is Aldi’s SWOT Analysis In 2022?
Aldi’s SWOT analysis explores Aldi’s strength as a retailer, especially its ability to offer products at very low and discounted prices in 2022. However, the cost of achieving this requires a lean operation which compromises customer service and is a glaring weakness. Nevertheless, the retail industry offers Aldi opportunities to exploit amidst threats like fierce competition.
Read on to learn more about Aldi’s strengths, weaknesses, opportunities, and threats, among other useful and interesting information!
What are Aldi’s Strengths?
Aldi’s strengths refer to the internal strategies and policies the company has established to make it competitive and profitable.
Aldi has held onto its market share and even clawed away some of its competitors’ portions to fuel growth through its strengths.
Listed below are Aldi’s current strengths:
- Competitive and discounted pricing
- Brand reputation
- Loyal customers
- An effective product portfolio
- Ability to manage costs effectively
- Dependable distribution networks and good supplier relations
1. Competitive and Discounted Pricing
Aldi utilizes a pricing model that keeps prices low or offers discounts. In fact, the pricing is so low that even major and more significant competitors find it hard to keep up.
For instance, Walmart failed to beat Aldi’s low prices for a basket of 40 goods by gradually reducing their prices over two years as Aldi kept its prices constant.
Compared to other retailers, shoppers at Aldi can make up to 50% more savings every month.
The pricing model has been responsible for the company’s growth, especially during tough times and among deal seekers.
2. Brand Reputation
Aldi has successfully branded itself as the provider of good quality products at very low or discounted prices.
This reputation precedes it wherever it starts an outlet, and long lines of buyers on opening day are normal.
Affluent shoppers who would usually be expected to steer clear of the branch are also continuing to be won over.
3. Loyal Customers
Aldi doesn’t usually have the largest market share in the regions it operates. However, the company forms a core of staunch customers and repeat shoppers to keep it going.
When surveyed, Aldi is the only retailer whose customers are least likely to switch allegiances and whose loyalty score increases year after year.
4. Effective Product Portfolio
Despite having the smallest product portfolios of all the major retailers, Aldi can still attract a lot of customers.
They can complete their shopping in record time, rather than browsing through the store and hunting for what they need. This method also works to keep costs low.
5. Ability to Manage Costs Effectively
Aldi has perfected the art of managing costs to keep prices low by shaving away every sliver of unnecessary expense.
The company’s stores are operated on a scale smaller than its competitors, with a tiny staff trained and expected to perform various functions to keep costs down.
Most of the products are owned brands, usually lower priced and whose profits are primarily plowed back into Aldi.
Moreover, Aldi’s range of food and drinks is manufactured by its partners, and such mechanization will keep the overhead costs low.
While shopping in the store, customers have to pay a quarter for a shopping cart and buy their bags.
They also have to bag groceries themselves to manage costs and shopping time.
While it may be expected to turn some customers off, most view this as a time and money saver.
6. Dependable Distribution Networks and Good Supplier Relations
Aldi has been able to meet customer expectations and keep costs low by building reliable distribution networks.
Maintaining a good relationship with suppliers has been vital to avoiding product shortages and acquiring them affordably.
What are Aldi’s Weaknesses?
In certain ways, Aldi has put in place internal structures that undermine rather than promote survival and growth.
These weaknesses would hamper Aldi’s efforts to exploit opportunities quickly and adapt to challenging circumstances.
The following are the structural weaknesses that Aldi currently possesses:
- Low-profit margins
- Low market share
- Low focus on customer satisfaction
- Poor penetration in high-income groups
1. Low-Profit Margins
Aldi’s exceptionally executed concept of the limited assortment may be helping the company to make sales and grow, but whether it’s profitable is another question entirely.
Though the low pricing model helps retailers rack up sales, it drastically reduces profit margins.
Aldi probably posts margins 15% lower than its competitors, and slim margins only make sense when the sales are high.
However, though competitors are worried that Aldi is ruining the industry’s profitability, the company seems keen on increasing its market share for the moment.
Nevertheless, the present risk is that if circumstances were to reduce the company’s custom, it would find it hard to survive without abandoning its low prices stance.
2. Low Market Share
Aldi is a player in several markets in Europe and North America, but nowhere holds the dominant or substantial share of the market.
Aldi’s market share ranges from a high of 9% in Belgium to a low of 0.5 in Poland.
In the US, where Aldi is working hard to open many more stores, it only enjoys 0.7% of the pie.
So, it remains to be seen whether more stores will increase market share.
A smaller market share relative to competitors makes growth efforts expensive. More importantly, a smaller market share means your ability to influence and shape the market is limited.
3. Low Focus on Customer Satisfaction
The shopping experience in Aldi is like no other. The customer has to pay a redeemable fee for the shopping cart and must buy their bags and pack their purchases.
Aldi stores are not designed to encourage relaxed shopping, rather, their staff is lean and overworked and has minimal product range.
There is merit in this treatment, and most deal seekers deem it a worthy trade-off, but not the lucrative market that comprises millennials and Gen Z.
These place a premium on experience, and customers are willing to pay for it. But, unfortunately, strictly functional experiences turn them off.
If Aldi hopes to capture this demographic, then it must rethink its shopping experience.
4. Poor Penetration in High Income Groups
As noted above, Aldi’s pricing model, customer experience, and limited product range are unattractive to customers looking for a premium shopping experience.
That explains why Aldi has seen little change in the demographic of its customers.
The Aldi customer is typically a low-income female beyond middle age.
Aldi customers’ primary purchases are groceries with slim profit margins.
On the other hand, high-income customers easily spend on products with high-profit margins and can sustain a seller with just a few buys.
Besides, high-income clients are not as vulnerable to changing economic situations as lower-income customers and may be reliable even in tough times.
What are Aldi’s Opportunities?
The changing nature of the retail industry and the economic outlook are throwing up opportunities that can be beneficial if a business is prepared.
Aldi has several opportunities that it can utilize to increase its market share and profitability.
These opportunities include the following:
- Expansion into emerging markets
- Growth of the online retail sector
- Expansion of private label brands
- Customers’ preferences change favorably
1. Expansion Into Emerging Markets
The Western world offers a lucrative market for retail business, and every major retailer scrambles to get in on the action.
However, the emerging economies now offer even better pickings, with the bonus of low-priced labor, and for a business that has made its name in reducing overhead, this is ideal for Aldi.
The Asia Pacific market is even more significant than North America, while the South American, Middle East, and African markets grow the fastest, and Aldi shouldn’t ignore this opportunity if it wishes to survive and thrive.
2. Growth of the Online Retail Sector
Many studies and surveys point to how integral online business is to any business and what opportunities it holds.
Retailers that made the switch are already reaping the benefits. In fact, Amazon owes its dominance in the retail market to the possibilities of e-commerce.
Aldi is finally making tentative forays into the online sector and would reap big if it could work its pricing strategy into online retailing.
3. Expansion of Private Label Brands
Private label brands are already at the center of Aldi’s pricing strategy. However, it’s also fueling growth in specific markets like in the US.
The owned brands still offer an opportunity for growth, and Aldi can diversify its offerings in this area to target the demographic to whom it’s not already selling.
4. Customers’ Preferences Changing Favorably
The economic outlook is in perpetual change, and the latest trend is the rise in what is known as the ‘Aldi Effect.’
This refers to the rise of value consciousness in buyers. In Australia, for instance, the ratio of value-conscious consumers has risen from 12% to over 60%.
Even affluent people now find it worthwhile to shop at the discount store, which presents a unique opportunity for Aldi to lock them in.
What are the Threats Facing Aldi?
Threats to a business usually arise from the inability of its internal structures and strategies to meet external adverse events.
Aldi’s business model is responsible for its existence and makes it prone to unfavorable economic changes.
Listed below are the threats that currently face Aldi:
- Aggressive competition
- Changing political events
- Unfavorable and unfamiliar business environments in emerging markets
1. Aggressive Competition
The competition in the retail sector is cutthroat, more so in the Western sphere, and a business must sacrifice short-term gain for uncertain long-term benefits to try and overcome competitors.
Aldi has chosen to capture a market that offers slim margins in profits and spends heavily on expansion in the US and the UK, which will either drive up a business or flatten it out.
2. Legal Factors
In the past, Aldi faced serious legal accusations such as copyright issues on its brand slogan, i.e., “Like Brands. Only Cheaper.”
Typically, the law doesn’t allow comparative advertising, so the company can be forced to stop using the advertisement that had already set foot to connect it with customers.
Ultimately, such legal issues can ruin Aldi’s brand image.
3. Unfavorable and Unfamiliar Business Environments in Emerging Markets
Though emerging markets offer tremendous rewards for the retailers than venture into them, it is also possible for a business to lose its investment.
Most political, legal, social, and economic structures remain nascent rather than institution-based, and Aldi is no exception.
The culture is different, and what works well elsewhere will be a flop in other areas.
To succeed, then, Aldi must leverage experienced partners and always tread carefully.
Aldi’s SWOT analysis lays bare the path it may be able to follow to leverage the company’s strengths and exploit its opportunities.
On the other hand, the analysis reveals weaknesses the company must rectify and threats it must anticipate.