The ALDI system is not primarily a retail discount system, but a management and organization system which can be applied in any business.
At ALDI there is no wide range of products. Only some 1000/1800 items are carried in their assortment. Only the very few items which meet the daily consumer needs.
ALDI, Toyota and GE have formed a three-star constellation of simplicity, concentration, efficiency and persistence.
Biedronka and BIM can be considered the best ALDI copies in the world.
Introduction: ALDI – a Portrait in Miniature
“Our only consideration when we are working out a product‘s price is how cheaply can we sell it”
Our range of products is limited to consumer items which sell fast.
Scarcity and necessary frugality demanded the avoidance of waste. The principle was: less is better than too much. This applied to capital, personnel, floor space. In the end, the result of this “emergency program” was the ALDI concept.
…groping forwards in the dark like Albert Einstein
The ALDI system was not a sudden invention. With their first “mini-stores in third-class locations” Karl and Theo Albrecht were literally groping their way forward to their sales system.
Today the stores may carry up to 1000 boxes, many of them mixed with a couple of similar but different SKU’s (of the same kind, size and price). This could count to a total number of SKU’s of 1800 items.
ALDI’s know-how is so simple that nobody wants to believe it. That is the reason why it is so difficult to imitate.
Confidentiality as a Principle
ALDI themselves never spent any money on market research.
History and growth
In 1913 the parents of Karl and Theo Albrecht opened a small grocery store with 35 square meters of floor space in Essen. After their return from prisoner of war camp in 1946 the Albrecht brothers ran a business with 100 square meters in Schonnebeck, a suburb of Essen largely populated by miners.
Karl Albrecht says the real business operation actually started in 1948. Two years later the principle of low prices was added to that of narrow product range. The first “genuine” ALDI in today’s terms was opened in Dortmund in 1962 – a creation of Theo Albrecht in the north of Germany which was later adopted by his brother Karl. In 1961 the brothers divided their small dynasty into their North and South business units.
ALDI’s Corporate Structure (North)
ALDI’s business structure is not opaque as has been discussed in some magazines. The “unifier” as well as the leadership and control body of the corporate group is the Executive Board. One characteristic of the ALDI corporate structure is that there is no holding or umbrella corporation which rules other companies.
But what is decisive for this structure is the vigorous decentralization – a core principle of the ALDI corporate leadership.
In addition to this basic set-up there is also a small number of important companies which are part of the corporate group: coffee processors in the towns of Herten/Westphalia and Weyhe near Bremen, the real-estate companies Albrecht Immobilienverwaltung GbR and A + G Grundstücksvermietungs und – verwaltungs GmbH, as well as an insurance agency called Alva Versicherungsvermittlung GmbH & Co KG.
The property development companies served the purpose of buying and managing their own property, the insurance company enabled them to take in the usual agent commissions for selling policies.
Financial Development in Germany
Costs as a percentage of turnover (sales incl. VAT):
- Personnel costs of the stores – 4,20 %
- Personnel costs for administration, logistics, management – 3.10 %
- Rents of the stores – 1.30 %
- Other – 2.40 %
- Total costs of the company – 11.00 %
- Margin as a percentage of turnover (after value added tax) – 15.00 %
- Profit as a percentage of turnover – 4.00 %
Is the End of Growth in Sight?
Currently ALDI is showing the first signs of stagnation. The competitive pressure in the discount business has increased, more and more retailers, including the newcomer Netto, are entering the market where Lidl has been continuously strengthening its position.
ALDI and Wal-Mart: The World’s Top Retailers
The secret of successful retailing is to give the customer what they want.
The needs of an ALDI customer differ from those of a Wal-Mart customer. At Wal-Mart he wants everything under one roof at low prices.
Success Comes from Being Different
Basic principles of healthy common sense, business sense, are the makings of success and not knowledge management, budgets and data warehouses.
The ALDI Corporate Culture
The Corporate Culture is the Key to Success
One of the most important aspects of the ALDI success story: standards and values – the corporate culture.
The corporate culture influences the attitudes of employees towards their work, the product and the company.
“In the end there is no control more effective than a distinctive, homogeneous corporate culture. If the general direction is right, the details can be entrusted to decentralized self-organization. Time-consuming coordination and control systems can be dropped.” This is how the management experts Klaus Doppler and Christoph Lauterburg put it in their book Change Management. Designing corporate change, and that is how it works at ALDI.
Culture by Example
Theo Albrecht is known as someone who turns off the light when he enters a room to save on electricity if – in his opinion – there is enough light without it.
Asceticism as a Basic Principle
The top of the list of virtues of cultural elements at ALDI: asceticism in the sense of doing – without is, we believe, the most important core characteristic of ALDI, and Theo Albrecht once said: “People live more on what they do not eat.”
An overview of doing – without at ALDI produces the following check list: The Doing – Without Checklist:
- No staff departments to relieve management of intellectual work.
- No controlling department to provide direction.
- No external market researches.
- No work with corporate consultant.
- No budget forecasts.
- No scientifically cleaned statistics which reveal all.
- No scientific analysis techniques for all questions related to supplying the market.
- No customer surveys.
- No sophisticated condition system to squeeze vendor prices.
- No differentiated price policy by sales area or store type.
- No differentiated product mix from store to store.
- No complicated calculation methods for setting prices.
- No games involving qualities to optimize profits.
- No highly complicated engineering for logistics.
- No product placement in stores based on psychological analysis of shopper behavior.
- No luxury in the business offices or company cars.
- No public appearances.
- No publicity, no public relations.
- No gifts accepted from vendors.
- No invitations to dinner from vendors.
ALDI has always excelled in modesty, and this attitude is appropriate for the most important part of the company, its stores.
Frugality as a Guiding Principle
Modesty at ALDI goes hand-in-hand with frugality and extreme cost consciousness.
“Muda”, the Japanese word for waste which is so popular today was unknown at ALDI when everyone already made this notion part of their daily work. At ALDI people had always put effort into dropping unproductive ways of working, as the term waste implies.
Promoting Managers from Within
Self-discipline is also a necessary and typical personal characteristic of ALDI executives, one which promotes the central cultural aspects at ALDI.
Practicing this type of asceticism is certainly no easy matter for many, and there are some who fail completely at it. This has always provided very cogent arguments in favor of recruiting from within the company.
The ALDI strategy is so particular, that not everyone would be able to fit in smoothly.
No Gossip, No Scandals
The Albrechts never permitted their managers to appear in public as “naked emperors”. They also behave like role models in this sense as well.
Just for a moment, consider how much time some executives spend making presentations, giving interviews, writing articles, taking part in panel discussions, sit on other companies´ boards of directors. Does that help their company? Generally, the answer has to be no.
The impersonal style is an integral part of ALDI culture.
The sole spectacular history in connection with ALDI was the kidnapping of Theo Albrecht. It was the first professionally organized kidnapping in Germany. In December 1971, Theo Albrecht was abducted from his business location in Herten/Westphalia.
3.5 million Euros ransom was paid for his release, 2 million of which remain unaccounted for. At that time and for many years it was the highest ransom ever paid in Germany.
ALDI developed under the eyes of “blind” competitors, and confidentiality continues to be so secure today that even the trade journals are hardly familiar with the members of the company’s management.
“Best Regards from Mülheim”
Only in borderline cases did public relations work become an issue at ALDI, for example during the abduction of Theo Albrecht and in the long discussion about what are called repack cash registers 20 years ago.
The unique success and the strict avoidance of publicity are the two sources which fed the “ALDI myth”.
Only in their product range policy does Lidl require some improvements: product range policy must be understood from the bottom up. Simply imitating the visual aspects of a store is not enough. There are secrets behind the scenes and an uncompromising will to be thorough.
No Manipulation – No Tricks
ALDI respects labor laws. ALDI has always attempted to win recognition for their own opinions on labor law in their difficult disputes with works councils.
The bonus system for sales assistants is based on the monthly performance of the whole store, the monthly turnover being divided by the number of hours worked.
The unions called the women workers at ALDI the “call girls” of retailing because they were phoned when stores needed additional personnel.
Fair Treatment of Vendors
At ALDI there is a clear regulation: the biggest present which may be accepted is a calendar. Anything else is turned down and returned with a friendly letter and a request for understanding.
Simplicity Is Not Easy
In fact, it is quite simple: expenditure can only be covered by customer sales. The customer pays for and finances everything.
In 1995, at the annual convention of the MMM Club (Modern Market Methods), Fredmund Malik, professor of business management at the University of St . Gallen, formulated the requirement which in fact answers all the basic questions: “Improve customer advantage instead of merely concentrating on increasing profits.”
The Shortest Path to Recognizing Customer Needs
Before you start asking the advice of experts it is usually sufficient to use your own experiences as a customer.
“Credibility is agreement between talking and doing”, is how the former head of Nestlé, Helmut Maucher puts it. ALDI has perfected this idea in relation to its own customers – and they have rewarded the effort.
The easily manageable, narrow product range allows ALDI managers to keep the relationship between price and value under control.
Uncompromising Quality and Product Range Policy
At ALDI, eggs are controlled for freshness when they arrive at the distribution center with an egg lamp, a simple candling method which checks the freshness of the eggs.
Daily sampling of private label goods and comparing them with leading brands, as well as laboratory tests, complement ALDI’s intensive quality policy, which has been practice for decades – “ISO 9000” and “total quality management” (TQM) were still completely unknown terms.
Regarding uncompromising customer orientation, many German retail managers do not follow the principle suggested by Fredmund Malik and realized by ALDI: the unit profit, the absolute and percentile gross margin, the advertising expense contribution offered by the vendor should not be the basic decision criteria for establishing product mix.
ALDI’s competitors are heavily vendor-oriented, a tendency which often compels them to face up to major disadvantages which, firstly, are not within budget.
Obsession with Detail: Small Triumphs Every Day
This interest in details is promoted at ALDI by the complete lack of staff. At ALDI many employees who complete their usual daily tasks as part of the regularly scheduled work are also given additional, interesting assignments, which in other companies would be generally reserved for staff departments.
The collective knowledge of many employees, who as individual personalities can fill a treasure chest full of information, facts, ideas, experiences and insights, is greater in every company than generally assumed. To unearth this treasure, one merely needs an organization, a special sort of climate, and a culture.
Common sense professionalism is the method which finally provided the decisive contribution towards ALDI’s cost leadership. This is how ALDI developed the sort of “Strategic Success Positions” referred to by Cuno Pümpin. ALDI has secured itself this strategic competitive advantage for a long time to come. With the overpowering ability to come up with simple solutions which repeatedly lead to extremely low costs, ALDI is many years ahead of the competition. This ability cannot be developed easily, but it is impossible to copy.
From Mount Olympus into the Stores
An ALDI General Manager knows the details without losing sight of the overall structure.
Managers must be role models; that is one of their essential tasks.
An Interest in Detail or Rule Crazy?
For the ALDI line managers, theoretical desk work is always less important than work directly related to practice.
ALDI South was always “leaner” than North, where, for example, there are detailed job descriptions and very sophisticated work instructions.
A “check list for store managers” consisted of 64 questions, the training plan for cashiers was eight pages long – despite the very simple store organization in comparison to traditional supermarkets.
The “General Management Guide” contains definitions and regulations regarding subjects such as suggestions, instructions, information, work flow, complaints and other matters. Taken separately each is certainly understandable and even sensible, but overall, they are more of a burden than a benefit.
The criticism of the bureaucracy mostly comes from the lower levels of the organization, from those doing the work, and our experience has shown that most of this criticism is justified.
Persistence and Strict Adherence to the System despite Daily Temptations.
ALDI has resisted all the temptations in various areas of the company’s operation. Among these are: widening the product range, diversifying into other industries, purchase decisions based on special conditions offered by the vendors. For years they firmly rejected problematic items such as fruit and vegetables and avoided any form of manipulation in quality or leasing space in high-rent locations. This sort of persistence in action demands a high degree of discipline and distinguishes the company and its employees.
A Nestle study from 1987 states: “According to a survey of top retail managers, all the respondents agreed that ALDI is moving in the direction of a category killer.”
“Concentration is the key to business results. No other principle of effectiveness is betrayed today on such a regular basis as the basic principle of concentration. Our motto seems to be: let us do a little bit of everything.”
The ALDI Executive Board performed these tasks in a highly disciplined, ascetic manner, and this manner of control is practiced throughout all the levels of the hierarchy. The system is based on random sample controls which each supervisor applies to his employees every month.
Trust is the basic prerequisite, not “precautionary” mistrust. Nevertheless, it is important for supervisors to check whether and how the delegated tasks are being carried out.
The control procedures practiced at ALDI can be referred to as system-defining and system-supporting and have contributed to the company’s success.
Experiment Instead of Endless Analysis
Given the Einstein approach described at the start: “I grope my way forward.” It is no surprise that ALDI operates completely without consultants. No corporate consultancy, no market researchers, no advertising consultants.
The Secret or the Art of Simplicity
Although customer orientation, asceticism, persistence and discipline are essential ALDI features, the real ALDI secret is: simplicity.
New items are not added until after a test in three stores. This avoids burdening the whole organization with a possible flop.
Simplicity makes companies quicker. Time is the most precious resource available. The connection between time and simplicity becomes very apparent from the ideas guiding the neurobiologist Christof Koch at CalTech California.
I don’t think it’s possible at present to develop a theory of consciousness which is compatible with all our insights. Our knowledge of the brain is too fragmentary.
The principles of simplicity display many parallels to the efforts to make companies “lean”, i.e.: manageable, clear, comprehensible, reasonable, intelligent.
The Question “Why?”
Asking “why” clears things up. The more frequently the question is asked, particularly in the context of business and political processes and how they relate to the sense and purpose of things, measures and ideas, the clearer and simpler the answers become.
Shrewd Self-Restraint on Product Mix
As the number of variants or items grows, costs and complexity expand geometrically. Empirically quantified facts about the relationships between cost and the number of items offered are not, to the author’s knowledge, actually available; however, when the reality in retail outlets is graphically depicted, the following curve can be assumed to be accurate.
Source of Error: Cost Accounting
A significant source of errors which prevents the design of simple systems with clear and simple bases for decision is frequently poor cost accounting.
In the October, 1991 issue of manager magazine McKinsey consultant Michael Roever discussed the three illusions regarding the subject of costs and complexity which are compared below with ALDI practices.
The first illusion: “If the market stagnates and cut-throat competition is the order of the day, the expansion of product range by including niche customers is the sales policy instrument” (Complexity I).
The second illusion: “We are a major customer; on our order lists there is an enormous volume of pre-products and services. We would benefit by adding steps to our value chain to take in the profits of our vendors and obtain other advantages such as greater customer loyalty, quality and improved secrecy” (Complexity II).
The third illusion: ” We can really throw our weight around, if we pull together the functions which can be found in many of our businesses or even in all of them, and thus benefit from economies of scale and a high degree of functional professionalism” (Complexity III).
The Fear of Making Mistakes
Teams are a typical way of attempting to effectively deal with complexity.
Employee judgement should frequently be ranked higher than the effectiveness of many rules.
What Is Special about ALDI Corporate Culture
ALDI cultivates qualities which Don Clifford and Richard E. Cavanagh attribute to the successful, mid-sized companies in the USA. In their studies they arrived at findings similar to those of Peters/Waterman. According to these, successful companies are characterized by: a strong sense of mission (passionately pursued values and goals) unlimited attention to fundamental, business tasks fierce opposition to any bureaucracy combined with an eagerness to experiment, and finally a way of thinking similar to their customers.
Organization and Leadership
Good Organization Offsets Poor Leadership
A company’s resources (hardware and software) are the raw materials of its success. Good organization and leadership can improve a company’s software.
Leadership and Organization Determine Success
The potential leadership weaknesses at ALDI are compensated for by the solid organization which is based on the principles of delegation and decentralization.
Only a Minimum of Communication
“The purpose of organization is to reduce the amount of communication and coordination necessary. Hence organization is a radical attack on communication problems.”
Frederick P. Brooks Jr.
One characteristic of many retail organizations is that they have separate purchasing and sales departments.
At ALDI purchasing and sales are also kept separate but, thanks to a manageable small product range, ALDI’s overall situation is fundamentally different. The management decides on assortment and prices based in principle solely on sales considerations. Purchasing, on the other hand, has the clearly defined duty to obtain the defined goods at the lowest possible price from a reliable supplier. The purchasing department decides on this fully by themselves. This system requires little in the way of coordination and communication.
Divisions of labor promoted by Taylorism are antiquated, why must they be preserved in such intimately related fields such as marketing and sales? This tears something apart and throws the pieces to two separate departments.
The German Company with the Best Organization
The ALDI organization is flat, simple, lean.
The Organization of an ALDI Regional Company
Each ALDI company can have one or two Sales Managers. Each Sales Manager supervises four to six District Managers, each District Manager being responsible for seven to ten stores. Each ALDI company operates approximately 40 to 80 stores.
The Administration Manager is responsible for such administrative duties as personnel department and electronic data processing. But the personnel department at ALDI has no authority over the employees.
The manager of the central warehouse controls the supply chain from the point of receipt to the shelves in the stores. This includes storage handling and fleet management.
The purchaser is essentially responsible for the appropriate inventory and reordering from suppliers.
Some 30 items not available to every company can be procured based on an independent decision by the regional company.
An essential role in the ALDI organization is assumed by the central purchasing company, the ALDI Einkauf GmbH & Co. OHG. It is a subsidiary of the regional ALDI companies. It negotiates with suppliers and buys all the goods. For ALDI North, for example, only six purchasing agents (before extending the assortment) handled all the work related to goods procurement: analysis of the procurement markets, finding suppliers, quality assessments, price and terms of trade negotiations, signing contracts.
The General Manager Conference: Authoritarian Tendencies on the Increase
The main decision-making body for basic organizational, policy-making and conceptual questions is the General Manager’s Conference which meets regularly and includes all the General Managers of the regional ALDI companies together with the Executive Board.
The consensus or majority-rule approach practiced in many companies is unknown at ALDI.
At ALDI, the practice of discussing topics extensively and intensively until the widest possible consensus is reached is going out of fashion. Authoritarian tendencies are growing.
The Foundations of Good Leadership and Organization
During his years at ALDI Dieter Brandes learned what the foundations of good organization and leadership are. They can be described very simply: clear goals, few but easy to understand business principles total customer orientation uncompromising thoroughness in the application and implementation of concepts and work on details at all levels.
Clear Goals Avoid Conflicts
The targets set at ALDI are extraordinarily simple. The only concern is lowest costs, i.e. best performance and productivity in all areas, lowest possible sales prices and best quality.
Dropping Mission Statements
What would ALDI’s statement look like? Perhaps: “We sell 600 items for people’s basic food needs, best quality and lowest prices anywhere. Prerequisite is rock bottom costs at all levels.”
More Similarity with Toyota than with Tengelmann
If you compare Japanese methods with ALDI’s, you discover that ALDI is in fact a “Japanese” company, perhaps the “most Japanese” in all Germany.
Kaizen at ALDI
Especially what is known as kaizen is a typical ALDI method. Kaizen means the continuous improvement of everything in the company, in particular production and logistics processes.
Trial and Error
An outstandingly appropriate method in the kaizen process is “trial and error”.
“Continuous improvements are better than delayed perfection.”
For all new ideas, developments of a technical or organizational nature, for the introduction of new items, changed quantities or package sizes, ALDI works in compliance with these basic principles.
The “Three-Store Tests”
A by-word at ALDI is the “three-store test”. Tests like these are used to try out the potential success of new items or changed packaging, contents and the like. This kind of test tells you fairly accurately nearly everything you need to know, and at the lowest possible cost.
Personal Commitment and Passion
Enthusiasm and determination of the employees are the basis of performance and creativity. The avoidance of waste, at ALDI “extremely low costs” are demanded in the job descriptions, is the leading principle.
ALDI’s Reordering System: If it is gone – replace it
Many companies maintain complicated inventory control systems and reordering systems based on enormous data management expenditure. At ALDI, on the other hand, this simply works according to the kanban principle, the Japanese approach to inventory control. Simply stated: “If it´s gone, replace it”.
Decentralization and Delegation
The core organizational principle consists of delegation and decentralization. The first and most important decentralization in the ALDI Group was perhaps the decisive one. In the early 60s the company was divided between Karl Albrecht, at the head of its operations in Mülheim, and his brother Theo Albrecht, who located in the northern German city of Essen.
Decentralization enables methods, experiences and results to be compared, and creates the freedom to make decisions for or against based on these comparisons.
ABB and ALDI: Decentralized and Successful
Peter Drucker, in his book Concept of Corporation gave consideration to the fundamental significance of decentralization as a principle of organization. Drucker described decentralization not only as a management technique but as the draft plan for a social organization.
The “Harzburg Model”
In terms of form and organization, delegation at ALDI works along the lines of the “Harzburg Model”.
At the center of the model is the principle of intensive delegation. That means that three things must be equally delegated: the duty, the authority necessary to perform this duty, and the responsibility for execution and result. What is delegated and why? Duties are delegated which others can perform better, others can perform for less money, make employee work more interesting, include responsibility, can be viewed by employees as a challenge and an opportunity to add to their qualifications, relieve supervisors to focus on their core tasks and permit them to avoid unnecessary urgency. Moreover, the following principles are applied: The duty is delegated to an employee on the ground (close to customer) who is also entrusted with its execution. The leadership limits itself to setting framework guidelines and goal agreements to avoid individual instructions and individual orders. Performance is controlled by random samples and result assessments. Reverse-delegation is not accepted.
Responsible Leadership and Responsible Action
Responsible leadership, which relates to supervisory responsibilities towards employees, and responsible action, which pertains to fulfilling immediate managerial duties.
Job description for a Sales Manager:
- Job designation
- VI. Position’s targets
“Supervision” and Controlling Results
Control contributes to meeting targets, makes the business more secure and – perhaps most importantly – opens important contacts between supervisors and their people. The control takes the form of supervision and controlling results. Supervision involves random sample controls of a defined scope which are performed at set intervals.
What must be rejected is a control process, and most importantly a certain type of control behavior which is not based fundamentally on trust – trust in the ability of employees to handle their tasks.
In the absence of trust, control measures are rendered absurd. Taking complete responsibility, after careful consideration and based on firm conviction, employees must be selected for defined positions and empowered with the authority they require. There should be no doubt whether they can carry out their tasks. Employees generally only perform at their best when they sense, and can confirm, that they enjoy the confidence of their supervisors.
Review of the General Manager
The ALDI review system is not restricted to store managers and employees, the General Managers’ work is also reviewed from time to time. A higher body, the Executive Board, is responsible for this.
How fast and how well individual company decisions are implemented can reflect the executive’s performance.
A very good indicator of the behavior and ability of the executive is the performance review which the supervisor performs on these employees.
At ALDI, performance review and delegation were essential factors in the company’s success. Major catastrophes did not occur.
To handle their tasks and meet their responsibilities, supervisors must learn review techniques.
The Harzburg Model, as it is used by ALDI, was heavily criticized in later years and quickly fell out of favor in modern management culture. The actual criticism, however, was directed against an excess of bureaucracy which was also completely superfluous.
Practical Line Work Instead of Theoretical Staff Work
The supervisors themselves must audit their stores and employees as part of their performance reviews. They do not need any agents who interfere in their working relationships and, what’s more, whose expertise is incomplete and whose background is unsatisfactory.
Line managers, unlike self-perpetuating staff positions, do not have the time for extensive, written elaborations. Clarity and understanding are promoted by short reports.
Creativity Requires Little Knowledge, no Data and a Bit of Ignorance
ALDI analyzes only some things.
Gerd Binnig, German winner of the Nobel prize for physics: “Creative work requires a certain degree of ignorance.”
People who fill themselves with knowledge have a thorough understanding of what already exists, but have little capacity left for creating anything new.
There is plenty of data, but there is a shortage of information and orientation.
In retailing the “direct product profitability method”, a system which lead many managers in trade and industry into making mistakes.
Excursion: Direction Product Profitability (DPP)
Developed in the USA, intensively cultivated in Germany by Rewe – Leibbrand, mentored by active producers, DPP held a certain fascination for business managers similar to today’s “efficient consumer response” (ECR).
Essentially, this approach means retaining the items returning the highest profits and eliminating the others.
DPP is a cost unit calculation for establishing earnings and costs of one item and allocating them directly to it. Warehouse and vehicle costs, i.e. logistics costs, the store lease, the interior store furnishings, personnel costs, interests on inventory and the energy costs are included in the allocation.
In the food retail business, there are procurement costs, i.e. the purchase prices, which directly make up some 70 to 80 percent of an item’s costs.
The company concept is decisive, and the company concept must also answer the question: “Why should customers come into any one store in the first place?”
Focusing on the Essentials
Initially, DPP got everyone excited – with the exception of one: ALDI.
The restrained information arrangements at ALDI are also reflected in the fact that employees are only informed about what is immediately related to their own work.
Statistics and Internal Competition: ALDI’s Internal Benchmarking
Everywhere there are innumerable questions which require creative answers. They should be the central focus of the business. How they are handled determines whether goals will be achieved. Every minor, goal-related question is important and, finally, determines what shows under the bottom line. This thinking dominates at ALDI.
Analyzing Masses of Data or Thinking Independently
Never before have managers been able to access such large volumes of data – and rarely have they felt so poorly informed.
When there are fewer statistics, managers are compelled to reflect and turn their attention to the items, the customers and store operations. With the expectations of customer behavior which can be imagined.
Adding new items to or eliminating items from the product range should be seen in the context of “the purpose of product range composition”.
We are generally more in favor of a quarterly cycle. As a rule, trends are not visible within extremely short time periods. Short periods can produce distortions.
Excursion: The Sense and Nonsense of Annual Budgets
At ALDI they only work with very few figures, key figures, focusing on the most important operating processes. And these are not budget figures, but true and actual figures which can be easily established and understood, and which result in transparent statements.
“Budgets are working according the Austrian method: ‘How do you like it?’” The most disparate explanations can be used to support budget estimates, but it is only an accident if they have something to do with reality at times.
Budgets do not justify the amount of time and money put into them.
Decisions on Specific Cases
ALDI is in a position to study individual items, because the company is simply structured and the limited product range permits reviewing them on a one-by-one basis.
All companies should design their organizations so that individual cases, individual items, individual customers, individual production processes, individual employees are treated as important. This is possible by means of decentralization and delegation. Too many general rules can too easily be faulty and, thus, dangerous.
The Executive Board
The Executive Board as the highest authority in the ALDI Group.
The Executive Board consists of three or so former General Managers. While he was still alive, Theo Albrecht, of course was a member and its chairman.
The approach of the board to its work is heavily influenced by the individual members and, of course, especially by Theo Albrecht. He loved details so that long discussions can also take place about less important questions.
Still, with the help of delegation principle, it has succeeded in generating appropriate and harmonious working methods.
What Authority Does the Owner Have?
It is known that the working methods of Karl Albrecht and Theo Albrecht are very distinctive. Theo Albrecht is devoted to details; Karl Albrecht is a loyal defender of principles.
The ALDI managers are nearly completely unknown in public because ALDI in general avoids any public appearances.
Special Features of the ALDI Organization
A top-manager who held top executive positions for many years in the consumer goods industry had incredible difficulties understanding what admittedly appeared to be the simple system of a hard discounter.
The Five Principles of the ALDI Sales Policy
Klaus Wiegandt, former CEO at Metro-Holding, specifies three success factors which he has identified in the course of analyzing successful companies in Europe and the United States and which were to play a role in the restructuring of Metro:
- Monostructure – only one type of sales organization,
- Close attention to and an obsession with details,
- No foreign investments until the company is firmly in place at home.
The ALDI business principles, where they are relevant to sales policy, i.e. market identity, can be summarized in five points:
- a limited product range,
- goods which reflect basic consumer needs,
- easily handled goods in terms of operational requirements,
- best possible qualities – measured against leading brands,
- the lowest possible sales prices.
The Lowest Prices Anywhere
It is said that ALDI shoppers belong to one of two groups: those who must budget, and those who are capable of budgeting.
Lidl is increasingly more competitive thanks to their private labels.
Regarding the higher prices at Spar, it should be noted that they are following another sales concept than that of a discounter. The wide product range, the large fresh food sections and, last but not least, their expensive locations make another pricing policy necessary.
ALDI achieves its best values for prices by cost cutting in all areas – with the exception of wages and salaries which generally are among the highest but, due to the high productivity of staff, generate the lowest personnel costs.
In the struggle for market shares there is only one weapon in discounting: the price.
Quality Is More Important than Anything Else – Private Label Policies
One of the decisive success factors is a consistent private label policy.
Nearly 95 percent of all the items on ALDI’s shelves are private-label, which however are often made by well-known brand makers such as Bahlsen, De Beukelaer, Blendax, Trumpf, Nestlé or Unilever. No one else has pursued this policy so fanatically.
We are convinced one important explanation for the success of private labels is the considerable commitment of retailers and their employees in pushing their own label. Brand names have a comparatively “anonymous” standing.
Quality Conscious Consumers
Private labels require confident, knowledgeable consumers: quality and price as rational arguments against the irrational “brand” idea.
ALDI customers do not need labels to boost their feelings of personal adequacy.
Consumers are very well capable of judging quality themselves, independent of brand advertising campaigns.
Private labels are already estimated to account for nearly 40 % of the German market – if genuine ALDI figures were included , this share would probably be even significantly higher.
Many manufacturers produce retail labels for nearly all discounters and food store chains.
Rigorous Quality Control
Another decisive point for ALDI’s success is vigorous quality control. In every ALDI business it is customary for the supervisory staff at headquarters to meet, usually around lunch-time, for the quality test. Blind tastings of ALDI’s private labels and the leading brand labels take place.
When it comes to freshness, ALDI can hardly be beat. Its rapid transport and distribution system makes it practically impossible for competitors to offer fresher goods.
The Toothpaste Philosophy
The “toothpaste philosophy” states that many sales assistants and category managers in the stores (not the store managers) are given a small category to manage. These sales assistants are the contacts for the purchasing department and purchasing must not make any product range decisions without consulting them.
The sales assistants consider whether the package sizes are appropriate, whether individual items can be eliminated, whether important items have been left out. They can experiment, try out various ways of positioning the items, and possibly even make pricing decisions. They also visit competitors to see how they are doing things. In this way the sales assistants become the company’s expert and their know-how gives them a head-start over every Purchaser and is thus in a position to help him.
The “toothpaste expert” can be an important partner of the category manager.
Less Is More
The vendors should not make product-range decisions.
The product ranges were changed and updated, items were combined differently, but there was no increase in the number of items.
Success is Not Decided by the Purchasing Department
ALDI’s success, finally, is not based on purchasing – as many competitors believe – but on sales, on sales and close-to-customer policies.
Why should customers shop in my store? Why should the customer select my product?
The main factors of Purchase Power are different: sales concept, products, qualities, prices, locations, marketing. Success is decided by the “clear mission” and not the advertising expense benefit from the vendor which is called the vendors’ “wedding gift” by critical observers.
There are many ideas which retailers have developed in this context to compensate for their own lack of conceptual creativity. Some examples are:
- Elimination prevention discounts.
- New listing kickbacks.
- Anniversary premiums.
- Subsidies for opening a new distribution center.
- Support for foreign expansion.
- Extended shop opening hours discount.
- Sales interruption remuneration.
- Junior discount.
- Future bonus.
At ALDI, one of the most important business decisions, sales price, is made by the top management, the General Manager and the Executive Board.
Excursion: Efficient Consumer Response (ECR)
Efficient consumer response (ECR) is the holistic reconciliation and control of the merchandise and information flow between manufacturers and retailers.
- Product range optimization
- Campaign sales
- Product introductions
- Manufacturer’s promotion concepts
- Holistic customer management
- Continuous goods supply data media exchange
Excursion: Category Management
What is meant by category management is professional product range management which is often seen as an aspect of ECR.
Category management basically involves the organization of procurement and cooperation with vendors and sales.
The “category manager” at the retailer cooperates with his partner at the manufacturer, the “category captain”.
Advertising Means Informing the Customers
By limiting advertising to 0.3 % of sales ALDI also demonstrates its no-nonsense frugality. In the meantime, this amount would probably be increased, an assumption of 0.6 % of sales.
ALDI advertising was always customer information: information about prices and qualities, about product differences in terms which allow consumers to compare ALDI with their competitors.
Dealing with Vendors: Consistent and Fair
Long-term ALDI vendors appreciate the fact that there is absolutely no renegotiating with ALDI.
Only Cost Advantages Generate Price Advantages
A decisive foundation for success is provided by cost management and cost structure.
The yardstick for cost management must always be the strategy of the company. Caution must be urged against cutting off the “strategic branch” on which you are sitting.
The Fastest Cashiers in the World
The ALDI cash register system is itself a phenomenon. Today, as before, there are probably no cashiers in the world faster than those at ALDI.
ALDI required its vendors to apply the barcode onto the packages at three or four different places, enabling scanners to register the items faster.
Personnel Performance and Productivity
Retail profit margins as a percentage of sales are generally 1 percent before tax.
The Principle of ALDI Stores
The rule at ALDI is: “As few identical or similar items as possible.” And the reasons for this are related to prices and costs.
Low rents also contribute to low prices.
After all our efforts to arrange sales as rationally and as efficiently as possible, the final outcome is the price. The price of each individual item.
A decisive retail function was always the product range function. The entrepreneur decides first as a representative of his customers. He preselects. In doing this he has assumed the function of composing the product range.
ALDI Today: A Glimpse of the Future
Success of Hard Discount all over the World
The market shares of the discount segment in Europe in 2000 presumably amounted between 20 and 25 percent. In 1991 the discount share was estimated as 10 percent of sales, in 1996 it already came to 16 percent. And it is increasing to almost 30 percent in 2010.
In France, the land of the Gourmets, ALDI has achieved overwhelming success right from the very start. In 1996 ALDI took over 74 Dia markets from Promodès.
In 1978 in the USA Dieter Brandes bought for Theo Albrecht a small chain operation selling delicacies, European wines and cheese specialties: Trader Joe’s. The founder was Joe Coulombe, one of the most knowledgeable and creative entrepreneurs.
Computers Are Elbowing out Beans
The non-food share, i.e. the share of ALDI current items as they are officially known within the company, must now amount to over 20 percent of sales. Originally this figure was merely about 2 percent.
Twenty to thirty years ago ALDI used to have a very strict rule: Three current non-food items which should be sold within three weeks.
Will ALDI Remain Uncompromising?
Basically, the widening of the product range is signaling a change in values.
Ingvar Kamprad formulated this idea for Ikea as follows: “We are a concept company. If we stick to the concept, we will never die. So, to stay “fanatic simple” remains the basic challenge for the future of ALDI.