Aldi is one of the leading firms of Australian retail sector. However, it is facing strong competition from different firms especially market leader Cole and Woolworth. The competition is most fierce in breakfast product line, where Aldi is unable to consolidate its position. This can be attributed to low variety offered by Aldi in comparison to the competition. However, breakfast product line has great potential of growth, which provides Aldi with the great opportunity to use these potential for its benefit. For this purpose, it needs to use its strengths to provide consumers with best possible products. Currently, Aldi is positioned as affordable retail supermarket, which can cater to the needs of mass market. Aldi will need to develop a strategy, which will allow it to increase its penetration in breakfast segment while achieving its overall objectives.
The retail sector has seen considerable growth in recent years. Many new firms have entered this sector whereas many incumbent firms have consolidated their position in the market. Aldi Supermarkets firm is one such organization, which have been very successful in consolidating its position in the market. However, it faces stiff competition from different firms present in the market. The market leaders of Australian retail sector are Cole and Woodworth. In addition to this, there are also numerous external variables, which are also casting influence over the retail industry. In the following report, an attempt is made to analyse Australia’s retail sector in the context of Aldi Supermarket. Moreover, situational analysis of distribution channels available to Aldi is done. Similarly, a macro analysis of the industry is done to find the key dynamics of the industry. The purpose of such analysis is done to find the relative importance of the competing firms. In a similar capacity, an analysis of Aldi’s strengths and weaknesses is done. Likewise, threats and opportunities available to Aldi in the external environment are identified. The whole purpose of the report is to find the market situation of Aldi in Australian retail sector and how it can leverage on its strengths to establish itself in the market especially in the breakfast product line sub-segment.
Aldi Supermarket provides a comprehensive range of food items especially targeting the breakfast segment. The main category of food items under breakfast range is cereals. Aldi provides cereals manufactured by two famous brands such as Golden Vale and Kellogg. Aldi provides comprehensive variety in Golden Vale brand to the customers. The distinguishing feature of Golden Vale is that it is quite cheap in comparison to the competition, which makes it affordable by the mass market. In addition to Golden Vale and Kellogg, Aldi Supermarket also provides organic alternative to its customer through Just Organic.
On the other hand, competitors such as Coles and Woolworths provide different variety of cereals. For instance, Cole is currently offering 15 plus brands of cereals including the world famous brands such as Kellogg, Nestle and Quaker Oats. Coles has the biggest variety of cereals offered by any company. Similarly, Woolworths also offers a great variety of cereals brands. Woolworths primarily focus on Woolworths’ home brand, Kellogg and Uncle Toby’s brand of cereals. However, neither Coles nor Woolworths offer Golden Vale brand of cereals. Therefore, it can be seen that Aldi Supermarket faces stiff competition from Coles and Woolworths in breakfast food range.
Cereal market in Australia shows great prospect for future. However, it is constrained by certain new forces. One such force is the dampening of purchasing power of the consumer in the wake of regional and national economic environment. Despite a decrease in consumer’s purchasing power, the cereals market is expected to perform strongly in the coming years. Likewise, the private labels have considerably consolidated their position in the market. However, current economic condition has made Australian consumer quite price sensitive. As a result, this consumer will react negatively to any increase in the price. On the other hand, any decrease in price of a brand will be me by a decrease in price by the competing brand. The competition in the market has manifested in both price and non-price competition.
During the period 2006-2011, the breakfast cereals’ market in Australia showed considerable growth. In 2006, it recorded sales of AUS$ 963.5 million whereas in 2011, this figure reached AUS$ 1187.7 million. Similarly, in 2011, the breakfast cereals market in Australia showed the sales of 115,400 tonnes. These indicators show strong potential of breakfast cereals market. Similarly, the forecast figure of breakfast cereals industry is also very encouraging. It is forecasted that volume traded in this market will reach 124,300 tonnes by 2016. Similarly, strong growth is also expected in the revenue of this industry. It is forecasted that breakfast cereals will record sales of AUS$ 1326.4 million by 2016. This shows growth of around 11.7%. It should be noted that these figures are calculated in the background of poor economic conditions. The positivity of these indicators even in poor economic environment only shows the resilience of this industry. Likewise, it also underlines the fact that there is still room of new firms in this market.
In the context of distribution, store-based retailing is the primary avenue for conducting the sales of breakfast cereals. It accounts for 99.99% sales of the cereal products. In store-based retailing, supermarkets and hypermarkets are the main distribution channel for the breakfast cereals manufacturers. Supermarkets account for around 96.7% sales in 2011. This figure has improved over a period of years, which only shows that consolidation of supermarket as the main distribution channel for breakfast cereal industry. This also underlines the importance of supermarket such as Aldi, Cole and Woolworths. As the dominant players are Cole and Woolworths, it provides an opportunity for companies like Aldi to record growth and consolidate its position in the market. However, Aldi is currently offering limited product range catering to the need of cereals market in comparison of the big two. Coles and Woolworths are offering a variety of products and brand and, therefore, are able to consolidate their position as the dominant player in breakfast market. It is important that Aldi improves it product line in order to effectively challenge the competition in the market. The breakfast cereals industry shows great potential for growth and, therefore, will be receptive to such actions by Aldi.
In the context of breakfast food range, the product situation is quite interesting. It is estimated that breakfast food range will grow and reach the figure of AUS$ 1.2 million. Kellogg is the market leader in the branded cereals category. This is due to the fact that 7 out of top 10 brands have been Kellogg’s products. However, a detailed analysis of product situation will reveal that it faces stiff competition from the rest of the brands. Key drivers of breakfast have been identified as a convenience and health. However, the cereals industry has been hampered by some manufacturing issues such as producing products below recommended Sodium level. Similarly, high level of sugar is a primary issue for the manufacturer as health is becoming the major driver for this industry.
In terms of category, RTE cereals continue to dominate the cereals landscape. RTE cereals have recorded the most sales during the period of 2006-2011. In 2011, it alone made the sales of 100,100 tonnes of sales, which was more than sales of any other category of cereals. Likewise, in terms of revenue generation RTE cereals recorded the most sales than other categories of cereals such as hot cereals, children and family cereals. However, in terms of volume growth, the picture is completely different. Hot cereals recorded the most growth in the 2006-2011 periods with the figure of 21.8%. This is more than the combined growth of the RTE, children and family cereals. This shows that hot cereals are becoming increasingly popular in the market. Moreover, it also shows that this category is consolidating its position in the market and will be able to challenge the position of RTE in coming years. Similarly, in terms of value growth, hot cereals on the top position with the figure of 70.6% for the said period. It is forecasted that RTE cereals will continue to enjoy dominant status in the period of 2012-2016. It is forecasted that RTE cereals will reach figure of AUS$ 1173000 by 2016. Overall, breakfast cereals are showing strong growth, which will increase the size and worth of its market in coming years.
As far as market share is concerned, Kellogg is the market leader with recorded market share of 46.6 in 2010. Nestle is in the second position with share of 24 for the same year. Sanitarium Health Food is the third largest company with the market share of 14.6. Other companies and brands hold negligible market share and, thus, provide no challenge to the top 3 companies in cereal market. In terms of brand, Uncle Toby’s, which is manufactured by Nestle, is the dominant brand in the market with the share of 18.1 in 2010. The second brand with most market share is Weetabix, which is manufactured by Sanitarium Health Food, with the share of 12.1. The rest of 7 brands, with most market share, are manufactured by Kellogg. Its primary brand is Nutri-Grain, which has the market share of 8.5 in 2010. It can be seen from the analysis that the cereal products in Australia show a promising picture.
The distribution channels for food supply chain in Australia are highly centralized. All major supermarkets chains, warehouse and wholesale have their own network of national and regional distribution centres. Retail food is divided into grocery, convenience and specialized, in which, supermarket is the major player in grocery segment. Same is the case of Aldi Supermarkets. The primary distribution of Aldi Supermarkets is through the retail stores. On the other hand, small grocery and convenience stores use banner groups such as IGA to increase their penetration in the market. These banner groups enable the small retailers to negotiate prices and introduce competitive programs for the customers in the market (Spencer & Kneebone, 2007). In the context of supermarkets such as Aldi, the distribution channel consists of two main points in the form of distribution centres and wholesalers. The food products are stored in wholesales before it is distributed to different retails through distribution centre. In some cases, supermarkets buy the product directly from the manufacturing, eliminating the need of intermediary in the distribution channel (Delforce et al., 2005). In the case of breakfast foods, the distribution channel can vary from product to product. For branded products, which are mostly processed food items including dairy products, the manufacturer or processor can directly deliver to the retailer such as Aldi or through the distribution centre depending on the perishability of the food item. Likewise, unprocessed or minimally processed food items are usually received from an intermediary such as broker, which collects these items directly from the source. Due to the nature of the market, there are opportunities for specialist retailers in fresh retail and food service market. As the retail supermarkets have been present in Australia for less than 15 years, there is great scope for growth for organizations such as Aldi. Barriers of entry are low, which facilitates the entry of new firms. The retail sector is expected to reach the level of AUD 97.2 million with annual growth rate of 29.6% (Business Monitor International, 2009). The two main firms operating in this sector are Woolworths and Coles, which have considerably consolidated their position in the different markets of the country. However, there are some factors, which are hindering the growth of retailers in Australia. One such factor is the legislation, which puts restrictions on the leading retailers to sell goods below cost. As far as the growth for Aldi is concerned, it is expected to continue its growth over next few years. This is primarily attributed to the investment the company made in Australia. There are certain elements, which play a vital role in moulding the fortunes of the retail sector in Australia (Business Monitor International, 2009). For instance, price, product range and store ambience are some of those factors, which greatly contribute to the decision of the consumer as far as the selection of the supermarket is concerned. Aldi is in a position to greatly benefit from the opportunities available in the external environment of industry’s distribution.
In Australia the market of breakfast food is very competitive. Competition is healthy and vigorous and at the end, it will be beneficial to the consumers. There are 30000 grocery retailers in Australia and everyone has a niche market where they need to attract customers to survive. But the major competitors for Aldi are Woolworths, Coles, IGA, and Franklins.
In terms of size, Woolworths is the biggest breakfast food retailer with 840 stores and 190000 staff members who aiming to focus on its goals of building and maintaining a sustainable business by reducing costs, improving value proportion and lowering prices whereas Coles is the second biggest breakfast for retailer with 741 stores and 102000 staff member who continue to support the communities in which they operate food suppliers. IGA has around 182 stores and 5638 employees. The goal of IGA is to keep continue to delivering improved competitive offering. The other competitor Franklins who has 80 stores and 10 franchise who aiming to continue to create a great place that an excellent place to shop.
Woolworth is providing many qualitative food products such as Nestle, Uncle Toby’s Oats. Lowan, Kellogg’s, few of them suppliers are doing business with only Woolworths. Woolworth has his own brand “Woolworth Select” which quite cheaper and best qualitative. Coles is also concentrating in product quality and varieties. In year 2011, few breakfast food products of Coles achieved quality award that shows the reputation in the competitive market. IGA and franklins are also trying to compete against Woolworth, Coles, Aldi. But IGA can offer cheaper product with standard quality than Franklins because IGA is a part of IGA distribution of grocery.
This below link and chart show the current market share of major competitors:
As per above chart and attached link, Woolworth is on the top in grocery business and Coles is second largest retailer in same business whereas Aldi is at last among major competitors such as Woolworth, Coles, IGA. The market share of Franklins is decreasing because Franklin is using discontinued operation and its’ results is totally adverse from the discontinued operations reported. Woolworth and Coles is two biggest giant who covers 70% business in Australia. The more market share they have the more influence they have over suppliers and they can easily stamp out smaller independent retailers.
Consumers are price sensitive so every store uses some strategy to attract the consumers. Competition has increased due to the effete of rising food costs, demand, for organic and healthy products. Woolworth and Coles has main concentrate on spending patterns of consumers and in-house labels. Competitors engage in public price war so they are using different strategy to build rapport in market. Coles strategy was to attract consumers through “non price discounting” whereas Woolworth used to be reactive “everyday low Prices” campaign When Coles change strategy and use “down and staying down” campaign, Woolworth again launch a “Price Knockdown and staying down” campaign. Aldi’s strategy is “keep it simple, Keep it cheap”. Franklin’s strategy is the “Four legs of the table” which means table recourse by four legs and consumers sit top of that. The four legs of table are people, sales promotion, and social responsibility, merchandise, administration. IGA establish “Retail Ready” program and also IGA donate two cents from every IGA signature product sold to local community groups and non-profit organisation. Coles reduced the price of its home brand milk to $1 per litre. Therefore Woolworths, Aldi, and franklins join the competition to attract consumers away from small independent. If this competition goes forward, the breakfast food product will become variable margin product.
The population of Australian is around 23 million. According the estimates of the Australian Bureau of statics, it expect to increase up to around 25-26 Million by 2030. There are many people living alone and it is estimated it increase from 2.7 million to 3.8 million because of ageing population, increase in divorce and delayed marriage (Australian Bureau of statics). This will create a great demand for breakfast foods products.
Aldi is German company and Aldi is used to follow the “The Codes Law” legal system. But Australian follows the “Consumers Law” legal system. It is hard to accept this challenge for Aldi.
There are two political parties who believe in social democracy. It government change and new party may be elected; the rules or codes may be changed.
There are many economic factors that influence consumer spending patterns and consumer confidence. These factors are as follow:
< >Low household rate of saving Continue to rise oil prices Low national rate of saving Unemployment percentage is decreasing Inflation rate is decliningSocial SegmentAustralians are value oriented and down to earth. After World War 2, many people come from Europe countries Such as Italy, Turkey, Germany, Greek, Yugoslavia, Lebanon and Netherlands. Now-a-days people are coming from South East Asian countries and South Asian countries. It especially breakfast food product because Australian become a multicultural (.
The internet and E-commerce have encouraged the global competition among the Australian business environment. Many competitors such as Woolworths, Coles, IGA are using internet technology to approach and attract customers. Now-a-days people are prepared to buy qualities and standard products so, they look on internet first then they buy cheaper and best product (.
Australia is an urbanized and the driest continent in the world and around 80 precent Australians are living within 110-115 Km of the coast area. Australian government is more concerned about population which caused by land base activities (department of foreign affairs and Trade, n.d) for example, government imposed carbon Tax which will increase the cost of breakfast food manufacture and breakfast food retailers have to bear the increase cost by reducing their margin.
The competition among the breakfast food retailers are increasing day by day due to the new technology and increasing in lifestyle. The customer taste change often so Aldi needs to keep concentrate on the activity of their major competitors such as Woolworth, Coles, IGA. The customer are always looking for cheaper products and if our competitors change their strategy, we need to show our product best in market by advertising, communication with regular customer because once customer move from our product to competitors products, it is very hard to get them back.
The huge mass moving through a very narrow range of products is attracting companies that offer non-traditional private label. Aldi has its own private label product and quality requirements. But Aldi is German company and Australian is concern about their own country’s growth. Aldi has several different labels, with their private label. Our research shows that Consumers believe that this is a national brand from Germany. So they may not prefer to let go their income to another country. Customers’ one complaint can create big problem for Aldi to trade. For example, Aldi got a serious problem by ACCC who declared that the label of honey is misleading. The label which was sold between 2008 to mid-2010 said that it was produced on Kangaroo Island but ACCC found that jar contained only 50 % honey of Kangaroo Island. And ACCC ordered to Aldi to change the label of honey (Aldi Australia).
< >Aldi Australia (‘Aldi’) has a range of quality breakfast cereal products at an affordable price.Aldi’s stores are smaller and just carry the most frequently purchased breakfast food products that people buy, instead of overloading people with too many choices. Based on latest trends, this strategy has the appeal to the market segment the company is aiming for. The stores are smaller which make it convenient for customers to find items much easier instead of having to run through a big store and finding products. Aldi positions its private label products at the mid-priced range when compared to similar private label lines in Coles and Woolworths. This is to provide sufficient savings without sacrificing on quality. Australian consumers have relatively high disposable incomes, leaving them free to spend relatively freely on non-essential food items.At macro level, competition is strong in the food sectors and, despite ongoing consolidation, no one player is able to force another leading player out of the market, which ensures that competition levels remain high.Weaknesses< >Aldi has a lot less selection of branded breakfast cereal products than other big name supermarket chains. This may hurt our market share because people like to have choices and Aldi Australia might not be able to compete. Since Aldi carries its own products, people will be a little on the fence about taking a chance on an off brand product. Aldi prefer to accept cash, there is a 1.5% fee for the use of credit cards.As a discount retailer the company mostly sell its own private brands. The quality of Aldi’s product is generally perceived as inferior to Coles, Woolworths, Franklins and IGA.Threats< >Intensity of rivalry among competitors is high. Threats for Aldi Australia would be competition such as Woolworths, Coles, Franklins, Foodworks, IGA, and the newly arrived Costco. These grocery stores try to provide the best quality for the lowest cost.Most breakfast cereal products are undifferentiated and easy to imitate. As a result, rivalry intensifies and the purchasing decisions would be based primarily on price and to a lesser extent on service.All major supermarket chains compete on a high quality, low cost strategy. However, Woolworths and Coles have a head start with their wider product range and a nationwide store distribution. These advantages have resulted in them achieving 2/3 of the total market share. IGA has managed to hold on its 13.5% market share because of its wide range of products and the advantage of entering the market much earlier (1988). Comparing with Foodland which has around 2% market share, the company has managed to obtain around 2.5% market share. Aldi has a better product range than Foodland and we continue to grow with our cost leadership strategy. Franklin has around 11% market share which is mainly because they have been in the market over 50 years and it is recognised as Australia’s original discount grocer.Opportunities< >Private label products represent the core part of Aldi’s business model. Unlike other grocery retailers, which carry a majority of branded items, the company’s assortment is almost exclusively comprised of private label products. Private label is increasingly representing an attractive alternative to branded products.Aldi stocks primarily private label products and limits its product range to around 700 items; this enables it to negotiate bulk-purchase deals with suppliers. The company works closely with suppliers to simplify the packaging of its private label products to clearly showcase and transfer the cost savings to consumers. With fewer brands on their shelves Aldi is able to maintain the cost advantage over larger competitors, who with their bigger product range would require more shelf space and larger storage capacity in their distribution warehouses. Summary of Key Issues from the Swot AnalysisAldi is the quality, low price, consumer oriented grocery retailer. Compared to the larger grocery retailers Aldi has the most affordable products, particularly its breakfast food product range. The company carries the most frequently purchased and most popular breakfast products all under its own private brand names. Because Aldi gets its products from its own private suppliers the company is able to give consumers the lowest possible price on these products. Even though Aldi has lower prices its products meet and or exceed all the necessities of the big brand name products, including taste, quality, and the look of each and every product. Aldi’s goal is to make shopping more convenient and affordable for the consumers. The company guarantees lower prices on a day to day basis, even lower than the sales prices at the bigger grocery stores. Customers’ saving is the company’s biggest concern. There are a number of factors can impact to the successes and failures of the breakfast cereal industry. These variables and strategies include innovation, target-market segmentation, image, physical environment resources, and human resources. Such factors must be combined in varying degrees in order to succeed. The breakfast cereal industry has shown innovation in product and packaging strategies. Breakfast cereals have been opened to private labels, and inroads have been made into the breakfast cereal industry. Competition from other snack foods such as frozen waffles, pancakes, and French toast brands has been a concern in both the past and the present. New competition has arisen from the consumption of bagels and muffins for breakfast. Whether or not this trend reflects a change in dietary habits or cereal price increases remains uncertain. One big problem confronted by the breakfast cereal industry has been the escalating promotional activity by all competitors Australia breakfast cereal market. This activity resulted in reduced profits and little change in market share in early 2000s. Inefficiencies were also generated by coupons and in-store promotions. For example, more than 95 present of cereal coupons issued were thrown away and not redeemed, and approximately half of promotional expenditures do not reach consumers in the form of lower prices. However, even with a slow economy Aldi is in a very stable position in a market that is highly competitive. Aldi has lower prices than all big name grocery stores. Since the company sells quality products at a cheaper price, Aldi has the potential capacity to beat the competition on its pricing strategy. Due to affordability of Aldi, it can attract a large customer base, which could not afford to shop in other supermarket. In view of economic uncertainty and shrinking of purchasing power, Aldi has the potential to exponentially its customer base. However, it is important that Aldi communicate this image to the target market. Moreover, it is also important that Aldi develops long-term strategic partnerships with different FMCG companies especially those manufacturing breakfast products in order to consolidate its position in this market segment. In addition to this, it is also important for Aldi to be cognizant of the external threats and opportunities. For instance, it has been identified that innovation is an integral part of breakfast product manufacturing. Innovation allows manufacturers to produce quality products in most affordable manner. Likewise, the understanding of the economic environment is also very important. This is due to the fact that without becoming responsive to economic stimulus, an organization cannot become successful. It is imperative for Aldi to bring necessary changes in its strategy and processes, which will allow it to fully benefit from the economic environment. On the other hand, it is also important for the company to be completely aware of the threats present in the environment. For instance, Aldi faces stiff competition from the other firms especially the market leader. Due to the economies of scale achieved by the top two firms, these firms can participate in both price and non-price competition. Similarly, it is also important for Aldi to be completely aware of the new trends such as changes in the eating habits of the consumers. Through this, Aldi can accurately forecasts the future demand without compromising the quality and quantity of supplies. This will also allow the company to predict changes in the demand.
It can be clearly concluded from the above discussion that there is great potential of growth in distribution of the retail sector. Likewise, there is great potential of growth in the breakfast product line. Not only breakfast cereals are gaining popularity day by day, but markets figure shows impressive picture of their future in Australian retail sector. It is, therefore, important for all the firms to invest heavily in the breakfast product line to fully benefit from the future growth. Presently, Aldi provides very limited range of breakfast products in comparison to the market leaders. It is, therefore, important for Aldi to increase the product line in order to effectively compete with the competition. This is can be done through introducing the brands of recognized companies. This will allow the company to attract new customers and establish itself in the breakfast product segment. Moreover, this will also allow the company to capture the new market, which is currently latent. This can only be done through leveraging on the key strengths to exploit the opportunities in the external environment as identified in the analysis.
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