Blog #4: Developing successful strategies: How Aldi’s became a supermarket giant?

According to “Can you say what your strategy is” authors David J.Collis and Michael G.Rukstad, a good strategy is the one that has a well thought out objective, scope defined by boundaries, and competitive advantage that sets the company apart. These three critical components help strategy be easily formulated, communicated, and understood by everyone in the organization. The first component, "objective” isn’t the value statement of the company. It’s the business objective that drives the company for a specified period. Scope refers to the market, customer or geographical segment that the company intends to target. It helps an organization to focus its efforts. The final component, competitive advantage refers to the unique value proposition the company delivers to its customers and the one that defines the company in the market place.

Defining a strategy statement in the manner above has helped many firms succeed. In 2018 Aldi’s planned it’s US expansion and set the goal of becoming the third largest grocery store in the US by 2022. To achieve this, it planned to expand in suburban, middle and upper-middle class neighborhoods. Aldi’s defined a clear objective, target geography, and means to achieve the goal. It decided to position itself in the retail supermarket space by delivering high-quality products at low prices.  For its US expansion plan, Aldi’s was drawing upon its past experiences from other countries like Germany where it had become an affordable high-quality supermarket for the middle class. Aldi’s used strategies like prioritizing quality Aldi products over generic brands, reducing the number of items, charging customers for bags, keeping store size small, and limiting the number of open hours to deliver the value proposition to customers. Emphasis on cheap, high-quality products and limit on the number of products and brands it sold gave Aldi's the edge in the retail supermarket space. It went on to become one of the largest supermarket companies in the world.

Successful strategies need several iterations, the involvement of multiple departments, and careful evaluation of alternatives. The first step in strategy development stage should be building 2 mutually exclusive options that helps companies achieve their defined goal. The list of options has to be broadened to include several possibilities. For each possibility, the conditions and barriers have to be listed. Then tests have to be designed and conducted like customer surveys, business evaluation using consultants to evaluate the options. Finally, either the least risky option or the status quo is chosen. Aldi’s used a similar approach and evaluated different strategies ranging from using a Walmart like warehousing approach to increasing the number of quality products but ultimately decided to adopt one that could best leverage its advantage and the most feasible. My key takeaway from this week's reading is that objective, scope, and advantage are the three components of a good strategy and strategies are developed after evaluating several options in multiple stages.

References:

1)  David J.Collis, Michael G.Rukstad(2008, April). Can you say what your strategy is. Harvard Business Review.
2) Lafley, A. G., Martin, R. L., Rivkin, J. W., & Siggelkow, N. (2012, September). Bringing Science to the Art of Strategy. Havard Business Review.
3) Gennaro Cuofano. ALDI Business Model In A Nutshell . 4WeekMBA. Retrieved from: https://fourweekmba.com/aldi-business-model/
4) Phil Lempert (2018, August). Inside Aldi's $5 Billion Plan To Become The Third-Largest Grocer In The U.S. Forbes. Retrieved from: https://www.forbes.com/sites/phillempert/2018/08/09/aldi-is-focused-on-keeping-it-simple-and-high-quality/#6ac7b5fd427b