Hard Discounting – Transforming Retail by Breaking Conventions
Posted in Marketing & Strategy Articles, Total Reads: 1679
, Published on 16 June 2014
The Hard discount retailing model aims at basic goods sold at lowest prices without compromising on the quality of products offered. Quality products are sold 30-50% cheaper than their competitors and yet keep the company’s employees, customers and management satisfied. Hard discounters experience phenomenal growth during recessions and affect the prices of all other retailers present in their vicinity.
The juxtaposition of the hard discounting model with all other retailing models adopted worldwide contrives the success formula for hard discount retailers such as Aldi.
image:Stuart Miles, freedigitalphotos.net
ALDI was co-founded by Brothers Karl and the late Theo Albrech in 1913 and experienced rapid expansion during the 1950’s and 1980’s. Presently the ALDI group operates across 9,000 stores primarily in the UK and rapidly expanding in the USA and Australia.
Presence of Aldi across the World
Aldi stores were initially mocked as cheap stores selling inferior goods to cheap customers. However, the perception soon changed as proponents grew and exalted Aldi to Germany’s 3rd most respected brand.
So how do they rub everyone’s belly?
Six crucial factors collectively contribute to the success of the hard discounting model adopted by Aldi.
1. Emphasis on quality and not quantity.
“You would find 16 brands of tomato ketchup in a normal big supermarket,” says Paul Foley, managing director of Aldi in Britain. “In my store you will find a choice of one.”
Aldi offers very few SKU’s per unit category and herein cuts on storage and shelf space costs.
2. Less than 10 percent of Aldi’s products are brands.
Aldi sells private labels instead of big brands. This approach provides two significant advantages.
a) It is cost effective.
b) The approach gives Aldi greater leverage with their supply base. Switching vendors is easier as Aldi owns the label instead of the manufacturer.
3. Optimized Operations
Recreational facilities such as café’s are not available at Aldi.Giants such as Wal-Mart and Tesco offer these facilities to retain customers. Aldi however, encourages customers to transfer their purchases to their shopping carts quickly and head straight out the door after paying.
4. Zero debt ,all cash
Aldi follows a strict zero debt policy. It does not have any financial debt which further raises their credibility in the market.
5. Employee Satisfaction
Aldi plans to hire 5,000 staff and some 500 managers in 2014.The graduates are given a starting salary of £41,000 and an Audi A4 company car.
6. Minimal Marketing and Advertising
Aldi focuses on its operations, customer satisfaction and cost effectiveness. They believe that at the prices they offer there is no need to invest heavily in advertisements.
Aldi has grabbed millions of customers from bigger retailing giants and continues to grow leaps and bounds. On 11th June 2014, Aldi was named grocer of the year 2nd time in a row after a 35% annual increase in sales. When would the rest of the world recognize the potential of the model and adopt it with open arms is what we need to mull over. With growing popularity of the hard discounting phenomenon it won’t be long before the concept kicks off in India and other Asian countries as well.
The article has been authored by Dev Sharma, FORE New Delhi.
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