What can we learn from Aldi’s success?
Earlier this week Aldi announced their full year results for the UK & Ireland. Sales were up 31% to £6.9bn. The additional sales last year were equivalent to their total sales in 2005. They now have 5.6% of the UK grocery market.
They continue to expand, planning to open 65 new stores in the coming year and move into online at the start of 2016. The only numbers that were down were operating profits from £271m to £260m and margin down from 6% to 5%, a result of increased investment, particularly in price.
We think there is some interesting stuff behind the results and the commentary from Matthew Barnes, the Chief Executive, that give an insight into why Aldi has been so successful recently. Many of these things are key to being successful in any business – whether you are a grocery retailer, manufacturer, or even outside the industry.
So, what do we think are some of the secrets of their success?
Be absolutely clear on what you stand for. Then consistently deliver against, and reinforce, it. Importantly, never get bored of doing so. Aldi see their price position as the No 1 priority and never tire of reinforcing it or investing to protect that position. As Matthew Barnes said “There is no doubt that price wars have registered in our results and will continue to do so in 2015, but the 15% price gap is cast in stone and one of the foundations of our Business. We will never be beaten on price”. You don’t get much clearer than that.
Any store or brand will have a few reasons why shoppers visit or buy them. However, there should always be one core reason that is the foundation of the proposition. That is consistently reinforced. The companies and brands that do this usually win. Those that don’t, often fail.
Stay true to the Model. The only way that Aldi can deliver on their price promise is to make sure that the business model works. They don’t do things that risk this. They are not going to expand range significantly. They are not going to invest lots of money in the store environment. They are not going to launch a complex e-commerce operation.
When asked if they would be selling food online, Matthew Barnes said “I wouldn’t say it is inevitable. Wine by the case and non food is the most viable place for us to start. We wouldn’t do anything to endanger our model or threaten our cost base”.
Not only does this mean Aldi can protect their lead on price, it means that shoppers understand how they do it. The question of ‘how is this product so cheap’ has been answered. It removes any shopper suspicion. The lesson, particularly given the Volkswagon scandal, is to be transparent. Tell shoppers how you do what you do and why you do it.
Do things incrementally. A couple of weeks ago we wrote about doing the right things in the right order. Aldi are a great demonstration of this. Their entry into e-commerce is a classic example. Start with wine, then move into non food and, only if this is working, consider food. This is less risk for Aldi and less risk for the shopper. Trial a ‘safer’ product, like wine, first. This is no different to how Amazon started. Start with one category and then broaden over time.
These incremental steps are also apparent in Aldi’s store locations. Start in the areas where you have the most chance of succeeding – essentially, less affluent areas. Establish yourself there. Start attracting more middle class shoppers. Then move into more affluent areas.
In November Aldi are opening a store in Insight Traction’s neck of the woods – Guildford. They have also announced they are opening in Chipping Norton. David Cameron is likely to be sipping Aldi champagne at future gatherings of the Chipping Norton set. If Aldi had gone there 10 years ago, the store would have bombed. Doing the right things in the right order is key.
Play to the element of surprise. A lot of Aldi’s advertising does this – have a look at their latest TV ad on winning supermarket of the year https://www.youtube.com/user/AldiUK. Go into store and there are always new and different things. This element of discovery draws shoppers in. Do other supermarkets do new and different? Of course. Does it cut through with shoppers and act as a draw to the store in the same way? Not really.
Probably the most powerful surprise factor is the specific and tangible examples of unexpected quality and / or value that resonate with shoppers and which they tell other shoppers about. It is rare that you have a conversation about Aldi and someone says ‘yeah, Aldi are great value, you should try it’. They are much more likely to give you a specific example ‘you have to try Aldi’s wine, it is fantastic and only X £ per bottle’. The more specific the example, the more it sticks with people when they hear it. The learning – continually surprise shoppers and wherever possible have specific and tangible examples that demonstrate why you are good and that are worth talking about.
Aldi are very good at what they do, there is no doubt about that. But how they do things is also a big factor in their success. And it is in the HOWs that some of the biggest learnings are to be found – learnings that are relevant beyond Aldi.
Feel free to forward. Have a great weekend and speak to you next week.