A new study has been published in journal Strategy and Leadership, wherein scientists point out how European grocer Aldi has managed to snatch away quite a lot of Walmart customers forcing the US supermarket company to lower its prices and become more competitive.
According to researchers at the Case Western Reserve University’s Weatherhead School of Management, grocery shopping in the US is fundamentally changing and it is to do with ‘limiting choice’. Sayan Chatterjee, a professor of strategy and co-author of the research, point out that Aldi invented a new business model by offering its customers what no other supermarket was offering - high quality products at highly competitive rates; even below those of other supermarkets.
Aldi’s success is rooted in its strategy of finding a single supplier for most products. This makes quality-control easier and allowed Aldi’s goods to earn a reputation for meeting a high-enough standard acceptable for middle-class shoppers. The company also targets price-conscious consumers who tend to buy a limited range of products anyway.
While full-service supermarkets stock around 30,000 products of varying degrees of quality, an Aldi location offers about 1,400 single-sourced products-90 percent of which are in-house labels that also allow the grocer to directly capture more of a consumer’s spending.
This streamlined approach has allowed Aldi to undercut Walmart on staple products like milk and eggs to lure customers into its doors. Aldi’s sales grew 15 percent in 2016; Walmart just 2 percent.
Among other major changes that Aldi employed involved displaying groceries on shipping pallets; sometimes switching canned goods to square packaging to maximize space and reduce shipping costs; reducing store footprint; having well-trained yet fewer employees; Charging customers for bags and renting shopping carts, which lock if removed from store parking lot; no discount or loyalty program, which costs money to maintain among other things.
It’s a battle that Walmart used to win, thanks to a proprietary system that used sales data to create shipping efficiencies and predict what customers wanted, when they wanted it, according to Chatterjee.
Walmart also lost its way in the early 2000’s, said the study, by pursuing more affluent customers who favored fellow retailer Target. By reducing and upgrading its offerings, Walmart lost efficiency built into relationships with suppliers, creating a domino effect that undermined their core strengths of low prices and high predictability.