In Germany and other European markets, Aldi is undoubtedly reaching an inflection point. How do we know? News that Aldi Nord Germany incurred its first operating loss in the company’s history, is a big indicator. Indeed, there are many smaller indications too, such as Aldi now offering reduced prices on branded products from their permanent ranges, having increasingly equipped its marketing department with more money and autonomy.
However, if you live and work in the UK, Australia or the USA, you are in a unique position to see the “best” of Aldi regarding growth and more importantly innovation. These markets, in many ways, highlight the direction of travel Aldi has and will have to embark on in more markets to be successful.
Having recently seen a video on culture and change, I was stuck by how the evolution of our brain is like that of Aldi and the current problem it faces. The basic premise of the video is that over time our intelligence increases but consequently lose creativity. From a retail POV this is very much applicable to Aldi. Having invented the Discounter concept, they are undoubtedly seen as one of or the most intelligent retailers in terms refining and globalizing an efficient retail model. At the same time, a cultural pride and limited desire to not fix what isn’t broken, links back to inability or unwillingness to truly innovate especially in context of the changes happening in retail today.
1. Reset expectations
2. Kill the ego
3. Use patterns and mega trends
Each one of these is again applicable to Aldi and if it is to unlock its innovation potential it will have to do all three.
- Reset expectations
Aldi’s previous strength has been to take the longer-term view in retail and wait to find the most efficient and perfect solution for its business. This has not always paid off. The roll out of in store bakeries is the best example of this. Whilst Lidl, underwent a European wide investment program to roll out semi-automated bakeries, offering a wide range of fresh products, Aldi held off and chose to roll out fully automated versions, akin to vending machines. This focus on efficiency, in comparison to Lidl’s shopper-centric offer, has now seen Aldi change course, replacing all its automated bakery areas in its stores with semi-automated service counters. For Aldi to drive innovation in more markets, it must reset expectations of what innovation can do for the Global business. This isn’t to say we don’t see innovation in other markets. Store formats are shifting away from highly standardized models towards greater flexibility with the new 240 sq.m. railway station format in Switzerland a great example. However, Lidl’s culture of test and learn across its Global portfolio has led to a real competitive advantage in some markets and Aldi would do well to expand a similar mentality to other markets to the benefit of the entire group.
2. Kill the ego
Aldi is owned by three foundations and disputes over management decisions are sometimes documented with recent big management changes evidence of this. The CEO of Aldi Nord, Marc Heussinger, announced his resignation, whilst Aldi Süd appointed Horst Leitner as the new CEO of its Hofer subsidiary, where he currently sits as a member of the board of Directors of Aldi USA. At both Aldi and Lidl, there is a generational shift happening in terms of who works at these companies and indeed who shops at them. These trends must facilitate cultural change within the company. Killing the ego for Aldi, means allowing younger, more progressive employees to drive strategic decision making on what to do and not to do regarding innovation and importantly not being penalized for it.
3. Use patterns and mega trends
Aldi has long been immune to retailer reactions who try to dilute its core proposition as well as new forms of competition coming from the digital age. However, the competitive advantage that it holds in markets is and will be diluted in the future. Aldi must ask itself what would happen if value for shoppers increasingly comes from an ability to use voice assistants, and not price alone for example. Its identity over the years has been based on what it hasn’t done in respect to other grocery formats, but unlocking its innovation potential means looking at what it can afford to still say no to and what it has no choice in saying no to.
Ultimately, Aldi’s core business and offer is still one of the most unique and brilliant retail models today, but as we look to the future, innovation and real change will be necessary in more markets to better compete – all it need do is unlock its potential.