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A structured “Business Model” appears a good tool to manage day-to-day operations in a company. However, if there are some good things about a structured business model it has its limitations as well. This is why a structured business model such as a “Business Model Canvase” draws healthy criticism from scholars. The study assesses Aldi’s BMC with the help of scholarly articles. It criticizes and finds the imbalances in the BMC tool as practiced by Aldi. The study also critically analyses Aldi’s business model with the help of a “Value Proposition Canvase”.
The “Business Model Canvase (BMC)” has proved immensely popular amongst businesses in recent times. BMC provides an easy process to compare two organizations using BMC based on its elements. Indeed, this can be a lengthy process without a BMC in practice (Osterwalder et al. 2014).
In spite of all these benefits, BMC has its drawbacks and has received criticism for it. Pedersen, Gwozdz and Hvass (2018) believe that the building blocks, which are its elements are not built upon the same level of abstraction or there is an imbalance between these elements. The BMC as followed by Aldi on a contrasting note results in an imbalance. Some of the elements have higher details than many others. For example, building blocks Key Resources, Key Activities, Channels and Customer Relationship have more details than Customer Relationships and the likes of. Studies also suggest that some of the areas are being overlooked by the authors of BMC. For example, the building block Channels give too much detail about Aldi's supply chain operations. It says that Aldi is able to manage transparency in the supply chain operations and compliant trade practices have proved helpful for Aldi. As a result, they have limited barriers from the Australian Border Force. Instead, Aldi enjoys reduced waiting time and clearance services while transporting goods across the border. Aldi is being recognized as the trusted and secure employer by the Australian Trusted Trader (ATT) (Aldiunpacked.com.au 2019). Aldi also enjoys fewer interventions by custom officers and faster customer processing (Aldiunpacked.com.au 2019). Indeed, the Channels building block, for example, gives a huge detail of Aldi's supply chain operations. However, a building block like Problem could have helped to reach to problems being faced in the supply chain operations.
The authors of Lean Canvase Model believes that some of the most important elements are being overlooked in BMC. Moreover, BMC also has building blocks, which do not create a high level of risk. Some other areas like Competition could be even riskier that are not included in BMC (Amanullah et al. 2015). For example, a building block Key Partners discusses in detail the business partners who have been helpful for Aldi. Hence, Aldi is able to design and manage their stakeholders efficiently with such a secure and transparent supply chain network. The stakeholders of Aldi are at benefits and in another way, its stakeholders' trust in the business has worked for the company. The business partners of Aldi is sure that their goods will experience fewer barriers in clearing the custom processing. Moreover, they also know they will have to pay the reduced cost and have to wait for less for their goods (Bourne 2016). The buying teams do also know they have to work less to buy items because of Aldi's market reputation. The buying teams are aware of the stocked items on the shelves. If they are to buy the items they will face fewer difficulties at the customs' hand as well as the suppliers. Customers have their products on the shelves when they need it. Aldi has every reason to make it happen as stated above. To name a few they have efficient buying teams engaged in buying the items. Moreover, the logistics team is able to travel through the Australian borders in less time due to shorter custom processing duration (Aldi.com.au 2019). All these suggest that a building block Key Partners is essentially helpful in identifying the returns for the business partners of Aldi. However, it rarely describes in detail the process followed to satisfy the customers’ needs.
Usman and Vanhaverbeke (2017) say that Start-ups companies operate under a high-level of uncertainty. For instance, Aldi's business model does not have building blocks like Competition. The exclusion of Competition from the BMC is a crucial limitation of the model. There should also be a box like ‘Unfair Advantage’. The box can be good in influencing entrepreneurs for chasing to competitive advantage as a defence against new entrants. Khodaei and Ortt (2019) criticize BMC for a fact that it is highly sustainability-oriented. For this to happen the model will require expert assistance to identify the flaws in the process for sustainability. However, this is practically very challenging and will require a different supportive tool altogether. Kurucz et al. (2017) suggest that instead of Key Partners building block Aldi should have used building block Problem. Although, Key Partners are important; however, it is more important to ensure a commercially viable service for the target market. And Problem as a building block will guide through in an organized way. BMC was further blamed for being too abstract. Aldi does not express with its BMC like how to satisfy the customers' needs. It shows how Aldi is creating values to its customers; however, misses on how Aldi will improve on some of its weaknesses to reach a wider consumer base (Evans et al. 2017).
This section does a critical analysis of Aldi’s business model. It does so with the help of the “Value Proposition Canvase”. The Canvase will be utilized in this section for assessing whether the Aldi's business model is effective. The components of the Canvase will be shown with the help of a diagram of the Canvase. These components will also be discussed in this section.
A business model is a guide that helps to illustrate the range of ideas plotted on the Canvase as suggested by a Business Model Canvase. A Business Model Canvase has been found as helpful in visualizing the business model by many business institutions (Massa, Tucci and Afuah 2017).
Business model to be discussed in this assignment is a model that Aldi practices for its operations in Australia. The business model has received appreciation from business experts and various media channels for many reasons. The one thing that compelled media and trade experts to appreciate the model is a fact that the model is proving extremely successful with Australian consumers (Fernandes and Afonso 2018). There are reasons why they could relate to it. These are (Fernandes and Afonso 2018):
Aldi has consistently been able to prove their worth as a retail brand that offers cheaper price every day. Unlike Coles, Woolworths and other major retail brands Aldi carries less focus on seasonal discounts. They have been consistent in doing so. Moreover, they have enormous external help in the form of loyal suppliers and more friendly custom officers (Aldi.com.au 2019). And these favors are just the sustaining result of a transparent and a more secure supply chain operations of Aldi (Aldi.com.au 2019).
Aldi offers simplicity in shopping experience by removing unnecessary contents from it. This is popularly known as no-frills shopping. It is characteristically known for simplicity, clarity and efficiency (Startribune.com 2019). Aldi does it to reduce and control the floor operations’ expenditures. This may sound a weird experience to those who are very concerned with the shopping standard. However, it is okay with many others.
Aldi is a responsible employer. It does maintain it by being good to its employees, customers and other stakeholders. It employs fewer people and asks for extra works; however, pays a handsome sum of amount to them (Aldi.com.au 2019). It consistently meets the customer demands by offering quality goods and sourcing mostly from locally sourced suppliers. Aldi has a much better relationship with its suppliers as compared to Coles and Woolworths. The reason being its consistency in paying the dues within the committed time frame (Aldi.com.au 2019).
Figure 1: Value Proposition Canvase
(Source: Osterwalder et al. 2014)
The above-mentioned structure is a Business Model Canvase generally followed for assessing and identifying the best of ideas. Although, the Canvase has received wide criticism from those who consider this Canvase to have missed on including few extremely important elements such as Competition (Türko 2016). Below is a detailed discussion of this Canvase in context to Aldi’s Business Model.
Figure 2: A Flow Chart
(Source: Created by author)
The above flow-chart indicates the kind of activities that are a part of Aldi’s operations. This part of the Canvase denotes the list of activities as performed by an employer. Aldi doses take care of various activities. These are Production, Distribution, Warehousing, Sales and the Weekly Newsletter (Aldi.com.au 2019). Aldi does not have its direct involvement in the production of goods. Indeed, it relies on third party manufacturers and brands. Unlike Woolworths and Coles, Aldi sources more than 90% of its goods from third-party manufacturers and sells those under its brand name. Rest of the goods are sourced from Nationally popular brands (Aldi.com.au 2019). This is also a reason Aldi is able to cut on the cost. On the other hand, it is more productive a way than adopted by other major supermarket brands.
Distribution of goods is taken care of with an efficient and secure network of the supply chain. The logistics operations are very transparent and secure as well. Adding to this the supply chain operations is recognized by the Australian Trusted Trader (ATT) (Aldiunpacked.com.au 2019). The recognition like this has proved helpful for Aldi in getting products cleared quickly in custom processing (Aldiunpacked.com.au 2019). Hence, the flow of goods from suppliers to Aldi's warehouses and its end-users is faster than major supermarket brands in Australia.
Aldi with the help from “APP” has been able to have its logistics and Warehousing facilities in Queensland, Victoria, New South Wales, South Australia and Western Australia (App.com.au 2019). It is never easy to acquire suitable sites. However, “APP” with its strategic approach towards Market analysis, Property strategy, Due diligence and others has been helpful for Aldi in providing suitable sites for constructing individual facilities (App.com.au 2019).
Aldi like other supermarket brands in Australia makes Sales from its chain of grocery stores in different parts of the country. However, there is an evident difference between Aldi and other major grocery retailing brands concerning cost-effective and quality operations. Aldi, unlike other brands, does not entertain unnecessary items in the store. It has a small product portfolio as compared to others (Aldi.com.au 2019). Aldi sells items only, which are in demands. Aldi instead of occupying the entire shelves with a range of different items uses boxes to reduce the area required for constructing shelves. In this way, Aldi is able to reduce the area of shelves and so, of each of its stores (Aldi.com.au 2019). However, a reduced product portfolio will mean that it is operating with limited scope for consumers. The demand for a product indicates that the majority of consumers want this; however, it never conveys the need of entire people particularly those living close to one of the stores (Viardot 2017). If this is true then it is considerable also that Aldi has nothing for many consumers who possess a different shopping habit or in a way are different from the mass. However, Aldi has nothing to do with it as it is distinct from Woolworths and Coles because of its unconventional strategies, which also include a very distinct store layout strategy (Zimmermann, Auinger and Riedl 2019).
Aldi releases the Weekly Newsletters informing target consumers about the special process and offers. This is one of the essentials of advertising being done by Aldi. Notably, Aldi is not in the intensive advertisement of goods, new launches, latest releases and so forth (Aldi.com.au 2019). Unlike major supermarket brands like Woolworths and Coles, Aldi believes in flash sales concept. This also helps Aldi in selling goods that are smaller and cheaper and could have occupied space. Moreover, it had required them to spend more on stocking items (Mehra, Kumar and Raju 2017). This also helps Aldi in saving on cost.
According to Roy Morgan Research dated 2018, Aldi now has 12.1% of shares in Australia's $100 billion-plus grocery market (Finance.nine.com.au 2019). Aldi took 17 long years to break the duopoly of Coles and Woolworths. Aldi, as stated above, employs a low number of people as compared to Coles and Woolworths. Extra work on some occasions is part of the employment at Aldi. However, it has enough to offer to employees to drive their motivation to work (Kuranchie-Mensah and Amponsah-Tawiah 2016). Aldi is different from supermarket biggies concerning the basic store layout. The store size is smaller than those of Coles and Woolworths. Aldi has a small product portfolio as compared to Coles and Woolworths. The items are stacked in boxes rather than simply arranged on the shelves.
Key partners if they are strategic, can be effective in achieving business goals. Aldi is in collaboration with many key partners. Aldimobile helps Aldi to operate a mobile virtual network in Australia. With the help of Aldi Liquor, Aldi sells cheaper liquor in its liquor only stores. Aldi is in joint venture collaboration with Diskont. Unlike Woolworths and Coles Aldi sells very few of branded products. Some of the brands sold by Aldi include like Haribo, Marmite, Knoppers, Vegemite, Milo and Brandston Pickle. Apart from these, Aldi sells private labeled products sourced from key local suppliers (Aldi.com.au 2019).
Aldi does not take help from an external advertising agency in reaching to mass people with a new launch. This is good considering it helping save on investment (Teece, Peteraf and Leih 2016). However, in another way, they may be losing on the opportunity in reaching to mass people. It is very difficult to measure the limit to which to target the audience. Aldi appreciably should do more with their advertising. This may help them in increasing their market shares even rapidly than they are currently doing (Fairbanks and Buchko 2018). Apart from advertising, Aldi has just been fabulous for their customers at least if not for the entire consumers. Aldi is cheaper than even Woolworths and Coles and is able to succeed with the Everyday Low Price (EDLP) strategy (Hendrix and Caraballo 2017). Aldi does effectively manages its flash sales and avoid unnecessarily conceding for stocking small goods for a certain time. This helps Aldi to stay cost-effective and offer valuable goods to customers every week (Hendrix and Caraballo 2017).
Aldi reaches to its shoppers in numerous ways. The primary source of reaching and interacting with customers is, of course, its stores. The stores are less spacious as compared to those of Woolworths and Coles. However, as studies suggest Aldi is able to fulfill the needs of middle-income groups (Aldiunpacked.com.au 2019). Aldi does make good utilization of social sites to remain connected with its followers. In the form of Aldi community games accessible from Google Play and other app stores, and with other Mobile Apps Aldi is maintaining awareness for the brand. Besides, the use of magazine, websites and local press outlet Aldi is trying to keep its followers updated with the latest news and offers (Aldi.com.au 2019). However, studies suggest that Aldi spend very few on advertisement as compared to those of Coles and Woolworths. It is evidenced in the fact that Aldi does not take help from an external advertising agency. Indeed, external agencies can provide with helpful contents such as the current market trend necessary to make a required amendment to advertisement practices (Turnbull and Wheeler 2016).
Customers for Aldi can be divided into two distinct categories. These are general customers and others. The general customers are middle-income groups who can afford to buy grocery and other items from Aldi. Under the list of others, the customers are farmers, grocers, markets and restaurants, which depends directly or indirectly on Aldi for their different purpose (Aldi.com.au 2019).
Cost structure can be of two distinct types such as Fixed Cost and Variable Cost. The areas where Aldi incurs Fixed Cost are its employees. Notably, the number of employee base for Aldi is constantly increasing. As per a report, the figure is close to 12,000 employees (Aldi.com.au 2019). To be in the profit zone Aldi must be able to increase its sales volume. The areas falling under Variable Cost include warehouse management, stocking of items, logistics operations and others. Aldi with its small product portfolio and flash sales is able to keep the fixed cost under control (Mukherjee 2017).
Retail Sales is the only revenue stream for Aldi. Aldi boosts its sales with each passing year by being focussed on to its basics. This is to sell products only which are in-demand. Moreover, flash sales have proved helpful in selling items more than those stocked while also avoiding the stocking expenditures. Due to being able to save on money with innovative ideas Aldi is constantly making shopping beneficial for its customers (Herrera 2016).
Therefore, utilizing an idea by using a "Business Model Canvase” can also mean becoming limited to fewer scopes. As in the case of Aldi, they are not as worthy to high-income groups as to middle-income groups. It is because they have been following an idea, which is to offer products in-demand at the most competitive price range. In doing so, they have kept their product-portfolio shorter. Hence, missing on fulfilling the needs of people in high-income groups. BMC has received valued arguments as evidenced from studies. It lacks a balance and misses on to include a few factors, which could be riskier. Despite all these drawbacks BMC cannot be disregarded on a whole as well. As found in this study, Aldi is doing better with its business model than major Australian supermarket brands such as Woolworths and Coles. The business model is more cost-effective than Woolworths and Coles. Aldi is creating values for its customers with the help of secure and transparent supply chain operations, effective key partners and cost-effective products. However, Aldi should work more on its advertisement stuff to reach to an even bigger consumer base. The business model as found in this study is less appealing to customers those who find fewer varieties in products in Aldi’s stores. This is true as well considering Aldi has a small product portfolio as compared to those of Woolworths and Coles. Moreover, Aldi only stocks the in-demand products. The findings of the study suggest that business models are beneficial in achieving business goals.
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