The ALDI Way to Retail Success
Note on the English edition
Like many translations, this book is being published a few years after the original edition. Since it first appeared in Germany in 1998, where it featured in the list of non-fiction bestsellers for over a year, the world of ALDI has inevitably moved on. The biggest change is that ALDI has expanded its offering to include many more non-food items: computers, footwear, household appliances, gardening implements and so on. These goods already account for 20 to 25 percent of total sales.
The other key development is that ALDI is still enjoying strong growth in both its sales and its profits. Up to 85 percent of all German families shop at almost 4,000 stores across the country. In 2004, ALDI’s worldwide salers are expected to exceed 40 billion euros, with profits before tax of 1.5 billion euros.
Despite the passage of time, though, the message of this book still holds true. It is not just about ALDI, but about a management philosophy based on simplicity that has universal relevance and value. As many companies know to their cost, it is all too easy to get sidetracked into providing ever more performance projections, management reports and market analyses and to lose sight of what really matters – the bare essentials.
This is why so many businesses both within and beyond the retail sector want to understand what ALDI is doing and how it manages to conquer complexity. This English edition will make ALDI’s tremendous success story accessible to readers across the English-speaking world fpr the first time.
Shared strengths: What ALDI has in common with Wal-Mart and General Electric
One way to understand ALDI’s success is to compare it with two of its peers, both leaders in their industries.
The world’s top retailers
In 1998, Wal-Mart launched itself into the German market by taking over the 70 retail outlets of the Wertkauf Group. German retail managers held a conference to discuss what they could expect and whether Wal-Mart might pose a threat. When I addressed the conference, I argued that we should take Wal-Mart very seriously, not because it is so big, but because it is so much like ALDI. Wal-Mart’s founder Sam Walton once said:”Most of the values and the rules and the techniques we’ve relied on have stayed the same the whole way. Some of them are such simple common-sense old favorites that they hardly seem worth mentioning.”
That is exactly how Karl and Theo Albrecht would have talked about their principles and techniques. Sam Walton’s precepts implicitly guide ALDI too. Sam was as obsessed with detail as the Albrecht brothers. He emphasized item merchandising, and “really loved to pick an item – maybe the most basic merchandise – and then call attention on it.” ALDI might well have concurred with the philosophy he expressed in his book:”For my whole career in retail, I have stuck by one guiding principle. It’s a simple one, and I have repeated it over and over in this book until I’m sure you’re sick to death of it. But I’m going to say it again and again anyway: the secret of successful retailing is to give the customer what they want.” (Sam Walton: Made in America – My Story, by Sam Walton with John Huey, Bantam Books, 1993.)
This is the crux of it all: the needs of customers in different types of supermarket differ. A Wal-Mart customer wants to find everything under one roof at low prices; an ALDI customer is looking for something else. ALDI has no reason to fear Wal-Mart, because ALDI is pursuing a different corporate concept. Consider these numbers:
|ALDI sells||700 items|
|WAL-Mart sells||100,000 items|
|ALDI turnover||US $44 billion|
|WAL-Mart turnover||US $300 billion|
which translate into:
|ALDI turnover||US $44 billion|
|WAL-Mart turnover||US $300 billion|
These ratios result in completely different strategies, organizations and cost structures. Even so, both companies are extremely successful. Just how successful can be measured by the yardsticks of growth and profitability. Wal-Mart and ALDI have been the most successful retailers in the world for over 50 years. Both were founded in the post-war period, have operated using similar methods and have achieved similar levels of success. I look at ALDI’s rules in this book; Sam Walton’s “10 rules building a business” are documented in Sam Walton: Made in America – My Story.
At Wal-Mart they say: “We are different”; ALDI says much the same. Sam Walton declared “We think small” and referred to his “simplicity concept”; simplicity is also one of ALDI’s guiding principles. Wal-Mart makes a habit of trying things out to see if they work; trial and error is the ALDI way too. Sam Walton and his managers knew that there is no magic formula for success, but that numerous small things contribute to it, a conviction that ALDI shares. Retail is detail: paying attention to all the success factors over decades. That is the art, and that is no secret.
l-Mart, like ALDI, has retained its original convictions despite rapid growth over many years. One of them is the principle of delegation: “The bigger Wal-Mart gets, the more essential it is that we think small. Because that’s exactly how we have become a huge corporation – by not acting like one. And I suspect thinking small is an approach that almost any business could profit from. A lot of bureaucracy is really the product of some empire builder’s ego.”
Succeeding by being different
ALDI and General Electric differ in their structures and in their business lines: one sells tins of beans and bottles of detergent, the other power plants and aircraft engines. Yet the companies are guided by the same business principles. Each is so different from its industry competitors that it is fair to say that its success derives from being different.
This book will explore ALDI’s idiosyncrasies: its corporate culture, philosophy, working principles and organizational methods. It will show that difference is what makes for success in the long run. Everyone knows that the most successful manager in the world, Jack Welch, turned GE into the world’s most valuable company by managing in a different way from anyone else. He put forward the following principles, and implemented them in his company with discipline and rigor:
“Too often people are too complicated. Everyone wants to put all the data that they can think of on a page. My idea is, simplify it. Enrich the language; that carries the day, not the paper. There’s no trade-off in terms of the information content, not for me, because I can’t do anything with all the information. It doesn’t help most people at the next level to have all that data. What they need to know is: What are the strategic questions I have to answer? What are the variables?” (From Jack Welch and the GE Way: Management insights and leadership secrets of the legendary CEO, by Robert Slater, McGraw-Hill Education, 1998.)
“People always overestimate how complex business is. This isn’t rocket science.”
“For the next couple of years, we’ll be focusing very hard on simplifying: on getting simpler with communications with each other, with presentations, with products. We’ll concentrate on products that have fewer parts and simple designs. Business tends to overcomplicate things – most of life tends to overcomplicate things.”
“Create a clear, simple, reality-based vision . . . and communicate it to all constituencies”.
“Don’t focus on the numbers. Numbers aren’t the vision; numbers aren’t the product. I never talk about numbers.”
“People waste a lot of time on making budgets. They waste energy. We can’t afford to waste time. Budgets enervate. Stretch targets energize”.
“Run the company like a family grocery store.”
“You’ve got to balance freedom with some control.”
“Redefine the traditional concept of management. Listen to the people. Give them the right and responsibility to come up with their own ideas for solving problems.”
“If you have a simple, consistent message, and you keep on repeating it, eventually that’s what happens. Simplicity, consistency and repetition – that’s how you get through. Be simple, be consistent and hammer your massage home. The only way to change people’s minds is with consistency.”
ALDI would probably echo all these sentiments, as would Wal-Mart. They show that basic principles of healthy common sense and business sense are the makings of success, not knowledge management, budgets and data warehouses.