August 29th, 2008
By Mark Ritson
The Germans are coming. That was the clear message from TNS, which revealed that German discount retailer Aldi had grown its sales in the UK by 20% in the past three months compared with the same period in 2007.
If ever there was a good time for Aldi to make a move on the British shopper, it is clearly now (and the American shopper for that matter). With supermarket prices rising faster than at any time in the past 10 years, and an inevitable recession taking hold, Aldi's low prices could enable it to grasp an opportunity to grow its UK market share from 2.9% to the 10% figure the company seeks.
Tesco is certainly taking the threat seriously. For the past 12 months, Britain's leading supermarket has used a secret, mocked-up Aldi store at its headquarters in Cheshunt to develop Aldi counter-strategies. Finance director Andrew Higginson recently acknowledged that hard discounters such as Aldi were enjoying their 'moment in the sun' and Tesco is reported to be on the verge of announcing major price cuts across many of its own-label lines in direct response to Aldi's growing popularity.
Aldi is now acknowledged as operating the leanest low-cost model in the world. The key to its success is low service and even lower choice. While the average big four supermarket will carry up to 40,000 SKUs in a typical store, Aldi keeps that figure at about 1000. This results in massive economies of scale, huge buying power and an enormous reduction in the operating costs of Aldi stores, which are smaller and require very few employees. Aldi also keeps its costs low by reducing profits – a typical store operates on gross margins of 15%, about half that of the big four British supermarkets.
The really interesting issue about Aldi, however, is its approach to brands.
In the pivotal scene of the epic movie Spartacus, Kirk Douglas, playing the eponymous renegade hero who has led an uprising of his fellow slaves against their Roman masters, now faces defeat at the hands of the Roman army.
The Roman general announces that if Spartacus identifies himself, he will be crucified, but his fellow warriors will be spared. As Spartacus begins to step forward, a slave next to him announces 'I am Spartacus', then another and another, until the whole battlefield echoes with the cry. Spartacus surveys the tragic scene with a mixture of wonder and doom.
Everyone will be crucified.
I had my own Spartacus moment a few years ago, while addressing a big group of advertising executives. One claimed that consumers welcomed advertising and saw it as interesting and valuable. Surprised by this, I asked for a show of hands to see who else believed in this positive perception of advertising. Arms were slowly raised skyward until the whole lecture theatre was a forest of defiant raised fists.
Ad agencies have spent decades convincing themselves that the production of advertising is a positive, welcomed experience for customers. Until the advent of the Digital Video Recorder this was a harmless delusion. With the introduction of the DVR, however, this rose-tinted view could blind them to the apocalyptic changes looming.
Not too long ago Management Consulting News asked my opinion on business strategy and the consulting industry. Maybe you will share my opinions. Maybe you won’t.
So much has been written about business strategy that it’s hard to sort through—what is your definition of strategy?
There’s no end to the jargon-rich writing on business strategy, so I like to keep my definition simple. Your strategy describes what makes your business unique, and what is the best way to get that difference into the minds of your clients and prospects.
How you would assess the state of strategy in the consulting industry?
Terrible. Many consultants’ strategy is simply to stay on at their clients, no matter what problem needs to be solved. It could be a corporate strategy project, organizational design or implementation work. Lots of consultants tell clients they can do any project that comes along. They are trying to be all things to all clients and that’s a flawed strategy.
What’s unfortunate is that so many great companies have followed the advice of consultants and now find themselves on the brink of disaster. And that’s because too many consultants will tell clients exactly what they want to hear, instead of being objective advisers who look you in the eye and give you the good news with the bad.
So what are the keys to an effective strategy for a consultant?
From the moment the fireworks exploded over Beijing at the Olympics’ opening ceremony, you knew something fantastic was taking place.
We’re actually taking a break! Branding Strategy Insider will be back in a week. A warm thanks for your loyal readership and participation in this conversation about brands and branding.