ALDI Business Model: How Does Aldi Make Money?

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Aldi is one of the biggest businesses in the retail sector today. What started as a small supermarket is now a global sensation. And why shouldn’t it be? It competes with the likes of Amazon and Walmart in winning customers every year.

It has various innovative strategies to cut costs and boost profit margins. Its strategies aren’t unusual by any stretch. But, its execution of these strategies is what sets it apart from its competitors. 

Most people familiar with Aldi know that this is a global retail giant. But, people often wonder how Aldi makes money. After all, its goods sell at reasonable rates. So, how does the company manage to turn a large profit every year? Let’s find out here.

But first, we’ll take you through the basics of what Aldi is all about. Read on to learn more about this global supermarket giant.

What Is Aldi all about?

Aldi started as a grocery business in Germany after World War II, particularly discount supermarkets. Customers could find reasonably-priced goods with ease at Aldi stores across the country.

ALDI Business Model How Does Aldi Make Money

But, Aldi now operates over 10,000 stores across over a dozen countries. The mission of this company was to introduce a degree of simplicity to its operations. It relied on safe and reliable practices to provide customers with the best products.

It’s the eighth largest retailer in the world despite the business splitting in the early 1960s. The two founding brothers split the business among northern and southern Germany.

Even today, Aldi operates as two separate businesses. So, the 18 countries in which it operates have stores from each chain.

The brothers who started this company believed in frugality. So, it’s no surprise that their stores offer customers affordable goods. They followed several practices to help them manage their business.

It wasn’t easy to make a profit when they offered customers lower prices than their competitors. Keeping a record of inventory to manage products helped them get there. Early on, they wrote down the details of every business dealing by hand.

The chain relies on advanced accounting software to manage its international operations. After all, keeping track of inventory and sales in every country of operations is a mammoth task.

But, its online stores in various countries use the chain’s management techniques. These techniques include managing inventory for online stores. The same goes for keeping a track of large and small customers visiting the store.

Its commitment to maintaining records of every transaction gives it a competitive edge. It also helps that this retailer is older than most others in the market today.

How Aldi makes money

Aldi makes money using several simple but effective business strategies. We’ll discuss this company’s strategies in detail below:

Private brand margins

Few people would know that Aldi operates several stores under private labels. Many other large retailers use private labels to bring in revenue each year. But, Aldi is the largest retailer that uses these labels to boost earnings.

Private brand margins

90% of its revenue comes from selling private label goods to customers all over the world. Other big names in the retail industry like Amazon make 1% of their revenue for the same.

Using private labels to make revenue is paying off for Aldi in the long run. It saves tons of money in marketing and sales costs every year.

The same goes for saving money on distribution costs. Saving money on these costs allows the company to adopt flexible pricing methods.

It can also adjust its profit margins when needed thanks to the revenue it brings in from private labels. Besides, it’s important to remember that Aldi uses an ingenious marketing hack to save on costs.

This supermarket chain uses packaging that’s like that of popular brands. So, customers recognize the packaging and buy the product, trusting its quality.

Since Aldi products are of good quality, customers don’t seem to mind the usage of this marketing hack.

It uses this marketing strategy to sell several household items. These items are available at reasonable rates in online and offline Aldi stores. This is thanks to the money the company saved using private labels.

Savings on operating costs

Aldi has been playing smart over the years by making huge savings on operating costs. One of the biggest financial mistakes startups make is investing in customer service.

Companies like Aldi know that sometimes customers are looking for good quality products. It often doesn’t matter if you offer great customer service if your products aren’t up to the mark.

Aldi is among those retailers that focus on creating affordable, quality products. This brand isn’t concerned about providing customers with premium customer support services.

Considering how expensive customer service is, this seems to be a wise move.

This company offers customer support to resolve customer queries and complaints. The savings on customer service allow the brand to keep its product prices low.

Lack of good customer support means that customers have to face a few inconveniences.

Since these inconveniences are minor, customers put up with them for affordable products. One of these inconveniences is paying to rent a shopping cart. Also, there’s a fee for plastic bags at Aldi stores.

These inconveniences allow Aldi to save on significant costs. For instance, not offering shopping carts on rent saves on employee costs. Customers would want to return their carts to get their change back.

This would mean that Aldi doesn’t need to hire employees to collect and deposit carts each day. In this way, it can save on wages and keep costs low for its customers. Customers in some parts of the world find this an inconvenience.

But, in European countries, it’s common practice so it isn’t considered inconvenient.

Good design techniques

Another impressive way Aldi makes money is by saving on design details. This company uses efficient design principles to make the most out of its packaging. This is also an environmentally friendly feature of the company’s operations.

Good design techniques

It stores many of its products in the shipping boxes they came in. Using cardboard boxes instead of individual boxes helps the company save money. Employees don’t need to stock shelves now and then thanks to this small detail.

The design of the original boxes makes it easy for employees to store them in one place. These employees then take out products from the packaging when they need to. This also helps the company save on the space needed to stack individual boxes.

This technique is ideal for organizing inventory for small businesses as well. The fact that Aldi managed to use it across the world goes to show that it’s effective.

Another design detail Aldi uses is its barcodes. This may not seem like an area in which companies can save money. After all, they have to print barcodes on their products no matter what.

Aldi goes one step further and prints extra-large barcodes on its products. Not only that, you’ll find these barcodes on many sides of the product. So, an employee doesn’t have to waste time looking for the barcode during checkout.

This also saves the customers’ time during checkout. Faster checkout may prompt another visit to the Aldi store. In the long run, it seems as good an idea as any since customers wouldn’t question the size of the barcodes.

Also, saving employee time would mean saving on employee wages. This allows Aldi to cut operational costs and increase its profit margin. It may also lead to a growth in sales if happy customers decide to visit again. 

Consistency in pricing

Aldi sells its products for up to 50% fewer prices than those offered by its competitors. These competitors include retail giants like Walmart and Amazon. Unlike its competition, it manages to sell its products for less throughout the year.

It doesn’t promote the use of seasonal coupons and discounts. So, customers can depend on this store to have the products they need anytime at reasonable rates.

This makes for a convenient shopping experience for them. They don’t need to check their calendars for discounts every time they need supplies. This flexibility allows them to take advantage of the great prices offered by Aldi.

Also, the fact that most of the products it sells are from its brands makes it easy to control distribution. This control over distribution lends consistency to the company's pricing strategy.

Aldi lists a little over 1,000 products in its shops each day. Other supermarkets and hypermarket chains offer a much larger product selection.

The small selection may seem like a setback for the company. But, Aldi uses the small product offering to its advantage.

The limited products are easier to sell each day so the company doesn’t waste unsold products. Unsold inventory often causes huge losses for supermarkets in the long run.

Statistics show that supermarkets in the US throw over 40 million tonnes of food each year. The costs of this food are significant.

It isn’t the cost of the food itself, but the cost of packaging that matters too. The same goes for the cost of transportation and storage.

Aldi plays its cards right by holding minimal unsold inventory each day. The fact that it sells most of its goods means that it doesn’t have to deal with any sunk costs. This allows it to maximize revenue.

Modern marketing strategies

Over the years, many large retailers assumed that Aldi couldn’t compete with them.

Modern marketing strategies

Their belief stemmed from the fact that Aldi priced its products much lower than theirs. The industry leaders in household supplies believed Aldi would attract a different segment.

But, they were wrong and Aldi soon ate into their market share. Its attractive prices are one of the reasons customers prefer this brand. Another reason is its modern marketing strategies.

Aldi saves money on several operations. It uses various strategies to cut costs in the most innovative ways. The cost-cutting includes saving money on its marketing campaign as well.

Aldi doesn’t splurge on fancy marketing campaigns to promote its products. Instead, it relies on minimalistic marketing strategies to strike a chord with customers

Aldi is catering to its younger customers with its environmentally friendly efforts nowadays.

The brand bears in mind that today’s generation values sustainability. It also knows that modern buyers want to know what’s in the products they’re buying.

They also want to save money on everyday products. After all, inflation rates are ever-increasing in the US.

Young shoppers don’t want to spend too much on their groceries. They have reduced spending power available to them. Instead, they prefer stores like Aldi that make quality goods available to them for less.

Aldi uses ingredients from sustainable sources for its confectionary items. These items include its popular chocolate bars. This makes for a great marketing tactic with minimal effort.

These days, sustainable products sell themselves among young buyers. Aldi doesn’t need marketing campaigns to attract buyers because it values sustainability. This company also makes eco-friendly efforts to reduce its environmental impact.

Conclusion: ALDI business model

As we discussed above, Aldi has many strategies to justify its high-profit margins. The fact that it’s been around for a while despite competition shows that its strategies are sound.

Aldi doesn’t invest too much money in its promotional efforts. Yet, it manages to make an impression on its customers each year. The ads it produces are simple and carry a strong message.

Considering its products sell themselves, it doesn’t have to invest in ads either way. The same goes for its operations. The company uses simple methods to manufacture and distribute its goods.

These techniques cause minimal wastage and produce high-quality products. Sure, Aldi may not have the largest selection of household goods in the market. But, the limited goods it offers are affordable.

Besides, customers don’t seem to have too many complaints about these goods. So, it’s fair to assume the goods are of good quality. Out of the many strategies used by Aldi to cut costs, inventory management is the most impressive.

This company's management of inventory for its online and offline stores is commendable. Minimal wastage paired with a fresh stock of goods are the keys to success for any supermarket chain.

Aldi seems to be no different here. Its constant reliance on its basic strategies allows it to weed out competition time and time again. It looks like it’ll stay that way in the future if the company sticks to its current strategy.

About the author 

Peter Keszegh

Most people write this part in the third person but I won't. You're at the right place if you want to start or grow your online business. When I'm not busy scaling up my own or other people' businesses, you'll find me trying out new things and discovering new places. Connect with me on Facebook, just let me know how I can help.

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