What Aldi can learn

Aldi supermarketGerman supermarket chain Aldi is making a push into China leveraging Australian products on an e-commerce platform, aiming to take advantage of the rapid expansion of the Chinese middle class.

It was beaten to the gun by Australian supermarket giant Woolworths, which launched an online store there in January, on Tmall Global, the overseas platform of Alibaba Group’s B2C business, enabling Chinese consumers to order products directly.

It is an exciting opportunity for producers and manufacturers in the Australian F&B sector, with the China-Australia free-trade agreement forming the cornerstone for sector growth over the next 10 years.

Aldi is also taking the Tmall trail, with plans to continue expanding into the market with a physical store presence. This market-entry strategy represents a shift away from Aldi’s conventional low-cost approach, which has enabled it to steamroll its way across the western world. It also shows an understanding of the culture and consumer behaviours that define the Chinese domestic market.

With health concerns and wary of quality issues associated with local produce, middle- and upper-middle-class Chinese consumers are increasingly looking to imported fresh and processed foods to meet their needs and reinforce their newfound social standing. Last year’s China-Australia Joint Economic Report estimates the middle class will grow from 10 per cent of the population (in 2009) to about 70 per cent by 2030. This will drive demand for high-quality imported food goods, and the company that can offer the greatest value at lowest cost will lead the pack.

Prime position

Aldi’s low-cost model and association with high-quality goods puts in it a prime position to capture the market, and as growth propels it toward physical stores, it should look to French giant Carrefour to learn some crucial lessons about navigating the Chinese market.

Carrefour was one of the first major FMCG retailers in China, entering in 1999 after international expansion that included Southeast Asian markets.

The large, open store format favoured by Aldi may prove less successful in China’s space-constrained major cities. The format needs to be optimised with the right mix of international and local products. Chinese consumers are time poor and cost conscious. If they are cannot buy what they need at the right price, they are not likely to return to the store.

Also, a visually pleasing store layout offers little value to Chinese consumers. Carrefour’s approach was to complement in-store pickup with the ability to order a wider product range for home delivery. It changed its store formats to accommodate a wider product range and reflect market expectations. This approach fits nicely into Aldi’s e-commerce market-entry strategy, with in-store buying being complemented by online purchasing with delivery. However, the company may still need to consider adjusting the ratio of local to imported products it maintains, as well as moving away from its usual store format.

Aldi will need effective management of its value chain to maximise the benefit of offering Australian produce. To maintain its price competitiveness, it will need to continually reassess and tweak its value chain to stay profitable. The Chinese macro-environment is characterised as a continual state of flux, the result of changing legislation requirements, shifting consumer preferences, a rapidly globalising economy and the power of the internet.

The low price point needed to be competitive in Asia is challenging for foreign businesses importing products, magnified by China’s macro-environment. Collaboration across the value chain from Australian farms through to Chinese consumers will be essential to maintaining sustainable returns while meeting the market’s price point. Such co-operation will help reduce transaction value loss, and increase Aldi’s ability to be agile and respond to rapid market changes.

With the major retailers and third-party exporters continuing to send Australian food products to China in increasing volumes, Australian primary producers and manufacturers of food products need to develop a China strategy to take advantage of this access. Engaging your customers is the first step; if your business opens a dialogue, it may open a market.

Eric Peck is a consultant at Pollen Consulting Group, and studied international business at Peking University, Beijing, as part of his MBA. This article was originally published in Inside FMCG print magazine https://insidefmcg.com.au/shop/.

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