Despite its size, Aldi remains one of the most secretive companies in the world. It started as a local grocery store in Germany after World War II but rose to its magnanimous size because of a simply philosophy: fewer products on its shelves. With the same philosophy, it has penetrated the US market. Its mantra is to implement a lean inventory system by offering customers fewer products to choose from. By implementing this strategy, Aldi gets to keep its costs extremely low. While competitors, on average, carry between 20,000 and 50,000 items, Aldi stocks between 1,300 to 1,600 items depending on its country of operation.
Lower inventory of products means that Aldi’s inventory turnover is high and food wastage is low. With more investors pushing companies towards greener and environmentally sustainable practices, Aldi’s austerity in terms of its inventory management and low food waste are likely to benefit it when compared to other grocery giants. The latest company under scrutiny for its food waste is Amazon (https://www.wsj.com/articles/investors-want-to-talk-food-waste-with-amazon-1519914762) because it recently began its grocery operations and investors want to know how Amazon plans to mitigate food waste. On the other hand, Aldi is likely to never experience this issue because of its implementation of a lean inventory system.
Other than keeping 30 typical household items, it also limits its stock of brand name items, so it is often easier to negotiate low prices from its suppliers. On average, Aldi’s prices are 17% lower than the prices of Walmart. Moreover, Aldi plans to roll out small, nimble stores in the US instead of typical 40,000 square-foot supermarkets to make its stores easier for customers to navigate. With more customers on a tight schedule, Aldi’s easy-to-navigate stores will be a relief for individuals looking for a quick trip to the grocery store. While keeping customers happy, Aldi will also be able to keep its cost of rent low because of the small size of its stores as compared to giant warehouses of other grocery stores. Moreover, another avenue where Aldi is able to cut costs because of its operating philosophy is in the number of employees it hires. Smaller stores sizes and lower inventory items mean that Aldi does not needs tens of workers in its store to handle inventory and manage customers.
Even though Aldi has always focused on keeping its cost slow, it has not compromised on the quality of its products. This strategy is the reason why it has managed to attract middle-class customers – with more money to spend – despite its limited variety of products. Just recently, Aldi’s €4.99 bottle of Spanish Grenache red wine scored 93 out of 100 points on the American wine expert Robert Parker’s rating system, making it an “outstanding wine of exceptional complexity.”
By focusing on a lean inventory system, Aldi has been able to cut costs in so many areas of its business. It is, however, important to notice the disadvantages of a lean inventory system. If the suppliers are unable to cope up with Aldi’s high inventory turnover rate, Aldi can lose millions of dollars in sales because of unavailability of extra stock in its inventory or late delivery from its suppliers. Therefore, a reliable source of suppliers is very important for Aldi’s successful operation. Can you all think of other disadvantages associated with a lean inventory management system?