Strategic Management at Aldi

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Strategic management (Case

study-based report).

Strategic Management – A Case Study of


Aldi
3950 words
Executive summary

Strategic management being one of the front factors that contribute to the success of a company
is required to be highly evaluated and planned to expect the best results. The study is conducted
to analyze such a strategic management in the context of a renowned retailer business company
in UK named Aldi. The purpose here is to analyze the past decisions and consequences of those
decisions to their business position and try to figure out what went wrong and what went right
for them. The methodology used to conduct the data that was further used to reach the
conclusions is chiefly secondary data which was collected from annual reports, research done by
individuals related to the company or any government or non-government organizations and
from articles and newspapers. Chief findings from the study is that Aldi has followed a unique
prizing and marketing strategy that enabled them to build a competitive position in the
marketplace competing against the big dogs like Tesco or Sainsbury. After analyzing the data
author has decided to recommend an effective strategy for the company which is to expand the
range of their products with maintaining the prizing and quality which can be quite beneficial
and sustainable for the company in near future.
Contents
Introduction......................................................................................................................................1

1.0 Analyzing the past strategic management of Aldi to recommend the future transformation 2

2.0 Evaluating Past and Current Marco environmental and industry issued faced by Aldi
and their responses.......................................................................................................................4

3.0 Critically analyzing Aldi’s strategic capability using Porter’s Value Chain framework
and VRIO framework..................................................................................................................7

4.0 Critically analyzing Aldi’s previous strategies using Porter’s Generic Strategy
framework, and the Ansoff Matrix and evaluating the approaches of internationalization......10

Conclusion.....................................................................................................................................13

References......................................................................................................................................13
Introduction
Strategy indicates the planning, processing, creating, analyzing, executing and expecting growth
within an organization and when it combines with management it monitors and operates every
single activity taking place in every sector of a company (Jenkins and Williamson, 2015). The
study will seek to explore different strategic management embraced by one of the growing
retailer companies in UK named Aldi in the past and present to evaluate their decision making
process and how it impacted in their business in the past and present and what course of action
needed to be taken to remain competitive in the marketplace. There will also be a brief
discussion of different theories like Porter’s generic strategy, value chain framework, Ansoff
matrix, VRIO framework and other management theories to support the claims of author and
recommend some course of action for the company which can be helpful in future.

1.0 Analyzing the past strategic management of Aldi to recommend the future transformation
Mintzberg and waters (1985) categorized strategies into two sections which would collaborate in
enhancing organizational performance and organizations would embrace any one of them which
will be suitable according to their organizational goals. Now the two organizational strategies are
deliberate strategy and emergent strategy. The deliberate strategy is such an approach to build a
strategic scheme that will emphasize on achieving the previously set up organizational objectives
and goals. On the other hand, emergent strategy basically tries to identify the future outcomes
while following a certain strategy and learn through analyzing such behaviors to contemplate an
effective solution to tackle the situation. So, the primary difference between the two strategies
are that the deliberate strategy plans towards meeting the organizational expectations of future
but emergent strategy work towards figuring out which could go wrong in upcoming future
strategy and tries to solve those complications.

A renowned strategist named H. Fayol defined management as organizing, planning, leading,


producing, monitoring and controlling every details of a company. Aldi is a growing
supermarket chain in UK that started their business approximately 25 years ago with a small
shop with maybe less than 600 products in Birmingham which now has 600 stores across UK
and employing more than 28,000 people. There are various key factors behind the growth of Aldi
and according to Dr. Max Mckeown, a renowned behavioral strategist Aldi has been focusing on
their strategic principles that guide their actions and decisions and it has been in the central of
everything and they simply offer goods and services that are cheaper simpler and better. Now
there are some benefits and drawbacks of the two strategies discussed above which will be given
below,

Benefits of deliberate and emergent strategies

 Deliberate strategy enables effective resource allocation. Emergent strategy can provide
idea on what customers actually desire.
 Deliberate strategy assures organizational alignments and management of blind spots.
Emergent strategy takes into account the innovations and ideas given by employees
which definitely boost up employee performance.

Drawbacks of deliberate and emergent strategies

 The disadvantage of both deliberate and emergent strategy is that both of the can change
very quickly that is both of them are unpredictable.
 Another drawback of deliberate strategy is that in this strategy only seniors make the
decisions which can be a bad leadership for the company. And another drawback of
emergent strategy is that it can not be planned as it is a part of an ongoing organizational
activity.

Past strategy management of Aldi

When Aldi entered the supermarket chain they had one simple rule in mind which is to provide
the minimum number of products that is mandatory to satisfy the needs of their consumers. They
simply aced at minimalism and tried to make shopping as easy as possible because they did not
want to confuse people by demonstrating same product with different brands or substitutes. They
used this minimalist strategy to save time for consumers and made it as easy as possible to shop
in less time. Aldi has provided their consumers with cheaper products, wholesales and discounts
on different products which attract many customers and according to the case study every
household of UK visits an Aldi store once every 12 weeks (Dobson ET all, 2019). So the strategy
followed by Aldi is basically to provide its consumers with cheaper goods and they have
managed to do it by offering a small number of products which is right now 2,000 which is quite
small compared to the larger supermarkets where they sell almost 25,000 products. So this is a
strategy management that Aldi started with when they first entered the supermarket chain and
has been following the strategy since. Aldi has taken initiatives to embrace deliberate strategies
to reach their business objectives and to contemplate about the future quarks on their strategy
they have also embraced the approach of an emergent strategy because both of them will
collaborate in enhancing organizational performance.

Extent to which this balance has been appropriate

Most of the people and rivalries of Aldi like Sainsbury and Tesco thought that the company
would not succeed in Britain but they have proved them wrong. Although shops owned by Aldi
do not have a great environment or everything so neatly presented but they have some specific
ways to attract customers like they have different isles containing different type of discounts and
there is even an aisle named middle aisle which is quite famous because here people can bargain
with employees (Krazynski, 2020). People get a lot of discounts from these shops of Aldi and
who wouldn’t love that and this is why most of the people visit Aldi shops to see to available
offers and even purchase some things meanwhile. Aldi has been successful in conducting
retailing business in this way but the question that would eventually rise is that what will be the
moment when this strategy will not work out anymore (Hunger, 2020). The answer to the
question is when Aldi is going to become large enough and build a brand name for themselves
seizing a big portion of the market share then their customers would expect better quality and
environment of the products because now Aldi sells some products that are specially designed
for themselves. So until now the strategy has been quite effective to attract customers by offering
discounts randomly at times but to the author’s perspective this strategy will not come in handy
for Aldi in the near future. For a business such as Aldi, they cannot just get rid of a deliberate
strategy and rely fully on an emergent strategy to develop. Emergent strategy is known to best
serve as a complement and serve as a corrective measure for deliberative strategy.

Recommendation to the transformation of the balance

The balance that Aldi has been able to maintain with their profitable management strategy may
not be effective in the near future because the company is growing at a huge rate and when it will
become like Tesco or Sainsbury, the company will have to evolve with the supermarket chain
and increase their number of products as well as maintain a standard environment within the
stores (Chatterjee, 2017). To keep to balance while transforming according the top supermarket
chain they first need to provide better quality products and increase the range of products
because when a person shops in a popular store, the first thing that comes in mind is that the
products are authentic and reliable. Even the demonstration of product need to be as neat as
possible so Aldi has to go through a huge change of management and strategy to cope with the
top retailing services like Tesco and Sainsbury. They can start the process by making small
changes throughout the stores that they own and analyze feedbacks of their customers to
comprehend other changes required to be made. Thus they can meet the expectations of their
consumers and expect the current balance even while transformation.

Support required to promote the recommended balance

Aldi will have to change their management when the competition will be against the bigger dogs
in the market like Tesco or Sainsbury because a certain standard has to be maintained while Aldi
will stay on that level. The will be able to sell cheap products and provide discounts to attract
more customers but they will also have to care about their image and keep a neat and clean
environment for shopping and increase the number of products they are retailing (Duke, 2013).
So to promote the recommended balance the company influence or train their employees to be
ready for the upcoming changes within the company in other words use a better HR management
team and generate an evolving workforce to cope with the recommended balance.

2.0 Evaluating Past and Current Marco environmental and industry issued faced by Aldi and
their responses.
Being a dynamic factor macro environmental factor changes drastically and affects any type of
businesses. The factors of macro environment are basically political, economic, social,
technological, environmental and legal. Now let’s discuss them one by one in the context of Aldi
both past and present states.

Macro Environmental issues faced by the company and responses

Macro environmental factors are basically those that are uncontrollable but still affect the way
that a company operates and the major macro environmental factor are discussed below in the
context of Aldi.

Political environment
Since Aldi started their business at UK they have not faced any type of instability in politics in
UK only some minor changes undertaken by new governments until the Brexit movement
because this was a major change in the political sector. There were not enough employees from
European countries as a result their employee cost rose by 6% as they had to hire native people
but they handled the issue by hiring more part time workers and recruit employees on zero hour
contract.

Economic environment

UK has been economically stable for more than a decade but due to this Covid-19 pandemic the
economy has shifted and so has most of the sectors and to tackle the situation the company
improved their online delivery services and followed the rules and regulations of social
distancing, ensuring their consumer’s safety and tried a subtle approach to cope with this
economic shift.

Social environment

The company to not have any ethical issues but as it a German company a socialist James
Vancouver thought that people of England would feel more comfortable in shopping in a native
retailing shop where they will see similar faces but it turns out that he was wrong and Aldi has
been able to cope with the social environment and its stakeholders (Emsell, 2011). In the past
Aldi did not realize that being diverse may attract more customers from different ethnic
backgrounds and when they realized this they started selling products required by different
ethnic and religious background like halal meat for Muslims.

Technological environment

When Aldi started 25 years ago they were totally analog and people in England prefer to use
mobile pay or a search bar to find their desired products and online shopping which is why the
company had to embrace to technological advancements in their shopping corners and payment
methods to make shopping easier.

Environmental factor

Aldi was not able to provide the cheap products that they can now because they had to purchase
them at a higher price but they figured a way to resolve these problem and offer more discounts
and cheap products for their customers which is that they have their own chosen firms that
provide them goods with cheaper rates and it may not be of highest standard but it is good
enough for many people.

Legal factors

The company had not have any legal issues over the years as they try to maintain and follow the
legislations by government and even ethically they try to maintain their corporate social
responsibility.

Let’s conduct a SWOT analysis in respect of Aldi to generalize how they can follow a better
approach.

Strengths Weaknesses
 Low price.  Bad customer service
 Strong brand name.  Not good enough decoration.
 Availability of products with offers.  Not enough variation of products.
 Good marketing.
Opportunities Threats
 Online shopping  Rivalries like Tesco and Sainsbury.
 Expanding business  Optimization issues.
 Creating better perspective.  Bad reviews.

The SWOT analysis clearly demonstrates the basic strengths and weaknesses of the company
and the company can use some of these strengths to eliminate their threats and take advantage of
their opportunities and hence develop skills among employees and build better scheme to work
out their weaknesses.

Industry issues faced by the company and responses

Aldi has been growing exponentially in the last few years but in 2007 they faced a huge threat
when recession conquered Irish and UK shores and people was not really able to buy enough due
to losing jobs and wages and other issues and at that time Aldi had faced a performance drop but
a time went by and Aldi tried to handle the situation by storing the products in their warehouses
or sold them by offering discounts and after that when things became normal they started to use
their methods of providing standard products at a cheaper price which attracted more buyers and
they have been following the strategy ever since (Upadhyay ET all, 2021). They have tackled
these industry issues by following a better pricing strategy which separates them from other
retailing businesses that is its competitors and sometimes their pricing is 30% lower than the
major retailing industries in the market.

Impact of current major macro- and competitive environmental issues that need to be
reflected in future strategy

The major macro and competitive environment issues currently faced by Aldi is definitely the
economic issues caused by Covid-19 pandemic and Brexit movement and technological factors
that make shopping easier and time efficient. They also need to care about social factors because
a company that fulfills its duties towards stakeholders create a better image to the consumers and
their rivalries are following this process. Due to pandemic most of the retailing shopping is
occurring online and by delivery services and even after pandemic this process will go on as this
is more time efficient and easier and if Aldi can provide first class service and good products as
they did offline more people will use their online services in the future and they have to focus
their attention on this area (Dimitrova ET all, 2017). They also have improve their payment
methods because a people do not like to get in line for their payment which is frustrating and
they can use technological advancements to make the process easier. So in their future strategy
they need to include easier shopping, efficient payment methods and wide range of products for
people from different ethnic and religious backgrounds. They also have to provide better
navigational tools for the customers to find products easily. Thus they can have a profitable
strategy.

3.0 Critically analyzing Aldi’s strategic capability using Porter’s Value Chain framework and
VRIO framework
The Value Chain Framework given by Michael Porter is such a model that can be used by a firm
to analyze small to big but specific activities which will collaborate in competitive advantage and
being profitable by the firm. The value chain is divided into two parts which are primary
activities and secondary activities.
Primary activities

Primary activities in value chain framework include factors like inbound logistics, operations,
outbound logistics, services and marketing and sales.

 Inbound logistics: Inbound logistics are essential in product development because the
materials provided by firms or farmers has to be good quality and Aldi has been able to
maintain that with integrity by developing specific firms that provide them commodities.
 Operations: This is the second step when raw materials reach their warehouse and it
includes packaging, assembling, pricing and decorating to provide better quality service.
Aldi do not have the best decoration but they try to provide quality packaging of their
products.
 Outbound logistics: Outbound logistics include intermediaries like, handling,
scheduling, order processing and delivering of a product and customer service is
evaluated based on these factors and Aldi has been providing top class customer service
from the beginning but struggled in online delivery the beginning but eventually fixed the
issues (Parrott, and Walley, 2017).
 Marketing and sales: The primary focus of marketing at Aldi is to demonstrate that they
are providing the same or better product than their consumers but at a lower pricing and
this strategy has been working out since the beginning for them and although their
marketing campaigns are not good enough they need to invest more on marketing and
sales will rise eventually.
 Services: In this technological era there is no place for poor and inefficient services
because the competitors of Aldi are using technologies in every corner of their shops to
generate a smooth shopping experience. Aldi has not been great at quality customer
service but with some effort and planning they can reach that expectation.

Support or secondary activities

This type of activities collaborate in maintaining primary value chain activities and it includes
firm infrastructure, human resource management, technology development and procurement.

 Firm infrastructure: It is a sum of activities like developing schemes and quality,


operating, legislations handling, capital resource management and accounting (Islami ET
all, 2020). Aldi has been successfully managing these infrastructures or overhead costs
quite effectively to build a sustainable position in the marketplace.
 Human resource management: Having a skilled workforce ensure better workflow and
customer service and Aldi has good HR management team who recruit and develop their
employees to provide better service and handle customers well.
 Technology development: Use of technological advancements in production,
innovation, store points, distribution and employee activities can ascertain efficient
working hour and better customer service. Aldi has not embraced these technologies in
their each section like their competitors but they are comprehending the significance of it
day by day and starting to use them in their production and stores.
 Procurement: Procurement in value chain in one of the most important factors as it is
related to all other factors in the chain and it indicates purchasing of raw materials,
machinery equipment, supplies and others to complete the production and Aldi has been
handling the processes with expert and experienced personnel to provide the best quality
product at lowest price (Schmid ET all, 2018).

From porter’s value chain model, it is clear that the company can use these ideologies to develop
their logistics, supply chain, operations, management, marketing and sales. First of all, the
company need to be very careful about their raw materials because those are the products that
will define the quality of the products that they are retailing. Then they have to monitor the
production operation so that each product will be of the same quality and the quality will be
better than previous productions and the workers will work harder to meet those expectations.
They also need to invest more on marketing because it will enable them to attract more potential
customers and turn them into loyal ones in future and it will also increase their sales. Finally,
they have to monitor their customer services because many people prefer better customer
services in this retailing business. After ensuring these factors they can develop their firm
infrastructure and technology step by step to become more efficient. Thus they can create a better
and sustainable future for the company.

VRIO framework to assess the sustainability of Aldi’s strategic capability

VRIO stands for four questions regarding value, rarity, imitability and organization. The
framework is widely used to figure out the requirements of sustainable competitive advantage
(Lacaze, 2020). VRIO framework can be used to answer certain questions which will
demonstrate whether the strategic management of Aldi is sustainable or not.

VRIO FRAMEWORK of Aldi

Questions Valueable Rare Imitable Organized


Is the pricing method of the company…? YES YES YES NO
Is their strategic management of distribution and NO YES NO NO
customer service…?
Is their scheme of handling Brexit movement and YES YES YES YES
Covid-19 impact..?

VRIO framework is used to figure out and evaluate the internal strengths of a company which
may collaborate in sustaining competitive advantage in the marketplace. Form the VRIO
framework of Aldi it demonstrates some of their major strengths that helped them to reach where
they are now and one of them is following a lower pricing strategy. They have been able to
achieve this milestone by cutting cost in other sectors like organizing or product developing and
even kept less revenue and gave that to their consumers so that they would get more value for
their money and this was the deal breaker for the consumers which is why they started buying
from Aldi in the first place (Firoz Suleman ET all, 2019). The company do not have a good
distribution and customer service because they cut these costs to provide better value for money
for their consumers but many customers care about the outlook in UK in grocery stores and this
is a downside of Aldi which is a weakness of the company. And finally they have been able to
handle to covid-19 situation with caution with their systemic strategy and following different
experimental activities. So from the VRIO framework it can be concluded that the strategic
management at Aldi has been quite sustainable regarding the issues that have been faced by the
company in the past and current times.

The VRIO framework demonstrates that the biggest advantage of the company is its pricing
strategy and they have been able to effectively hand environmental and political situations like
covid-19 pandemic and Brexit movement but they have to maintain this line of strategy. To do
that they can make their pricing strategy better by analyzing what their consumers want and how
they can cut expenditures from other areas to give them what they want and that is how they can
protect this competency of them. They can also use this VRIO framework to comprehend their
drawbacks like customer service and maybe improve it to a level where customers will have less
complaints.

4.0 Critically analyzing Aldi’s previous strategies using Porter’s Generic Strategy framework,
and the Ansoff Matrix and evaluating the approaches of internationalization
Aldi has been following different strategies in their management consequent to the complications
in their path and the effectiveness of those strategies can be evaluated using porter’s generic
strategy framework and Ansoff matrix.

Porter’s generic strategy framework

Porter’s generic strategy demonstrates the actions which can be undertaken by a company to
attain competitive advantage in the marketplace and it is divided into four different sections
which are cost leadership, cost focus, differentiation and focus differentiation.

 Cost leadership: Competitive advantage can be obtained by cost leadership strategy by


two ways that are reduce cost increase profit and increment market share by reducing
prices but still be profitable by smaller amount and the method followed by Aldi is the
second one where they have kept a little profit and reduced prices by almost 30% to
increase their market share which is a good cost leadership strategy (Ruan, 2020).
 Cost focus: Cost focus strategy is followed to reduce the cost of a particular product of a
company to stay competitive and Aldi embrace this in many of their products like they
sell some chocolates that are copied from Kit Kat but low in price and they are able to
attract some buyers with this method.
 Differentiation: Differentiation is basically differentiating the products of a company to
become unique and better than what competitors are offering. Though Aldi try to offer
different products for their consumers but sometimes are not able to maintain the
standards which has resulted into worse outcomes in the past.
 Focus differentiation: This strategy is all about exploring newer markets and
requirements of customers in those markets to meet their expectations and attain
competitive advantage. When Aldi started at UK they followed a different strategy than
the contemporary retailer businesses but became successful eventually as they
comprehended the requirements of customers of the market.

Fig: Porter’s generic strategies

The Ansoff matrix

The Ansoff matrix or also known as product market expansion grid is a two by two matrix that
demonstrates a tool that can be used by an organization to create and evaluate their plans
consequent to organizational growth. The matrix includes market development and market
penetration in the first column and diversification and product development in the second
column.
 Market development: The strategy primarily focuses on entering new markets with
existing products which reduce their R&D cost that can be used in marketing in the new
market (Loredana, 2017). Aldi has been growing from when they first started and when
entering a new market they always follow market development strategy. They have been
quite successful at it.
 Market penetration: The focus of this strategy is to enhance the sales of existing
products in existing markets and different strategies are embraced to reach that level by
offering discounts or something different than competitors. This is one of the biggest
turning point and strength of Aldi as they sell products at cheaper rates than their
competitors. So they have been successful at penetrating the market that they are
operating in.
 Product development: the focus of this strategy is developing new products in existing
market. Aldi tries to provide different new products but they have not been successful at
it as their R&D investment is very low and they use those money to reduce prices
(Martins, 2020). So product development has not been Aldi’s strength over the years
which is why they have taken other measures and schemes.
 Diversification: This strategy indicates entering new markets with new products and this
strategy is firstly risky and secondly not cost efficient. As Aldi is a small company they
do not possess the capital resource to take risks like this but they can enter with joint
venture to minimize the risks. Aldi has expanded their business in some regions using
diversification strategy but they usually do not follow the strategy.
Fig: Ansoff matrix

The Ansoff’s matrix can be applied to provide better understanding of whether the company
should think about product expansion or market expansion and compared to other rivalries of the
company it would certainly be better for the company to take two approaches which are market
development and product development because Aldi has certainly less products compared to its
rivalries. Aldi also has less stores compared to its competitions and they need to be more
available throughout the country like Tesco or Sainsbury. Thus they can reach more potential
customers and make more profits.

Evaluation of approaches of internationalization by Aldi

Aldi has been very much successful at what they started as merely a small store in UK and with
dedication and following sustainable strategy they have become one of the biggest underdogs in
supermarket chain in UK. They have embraced different methodologies in expanding their
business in different demographic regions (Bombaij and Dekimpe, 2020). For example when
they started their business in Netherlands they started in partnership with a leading supermarket
chain in that country. What the author is trying to say here is that the company has followed
different methods to launch in different regions. All of them have not been successful but their
pricing strategy has been same for most of the regions and that is their biggest strength over their
rivals. So it can be said that their approaches have always been towards minimizing their risks
while entering a new market which is sometimes by joint venture, partnership with other big
companies or import exporting where they get less profits but with no risk at all. But the strategy
did not work at France as those people preferred to have better quality for their money and
authenticity of each products and to save money and offer cheap prices Aldi sometimes sell
products that are manufactured by specific firms who supply only for Aldi and not all
demographic people want to purchase those type of products even if that is cheaper (Chatterjee,
2017). So Aldi has been successful in most case but they had to change some of their methods
for some of the regions that they operate in.

The approach that Aldi has taken in internationalization of their business can be appropriate if
they can maintain their pricing strategy and develop their marketing scheme and customer
service. They can hire better HR managers in different regions and marketing executives to
develop these areas and hence make their internationalization approach sustainable.

Conclusion
Management strategies can be compared to the root of the tree and the growth of branches are
then in this case growth of the company. As the roots go deeper the growth becomes higher. Aldi
has been following efficient and effective management strategies to maintain competitive
advantage in the marketplace. They have faced some ups and downs but with a unique pricing
strategy and creating value for money for which they are known across UK they have been able
to counter those threats and finally eliminate them and expanded their business worldwide
following the methods, specializing in management production and distribution. Aldi possess the
potential to grow at a larger rate by increasing their product and work flow efficiency and
following effective schemes. So the strategy recommended by the author is definitely
incrementing the range of Aldi’s products while maintaining their unique prizing system to
compete with their rivalries and simultaneously focusing on their human resource management
and consumer behavior.
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