Full interview at inpractise.com

We recently interviewed the Former CEO at Aldi, UK on how the company approaches sourcing quality goods to compete with branded players.

In the full interview, we explore:

  • Aldi market entry strategy: process for setting up a supply chain for locally sourced products
  • Discounter disruption in grocery retail: how the (short term) management incentives of incumbent retailers play to Aldi's advantage when entering a new market
  • Aldi's philosophy in dealing with its supplier base
  • Aldi’s cost structure of operations vs a mainstream retailer

In these early stages, Paul, how do you set up that supply base? Is it a question of calling up incumbent private label producers and tapping up marginal supply? How does that actually work? What sort of environment do you face in building up your supply?Add case questionDiscuss

In that, I have hundreds of interesting stories. Actually, you have to see it this way, when an industry like UK food retail industry was in the very late 80s/very early 90s is super rich. Is earning double what the worldwide industry average is. Everybody does well out of that. I don’t just talk about the retailers, but all of the suppliers are doing well out of it. All of the transport companies are doing well out of it. All of the real estate providers are doing well out of it. Everybody gets a bit of the action. The only person that doesn’t do particularly well out of it is the consumer because they have to pay more of their hard-earned cash to get their groceries and stuff that they need to run their lives. If you come as Aldi with a clear track record that you’re there to undercut all of that. To mess it all up. To ruin the party. You’re not welcome. There is no established player, never mind the competition, who wants to help you. Actually, you’re like a plague of locusts I heard it described from people in the early days. Just coming here to suck all of the profit out of our industry.

Frankly, that’s true, that’s absolutely true. First of all, what we had to do was we had to bring product from abroad, which was not a comfortable situation. It was more expensive than it should have been. It wasn’t the right taste profile, but we needed something to sell. Secondly, we had to establish relationships with small upcoming suppliers who were looking for some vehicle to grow themselves. In many cases, we actually invested money with these companies, either by way of long-term contracts or actually buying the machinery ourselves and renting it to them.

Basically, we did everything out of those first 15 years to get ourselves what our goal was. Which is to match the quality level of the best-selling brands on the market. Now, some of that was easy. We could do it within four or five years. Some of it was dreadfully hard. You try making a KitKat even in a normal chocolate factory, which rivals a KitKat. It is really difficult to do. Either the chocolate mushes into the biscuit, or the biscuit is too hard and breaks your teeth. So on. It was really a journey to end up with a thousand products, which truly were rivals for the best-selling brands on the market under the private labels which the company was doing. Enormous fun. I never had a corporate lunch in 25 years because every midday, I was involved in testing product to see whether or not you could tell the difference between the Aldi version of Cornflakes and Kellogg’s. Or the Aldi version of Ketchup up and Heinz. Eventually, we got there. It was truly very difficult to tell the difference. That’s when you’ve got a business concept, which the majority of consumers will not turn their noses up at.

Looking at that business today, what share of the offering will be supplied locally now that Aldi has been in the UK for close to 30 years now?Add case questionDiscuss

The true answer to that question is about 50 percent. The true answer to what does the UK consume is the same. Around 50 percent. I know that everybody understands English breakfast tea, but we all know that there’s no tea grown in the UK. Aldi UK imports in terms of ingredients or in terms of final product, pretty much what the average is for the market. If you ask me what the answer to that question in year one to three, it was more like 90 percent came from abroad. It wasn’t bad stuff. Actually, in some ways, it was higher quality. If you were a true confectioner and you understand chocolate, you will know that people in Switzerland and Belgium eat a much higher quality chocolate than Cadbury’s. If you don’t grow up on this much higher quality chocolate, it’s the Cadbury taste you want. No matter what you put in front of the customer, if it doesn’t taste like Cadbury’s, there will be a significant of people that will say, “Thanks very much. That’s not what I’m looking for.” Matching the local expectation becomes the goal of the product.