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In 1980, the strategy scholar Michael E. Porter described how a company in competition essentially has three routes: lower costs than everyone else, an offering that clearly stands out, or concentration on a narrow target group. According to Porter, one thing above all is dangerous: wanting a bit of everything and so getting stuck in the middle. The story of Aldi shows how a family, starting from a small shop, chooses cost leadership and sustains it for decades – Positioning in its purest form.
A shop in Essen-Schonnebeck
Situation
The parents of Karl Albrecht (1920–2014) and Theo Albrecht (1922–2010) run a grocery store in Essen-Schonnebeck. After the father’s death in 1943, the mother carries on the business. In 1946, after Theo comes home from an American prisoner-of-war camp, both brothers join. After the 1948 currency reform, they quickly open more branches in Essen and, starting in 1954, in the rest of the Ruhr region as well. By the end of the 1950s, there are around 300 stores with sales of about 90 million deutschmarks.
Link to the principle
The Neue Deutsche Biographie, the standard German biographical reference, notes that the concept of a small range and low prices initially arose from a lack of capital, not from a plan. That is typical. A position often begins as a makeshift solution. It becomes strategic only when someone recognizes what it can carry and deliberately builds on it.
Attempts in other directions
Situation
Around 1960, the brothers also try out other formats: self-service stores, two wholesale markets for business customers and a central coffee-roasting plant in Mülheim-Dümpten. According to the Neue Deutsche Biographie, the self-service stores and the wholesale markets are planned on too small a scale and soon run at a loss. In 1961, the brothers split the joint company. Theo takes over the northern branch network, headquartered in Schonnebeck, and Karl the south.
Link to the principle
This phase can be read as an object lesson. If you run several formats half-heartedly, you have a clear lead in none of them. Porter calls this “stuck in the middle.” Whether the brothers themselves thought in these terms is not recorded. In any case, they draw a conclusion and stop spreading themselves too thin.
The decision of 1962
Situation
In 1962, on Karl’s initiative, they begin building up self-service discount stores; the first opens in Dortmund. The range comprises up to 300 items. The principles are simple: low prices, private labels of good quality, low costs, the most basic store fittings, few staff. By 1965, the self-service stores and the small shops have been converted or closed.
Link to the principle
Positioning is above all a decision about what not to do. If you want to be the cost leader, you give up a large selection, counter service and attractive stores. Each of these sacrifices lowers costs. Only the sum of the sacrifices makes possible the price that others cannot match.
Two companies, one logic
Situation
In 1966, the brothers dissolve their cross-shareholdings. In purchasing, they continue to work together through a joint company. According to the Neue Deutsche Biographie, the joint company logo “Albrecht-Discount” becomes “Aldi” in 1967. By the end of the 1960s, the two chains together have more than 600 branches in over 300 towns and cities. Aldi Nord expands into the Netherlands in 1973, Belgium in 1976 and the United States in 1978. In 1979, the Markus Foundation, to which Theo Albrecht had transferred his company, acquires the US grocery chain Trader Joe’s.
Link to the principle
A clear position can be transferred. Two separate companies, many countries, but the same logic. Within the family, too, the clarity holds: the brothers go their separate ways and yet stick to the same principle. What is unambiguous does not have to be renegotiated with every decision.
Cheap doesn’t mean bad
Situation
The discount concept includes private labels which, according to the Neue Deutsche Biographie, are consistently of good quality. Even in the stores of the 1950s, individual rock-bottom offers such as butter draw customers in.
Link to the principle
Porter stresses that even a cost leader must not fall far behind the others in quality. Otherwise it has to give such large discounts that its cost advantage evaporates. Cost leadership, then, does not mean selling poor goods cheaply. It means offering good-enough goods with an operation that costs less than anyone else’s.
Key takeaways
Key lessons
- Choose one way of being better, not all of them at once.
- Look at what you already do well out of necessity. Your position may lie in it.
- Write down what you give up. That is the real heart of your position.
- Cheap must not mean bad. The quality has to be good enough.
- A clear position spares you many individual debates.
Summary
Karl and Theo Albrecht turned a family business in Essen into two large retail chains with branches in many countries. The step they took in 1962 was a deliberate choice: cost leadership with a narrow range, simple stores and few staff. After failed attempts in other directions, they held on to this one position and subordinated everything to it.
Sources
- Michael E. Porter: Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York: Free Press 1980.
- Ralf Banken: Albrecht, Theo (in German). In: NDB-online, published October 1, 2022. Deutsche Biographie
