Cisco plans $4 bln worth of expansion in Mexico-government
MEXICO CITY, Sept 27 Cisco Systems Inc plans more than $4 billion worth of expansion in Mexico between 2016 and 2018, the Mexican government said on Tuesday.
BERLIN, July 7 Aldi and Lidl have a new weapon in their battle to be Germany's discount grocery number one: Coca-Cola.
Both chains have for years used own-brand goods and low prices to woo customers from global giants like Carrefour, Tesco and Metro. Both are still expanding abroad - particularly in Britain and the United States.
At home, though, they have hit saturation point. There are now six times as many Aldi or Lidl stores per person in Germany as there are Wal-Marts per person in the United States. That's one reason Aldi decided in October 2012 to stock Coca-Cola, to add to a limited range of other big name brands it has introduced in recent years such as Nivea and Nutella.
The move reversed a key tenet of Aldi's strategy, and underscores the challenges companies face as they eke out growth in mature markets.
Aldi is the world's biggest discount store operator by sales, and had flourished for more than 40 years without stocking major brands. Lidl, on the other hand, has offered a slightly more varied range of products including Pepsi-Cola, which it bottles in Germany, and Coca-Cola. Gradually, it had been winning market share.
Aldi's radical move with Coke did lift its market share, though Lidl's also rose in 2013. The biggest benefit for Aldi was that it wrong-footed its rival. Lidl's initial response was confused, the company lost executives, and it recently postponed a planned international expansion.
Longer term, though, will abandoning the philosophy that made Aldi successful backfire?
Dieter Brandes, a former managing director at Aldi, worries that a new generation of managers may be steering the firm in the wrong direction.
"Today they are increasingly approaching the management methods and behaviour of the big supermarkets and hypermarkets," said Brandes, a longtime confidant of Aldi's late co-founder Theodor Albrecht.
Both Aldi and Lidl are privately held and declined to comment in depth on strategy for this article. Spokeswomen for Aldi's two main divisions said the firm's focus remains on developing its own brands and only listing a very limited selection of name brands.
"We make these exceptions for proven brand products with which customers have an almost emotional relationship," said Serra Esatoglu, spokeswoman for Aldi Nord.
THE ALDI WAY
The Aldi discount store was pioneered in 1962 by the Albrecht brothers, Karl and Theodor. Lidl, part of the Schwarz group, followed in 1973. Both chains expanded rapidly, making multi-billionaires of the intensely private families which still own them.
For most of that time Aldi has led the way. "There really is an Aldi way of doing absolutely everything. It is efficiency based. Everything is very carefully calculated," Paul Foley, managing director of Aldi UK from 2000-2009, said.
When Foley joined the business in 1989, he said, the company still required its cashiers to memorise the prices of the 890 goods it sold; that was faster and more accurate than using scanners. Founder Theo was known for driving an ancient car and obsessively switching off lights.
The goal was simplicity. "Anything that adds complexity, difficulty and would eventually require a more complex process to manage is looked at 100 times before accepting it," said Foley, now a consultant based in Austria. "In most cases it is turned down."
After squabbling about whether to stock cigarettes in the 1960s, the Albrecht brothers split the firm into two units: Aldi Nord and Aldi Sued. Aldi Nord handles north Germany and eight European markets as well as an upmarket chain, Trader Joe's, in the United States. Aldi Sued concentrates on southern Germany, English-speaking markets and four other European countries. Though they have different logos, the firms keep costs down by cooperating closely on supply and marketing.
Lidl's twist on Aldi's model was to use selected brand promotions. It also has a broader range of fresh produce, and pays more attention to lighting and product presentation than at minimalist Aldi.
Lidl has grown its market share in Germany to 6.5 percent from 5.5 percent in 2008, according to data from business intelligence firm Planet Retail. Aldi's market share has slipped to 8.8 percent from 9.1 percent over the same period. Planet Retail forecasts that the Schwarz group that owns Lidl will overtake Aldi as the world's biggest discount store operator by 2018, growing at a compound annual rate of 6.1 percent from 2013 to 2018, against 4.5 percent for Aldi.
But both chains have struggled recently in Germany, where the grocery market has stagnated. German shoppers, who in 2008 spent 45 percent of their grocery money at Aldi, Lidl and other discount chains such as Netto and Penny, are shifting to mainstream supermarkets as the economy picks up. The market share of the discounters slipped to 43.4 percent in the first five months of 2014, according to research firm GfK.
To compete, both Aldi and Lidl have become increasingly complex. They have introduced more premium product and brands, spruced up stores by adding things like bakeries, and spent more on marketing. Aldi's stores now stock around 1,000 basic goods in Germany plus several thousand non-food items like children's clothes, plants and household appliances. Lidl has 1,600 items in its standard range.
Aldi's Coke move shows where complexity can lead. When Aldi began stocking the soda, Lidl responded with special offers on Coke. Late last year, Aldi hit back, slashing the price of a 1.25 litre bottle of the drink to just 89 cents.
Coca-Cola then demanded an industry-wide price rise, according to Mike Dawson, who has been writing about the German retail industry for 30 years for trade journal Lebensmittel Zeitung.
Lidl pulled Coke from its shelves, instead pushing its own-label cola and listing more Pepsi brands like Mirinda orange drink, according to Dawson.
But just six weeks later, the smaller chain reversed course and restocked Coca-Cola. Within weeks, Dawid Jaschok, Lidl's main negotiator with its suppliers, and Lidl CEO Karl-Heinz Holland were out of a job. Lidl said in a statement the dismissals were due to "unbridgeable differences" over strategy.
German business monthly Manager Magazin said the men were casualties not just of the Coca-Cola dispute but of Lidl's handling of the broader price war with Aldi.
Neither Jaschok nor Holland could be reached for comment.
Schwarz boss Klaus Gehrig, whom the firm had lured from Aldi Sued in 1976 and who has been the driving force behind Lidl's international growth, had planned to launch the stores in the United States in 2015. But in April, he announced that Lidl would postpone its U.S. debut to 2018. Apart from plans to expand to Serbia in 2016, Gehrig says it is time to pause and take stock.
"We have grown very fast. Now it is time to review the structures and ask where there are synergies," he said in a rare interview with the Heilbronner Stimme, a newspaper in the southern German region where Lidl is based.
Aldi's move to big brands may attract more shoppers, but it also makes things more complex.
For firms like U.S. food maker General Mills, maker of cereals like Cheerio's, Aldi's move is an opportunity - but one to manage carefully to avoid putting too much pressure on margins. Chris O'Leary, head of the group's international division, said, "We sell in a pallet or two, get it limited time only and people buy it up on impulse."
The chains themselves also need to be wary. By limiting its range, Aldi used to be able to control its supplies and keep costs down, said former executive Brandes, author of "Bare Essentials - The Aldi Way of Retailing." "This advantage is easily lost."
There is evidence Aldi's move has already generated problems within the chain. The Albrecht family has tried to assert more control over Aldi Sued, a complex web of dozens of holding companies. Last year it hired Frank Lutz, former chief financial officer of German truck maker MAN, giving him a mandate to modernise the company structure. Lutz lasted just eight months after his plans met resistance from long-serving executives, business monthly Bilanz reported. Aldi Sued declined to comment.
Brandes foresees further turbulence as "these guys with their MBAs" arrive from universities "with their computer programmes and controlling techniques and sit in front of the screen rather than talk to customers."
"Company culture was defined by Karl and Theo Albrecht... Now they are gone and we see the cock fights and territorial disputes that we know from nature. Who is the number one? Who has the last say?" said Brandes.
"Why turn away from what has made Aldi so successful?" (Additional reporting by Martinne Geller in London; Edited by Sara Ledwith and Simon Robinson)
* Pacific Northwest LNG says pleased with Canadian government approval of plant, will conduct a total project review over coming months prior to announcing next steps Story: Further company coverage: (Reporting by Jeffrey Hodgson)
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