The art of simplicity

 

BUSINESS PHILOSOPHY:The staff of retail giant Aldi rarely speak to the media, but one former regional manager has been willing to explain the firm's philosoph, writes Derek Scally

ALDI DIDN'T get where it is today with the help of consultants. The German discounter actively ignores ISO standards and runs a mile from "quality" seals.

Yet with an estimated annual turnover of €40 billion, Aldi remains one of Germany's most successful companies, 50 years after it was founded by brothers Karl and Theo Albrecht, today Europe's richest men.

Their winning formula offers customers a limited range of own-label products at permanently low prices in a no-frills environment.

The brothers prize discretion as much as low prices and forbid their managers from talking to the media. With one exception. Dieter Brandes followed his career as an Aldi regional manager with a successful second career as an author.

In The 11 Secrets of Aldi's Success, Brandes says that the company's principles can, with minor modifications, be just as successful in other sectors.

German business leaders have embraced his message and, according to a recent poll, Brandes is ranked the seventh most influential management thinker in Germany, one spot ahead of General Electric veteran Jack Welch.

Brandes urges managers to ignore the babble of management gurus and follow the Aldi route of simplicity and "verzicht", a German noun best translated as somewhere between "giving up" and "doing without".

"It's incredibly difficult to embrace simplicity, to act simply," says Brandes, "because, to do that, one has to be clear about what one wants, get rid of the rest and allow only the essential to remain."

Rule 1: Make yourself simplicity-capable

Simplicity is a goal that can only be reached, Brandes says, by making yourself capable of embracing it. This is the golden rule of achieving Aldi-style success.

The simplicity principle can be seen everywhere in Aldi, where 1,000 items are on offer instead of the 20,000 in competitor stores. A simple stock range obviates the need for gigabytes of stock control data. After all, if you only sell one kind of toothpaste, there's no need to fret over consumer choices and alter existing orders or shelf displays.

Aldi's simplicity principle extends behind the scenes, says Brandes, with clear job delineation and a high level of autonomy for each regional manager.

Rule 2: Win customer trust

The German discounter established trust early on with customers with a daring experiment. By taking back the retail reins from suppliers, the umbrella Aldi brand has taken the place of the "trusted" brand products found in other supermarkets.

"Aldi has won customers' trust over 40 years because they know they are getting the best quality at the lowest price," says Brandes. "The customer trusts because he has never been disappointed. Unlike with competitors, the Aldi customers no longer have to constantly compare price and quality."

A recent poll placed Aldi just behind Porsche as the Germany's most trusted company.

Rule 3: Be consequential with clear goals

Dieter Brandes says that, thanks to clear job descriptions and well-defined goals, everyone who works for Aldi knows why they're there.

"Things get complex when one pursues unclear goals," he says. "Simplicity is impossible when it's not made clear what's important, what should be achieved and why."

Rule 4: Improve the details daily

The octogenarian founders of Aldi, Theo and Karl Albrecht, are still regular visitors to their own stores. Staff swap tales of mysterious grey-haired men who clear shelves of empty cartons as they shop, ask customers about their experiences with products and discreetly watch them at work. The Albrechts, says Brandes, have never ceased to be interested in changing small details which, when multiplied across thousands of stores, can have a huge effect.

Rule 5: Grow simply

The easiest way of staying true to simplicity, says Brandes, is by ignoring MBA graduates.

"They go to university and learn lots of complicated things, all with the goal of taking the place of simple common sense," he says. "This comes from professors who have to present things in a complicated fashion because otherwise they wouldn't have a job."

Rule 6: Find orientation by abandoning budgets and number graveyards

For a company with such a rigourous concept, it's surprising to hear from Brandes that Aldi works with only skeleton sales data.

"Statistics have to be generated by people and read by people, that costs time and money," he says. "The Aldi way is to have courage to leave a gap in knowledge and seek common creative answers without drowning in data."

Rule 7: Try it immediately; perfect it later

The seamless Aldi machine only got that way, Brandes says, by a process of trial and error.

In his first and last speech on the company, Karl Albrecht admitted in 1953 that Aldi's limited product range stemmed from their lack of start-up capital. The brothers decided to keep their range limited when they realised they could make as much money from selling 600 products as 10,000.Every new addition to the Aldi concept - from products to new product areas - is tested in three Aldi stores. If it is successful, it goes nation-wide, then worldwide.

"Aldi works like Albert Einstein," says Brandes. "He was once asked how he worked and he said 'I feel my way forward.'"

Companies can only grow, he says, by fostering a culture of trial and error.

Rule 8: Treat your suppliers fairly

Despite, or perhaps because of, its success, Aldi has never shaken the rumour that, to achieve their low prices, they squeeze their suppliers until they squeak. Brandes denies this is the case.

"Aldi demands a high level of efficiency but it has no interest in driving anyone out of business and losing a supplier," he says.

Suppliers rarely speak about their relationship with Aldi for fear of losing the business. But occasional reports slip through, such as in business magazine Wirtschaftswoche five years ago. "Once a price is agreed with Aldi it's fixed, they don't try and tighten the screws," said one supplier. If Aldi cuts prices to beat the competition, the supplier claimed, Aldi absorbs the loss.

Rule 9: Lead with trust and control

According to Brandes, Aldi co-founder Theo Albrecht's natural born mistrust has become a trademark of the company. Trust in their suppliers is constantly re-established through regular, random tests of product quality. Employee trust stems from a culture of decentralisation and delegation.

"Every improvement or innovation in Aldi came from within the company," says Brandes.

"The thrifty company culture makes people ask: 'What can a consultant do that we can't do ourselves?' Managers find someone inside the company who is interested in whatever project is required and let them do it," he says.

Rule 10: Speak simply

Aldi spends just 0.3 per cent of its turnover on advertising: a weekly product newsletter of weekly specials.

"Aldi uses simple language to appeal to sensible, enlightened consumers common sense, compared to competitors' brochures that rely on pretty pictures of special offers," says Brandes.

Marketing types take note: in half a century, Aldi has never felt the need to have a slogan.

Rule 11: Stay thrifty and modest

Despite a combined fortune estimated by Forbes to lie around €33 billion, the Albrecht brothers allow themselves only the smallest of luxuries.

Their modest homes, 10 year-old cars and chain-store suits are legend in German business circles. But acquiring expensive habits makes life complicated, something that is at odds with the secret of Aldi's success: consequential simplicity.

"Everyone who tried to copy Aldi has always thought they had to make a simple system more complex," says Dieter Brandes. "Staying simple is the most complex thing possible."