At present there might not be much of threat of new entrants, given that the grocery market is strongly competitive. Tesco, Asda, Sainsbury and Morrisons are fighting out for market share at a level higher than Aldi and Lidl. Since the grocery market is already dominated there would be barriers to new entry. However, in terms of the capital requirement needs for entry, the entry and exit costs into the UK market might not deter other major competitors across Europe. There are also not much legislation prohibiting new entrants.
In terms of bargaining power of suppliers, stores that tie up with local suppliers might reap better benefits. Aldi would have to source completely from within the country in order to have supplier support. However, this could reduce its competitive advantage of the price differential.
Customer bargaining power is what has led to customer loyalty programs and customer based marketing in the grocery sector. Aldi does meet customer bargaining in terms of cost and quality (Brandes, 2005).
Aldi does face a threat of substitute, because Lidl is offering similar product and process advantage to customers.
Aldi will face threat of substitute with respect to the national brand it sells, however with respect to its store brand Aldi would be able to bring some more unique standard.
Aldi does not have a good market share, the big players such as Tesco, Sainsbury are seen to occupy the majority share. However, Aldi still occupies a niche in the UK market, but even this niche is now being threatened by companies such as Lidl.
While there are many issue for Aldi, the primary issue is that of losing out to competition. Aldi is able to differentiate itself from other major brands. It loses customers to them because these brands carry elite products and more national brands. Additionally, the very propaganda that Aldi makes assuring customers of reduce prices might not bode well with customers who might see grocery shopping as reflective of their social standing. Aldi could incorporate high value brands and also more national brands and reduce its store value brands. The second major issue for the company is that of losing out in competition to Lidl. If implementing the first solution of increasing elite brands and national brands it would take its competition to another level and would leave Lidl behind. However, there is a chance that loyal customers of Tesco, Sainsbury and others might not make the switch to Aldi’s even after Aldi switches strategy.