Wednesday reads

Get the Edge - Click here to view an archive of investment education, daily musings, book recommendations and more.
_________________

How one discount supermarket transformed the way Britain shops (Link) (Listen)
In 1990, a strange new German family-owned grocery chain named Aldi entered the UK market. It only stocked 600 basic items, all at very low prices. This would have shocked the average shopper in Britain who was accustomed to thousands of products and brands, vast fridges and aisles piled high with fresh fruit and vegetables. Most people were confident Aldi would fail in the UK, where there was discernible snobbery about discount stores. 

In the 1990s Aldi focused on building slowly and steadily and remained in the Midlands and the north of England, where store rents were cheaper, and the customers less affluent.  Aldi is a private company, with no shareholders other than Karl Albrecht’s family to answer to, so they could afford to take their time. Staying privately owned allowed Aldi to be unburdened by the short-term pressures for profits faced by its publicly traded rivals. 

Up until 2008, Aldi was still considered a niche UK retailer, locked out of the mainstream market. This all changed when the great financial crisis hit in late 2008. Inflation rose above 5%. Companies laid off staff. Household incomes were squeezed and the big grocery chains in the UK actually raised their prices in line with inflation to try to maintain their profit margins. People were forced to try discounters like Aldi. 

For Aldi, the timing was perfect, as it was just reaching critical mass in the UK. It had about 400 stores, and an established network of manufacturers delivering products that were not only low-price, but also of reasonable quality.  This new phase of rapid growth was inevitable, and Aldi’s managers believed the financial crash brought it on sooner than expected.

Today, Aldi is still growing and is now UK’s fifth largest retailer with over 7.5% market share. Aldi also has 12% of the market in Australia and 2% in the US with plans to raise its number of stores in the US from 1,800 to 2,500 by 2022, which would make it the third-biggest chain in the US by store count, after Walmart and Kroger.

Activist investors help push Japan towards shareholder capitalism $(Link)
The story of Ms. Murakami taking on the business establishment in Japan is remarkable. Her father Yoshiaki Murakami, a well-known bureaucrat turned activist investor, taught her the value of money by making her bet on the cost of dinner. Today Ms. Murakami runs C&I Holdings, a family fund that enables her to influence how Japanese executives run their companies. Her approach is uncompromising. “Whether I am female or young, I still hold the same number of shares and I can exercise them.” Activist investors like Ms. Murakami are helping to accelerate change in Japan’s corporate culture.

Business in Japan has long been an old boys club defended by yes-men with up to half of listed firms shares in the hands of friendly shareholders (mostly banks and insurance firms who tend to support managers). Change in Japan’s corporate culture will not happen overnight but Japan’s current prime minister, Shinzo Abe has enacted new laws as part of his economic-growth strategy to challenge hoary boardroom practices, with the aim of promoting American-style shareholder capitalism. This transformation in Japan is occurring just as US politicians such as Elizabeth Warren argue for a model that looks decidedly Japanese.