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[16 comments]

Aldi Sets Coast to Coast Ambitions

December 26, 2013

Aldi last week announced plans to invest $3 billion to open 650 stores over the next five years, taking its total number of stores in the U.S. to almost 2,000.

The cost includes building a regional headquarters and distribution center in Moreno Valley, CA. The expansion — reaching an average of 130 stores annually up from a rate of 80 per year — comes as Aldi just entered new markets such as Houston, and expanded its presence in competitive markets like South Florida and New York City.

"At Aldi, we believe that great quality can be affordable, and we are eager to bring the Aldi difference to new markets like Southern California," said
Jason Hart, president, Aldi, in a statement.

The limited-assortment, discount grocer is one of the two arms of the supermarket empire founded by Germany's Albrecht brothers. The other arm owns Trader Joe's. Its 1,300 U.S. locations are located mostly in the Midwest and East. The company's closest competitor is Supervalu's Save-A-Lot, which has a similar number of stores but has slowed its expansion in recent years.

The no-frills grocer is known for the quirky ways it keeps prices low to hold to its promise of offering savings up to 50 percent or more on groceries without the hassle of clipping coupons or buying in bulk. These include charging for shopping bags, requiring a 25-cent deposit for grocery carts, not accepting checks, and displaying product in boxes.

The stores sell more than 1,300 of most commonly purchased grocery items. More than 90 percent are Aldi's exclusive brands that come with a "double guarantee": a cash refund plus a replacement product if not satisfied.

Mr. Hart also said Aldi has updated its new store design "to be brighter and more welcoming than ever before" while continuing to upgrade its healthy food options, including soon introducing a SimplyNature line of natural and organic foods.

Some reports questioned whether Aldi would face the same competitive issues as Fresh & Easy did in California. But Jim Hertel, at Willard Bishop, told the Wall Street Journal that discount, limited-assortment stores overall are finding favor with today's cost-conscious consumers.

"There is a lot of potential in that category that hasn't been realized," he said.

Discussion Questions:

Will Aldi work nationally? What challenges will Aldi likely face as they reach Southern California and other markets? How may the concept have to be further tweaked?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

How likely is it that Aldi's U.S. expansion plans will be successful?

Comments:

Aldi has the timing right - budgets at many households across the country continue to be stretched and shoppers want constant value for their food dollar. Now they have to get the place right. The banner's cousin, Trader Joe's, has been masterful at this over the years. The understated Aldi is more discreet, but nonetheless has had great success with expansion in recent years. And it's not just the markets targeted that Aldi has to get right. Siting the stores is critical - too upscale a neighborhood and it will likely fail, as will more rural locations.

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Ron Margulis, Managing Director, RAM Communications

Challenges are aplenty. Trader Joe's is coming to South Florida and people are lining up overnight waiting for them to open. I doubt that will happen at an Aldi's opening.

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Ed Rosenbaum, CEO, The Customer Service Rainmaker, Rainmaker Solutions

Don't bet against the Albrecht brothers. Both of their concepts are extremely well positioned and strategically designed to appeal to their respective target markets. Ironically, most consumers are unaware of their family connection.

Aldi used to be referred to as the 'silent killer' as the company entered new markets with little fanfare or marketing dollars. Obviously, it is no longer a secret.

Aldi will absolutely work nationally. It is taking advantage of two trends:

1. Continuation of the frugality mindset created by the recession. All value retailers, including the extreme value retailers like dollar stores, have given consumers permission to trade down. In addition, Aldi provides a level of quality and assortment not always found in dollar stores. Remember, some consumers need to save money, but everyone loves to save money.

2. As America ages, store size will become more important and Aldi stores are very manageable.

Tweaking is a good way to put it. The key to Aldi's continued success is to act like Aldi and not someone else. In borrowing successful concepts from other retailers, Aldi needs to guard against losing its unique perception of value. Having said this, one area that will need attention is checkout. Regardless of the shopping environment, from top end retailers like Nordstrom to the extreme value retailers like Dollar General, no one likes to wait in line. This is an area Aldi could/should address without losing its value cache.

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Richard J. George, Ph.D., Professor of Food Marketing, Haub School of Business, Saint Joseph's University

The Aldi rollout to become a successful nationally-oriented chain is on a track. The leaders of this group of merchants pays close attention to their customers' deepest care-abouts, and then they take deliberate steps to meet them.

Location, selection (that is needed), price, and quality are the leading concerns of consumers when it comes to making their 99+ shopping trips each year, based on the Prosper Monthly Consumer Survey of 6,000+ Adults, 18+. When Aldi shoppers are asked of their reasons and loyalty factors, they continue to blossom. The Net Promoter Scoring that Aldi earns among their shoppers is an impressive +59.5% -- that places their relationship their customers in the neighborhood of Wegmans and Publix.

The sweet spot demographically points to growth in the 35-54 year old households. Aldi does have shorter tenure of shoppers than most legacy grocers - about 6 years compared to 9.8 years for all others. That likely is only due to their deliberate expansion to new markets. Both Trader Joe's and Aldi have a bright future as national players - watch them take share as they continue to roll out.

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Roger Saunders, Managing Director, Prosper Business Development

They will not face any challenges that they have not already learned to overcome. They are on a roll.

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Mel Kleiman, President, Humetrics

Deeply-discounted grocery is an opportunity that Walmart should have explored. The Aldi "closest" to me (20 miles in hideous traffic) is always packed. It's a niche, but a profitable one.

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Cathy Hotka, Principal, Cathy Hotka & Associates

Location, location, location and, yes, they will succeed!

Lee Kent, Brings Retail Executives Together to Meet.Learn.Profit, RetailConnections

Aldi will succeed because they really have no competition. No grocer can compete with them on price and their quality is as good as any competitor. Their internal benchmarks of sales per man hour is off the charts. Typically Aldi owns their facilities so they will be looking to buy real estate, most likely near high volume competitors like Walmart. What concerns me is the opening of 650 stores in five years. Could we see Aldi borrow money? Hopefully not and hopefully they will stick to their principles.

David Livingston, Principal, DJL Research

The short answer is "Yes." Aldi knows what the rest of America doesn't - the salad days of the economic empire are over and the serfs still need food. More and more Aldi customers are created every day as the gap between the super rich and the poor grows.

As for tweaking, they may have to work a bit on signage and mix in certain geographies to accommodate Hispanic shoppers but other than that, the formula clearly works.

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Ryan Mathews, Founder, ceo, Black Monk Consulting

Affordable quality has great appeal everywhere, and southern CA is no different. However, whether some of the frugal measures (e.g., paying for a shopping cart) be readily accepted in all markets is another question. As Fresh & Easy discovered, the marketplace in the West has its own quirks and consumer demands. Trader Joe's is amazingly successful, but Aldi takes a different approach which may or may not find a home in other US markets.

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Camille P. Schuster, Ph.D., President, Global Collaborations, Inc.

Why wouldn't it "work"? As long as you have poor - or at least thrifty - people willing to shun the comparative luxury of a conventional grocer, and yet find Walmart a depressing experience, you'll have a market. Admittedly the Fresh & Easy fiasco may have soured some, but there are two big differences here (1) this is a tried-and-true model, not a start-up, and (2) others will learn from F&E's (many) mistakes (and even if they don't, few companies could botch things the way Tesco did).

'notcom'

I'm a fan of Aldi and am in awe that they can sell delicious and high quality butter, ham, canned goods, breads, and candy/nuts/snack items, (even flowers), for about half of what most other grocers do. I think they'll be successful in expanding their markets to wherever there are smart people who want to save money on their monthly grocery bills - which is pretty much everywhere.

Their small assortment of basics keeps the warehouse footprint small and not every shopper has the patience or dexterity for pack-it-up-yourself at the cashier station. But that's all part of the Aldi experience and if they start to tweak that too much, the overhead, waste and employee costs will start to eat into their ability to offer low prices to customers.

'Liatt'

Aldi's excellent selection of upscale gourmet items along with the basic cooking from scratch products will be a hit with demographics of Southern California. Rich or poor, Hispanic or Anglo, everyone loves top quality at the lowest prices.

Hy Louis, Tea buyer, Wong Imports

As the era of slow growth and relatively high unemployment persists, concepts like Aldi will flourish - taking share from traditional players like Kroger and Albertsons. They are a well-run organization and are well-positioned to compete in today's environment.

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Mike Osorio, Senior VP Organizational Change Management, DFS Group

Aldi will ABSOLUTELY work nationally. Houston and So Cal will produce new challenges, but they should be up to it. More micro merchandising aimed at the specific neighborhood demographic will be important as they compete against smaller, locally owned markets. If they hold to their roots, they will be just fine.

'vgallese'

Sure, Aldi will succeed nationally. All the formats that cater to those hurting economically should continue to do well. The start of the economic rebound will start in, oh, three years. Then those formats will have some re-tooling to do.

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John Karolefski, Editor in Chief, CPGmatters.com

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