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[5 comments]

'Our advertisement is the cheap price'

July 28, 2014

That sounds like a slogan from Sam Walton, but it's from the recently deceased Karl Albrecht, co-founder of Aldi. Unfortunately, the remark, made in 1953, was reportedly one of the few made by Mr. Albrecht.

He and his younger brother and co-founder, Theo, who died in 2010, were renowned for their reclusiveness, which some attributed partly to a kidnapping of Theo in 1971. With little inkling from the brothers around Aldi's approach, many obits on the loss of Mr. Albrecht speculated a bit on how the brothers built the world's seventh largest retailer in the world.

Much like Walmart, Aldi was long obsessed with low prices. But the concept delivered the discount formula with many quirky practices—largely designed to reduce labor and expenses—that are still not widely used across retail today. The concept is often compared with but still stands apart from Trader Joe's, which Aldi acquired in 1979.

[Image: ALDI truth #206]

Here are five unique attributes:

No frills atmosphere: The stores feature no alluring images or bright lighting. Items are displayed on open carton displays on pallets for easy stocking for the employees. There's no music. Shoppers pay a quarter for a shopping cart, which they receive back upon return. Plastic or paper bags aren't free. Customers bag their groceries. Credit cards aren't accepted. There's no loyalty program or coupons.

Limited-selection: The smaller format stores sell no more than 2,000 of the most frequently purchased grocery and household items. Besides focusing on best sellers, providing only one (or two) options for toothpaste or coffee drives buying scale and delivers inventory efficiencies.

Private labels: About 95 percent of its mix is private label. But Aldi also openly states its exclusive products "must meet or exceed the national name brands on taste and quality." Beyond rigorous testing of products, Aldi offers a Double Guarantee: if not 100-percent satisfied, Aldi replaces the product and refunds the purchase price.

Minimal advertising: Aldi doesn't send out its circulars in newspapers and does limited TV advertising. A unique twist is Aldi sends out its circular two weeks in advance every Wednesday. The upcoming week's ad is posted on store windows.

Special Buys: A section in the middle of the store offers limited time deals that include food but also housewares, electronics and sports equipment that other grocers don't offer.

While also known for above average industry wages, only being open during peak shopping hours and locating stores in remote areas are also among the ways Aldi keeps costs down.

According to Aldi's statement, Karl Albrecht "was convinced that customers with a very limited income should also be able to eat and drink quality food. He saw this as his calling."

Discussion Questions:

What's particularly innovative in how Aldi reinvented discount retailing? What do you think conventional grocers and other stores can borrow from Aldi?

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:

Which one area would other food retailers particularly benefit from gleaning lessons from Aldi?

Comments:

Aldi is a fierce competitor with a program that is hard to match. The customers who shop there are all-income types who want cheap prices, and now more than ever it is a time for Aldi to pounce on all competition. They just recently remodeled their store here, and are upgrading all of them over time, making them a little bigger. The new reopening was crazy; people were walking a fourth of a mile from other business parking lots just to shop there.

Nothing fancy, but a poor town like ours is perfect for them, and they are the only store in town that is growing in sales, which doesn't surprise anyone.

I have changed my center store layout, and have targeted everyday low prices year round, just to try and maintain our base, and still can not grow business. Thank goodness for our perishable departments and crazy in-and-out deals, or we would probably not exist.

I have said before that a strong perimeter is critical for survival, and more than ever it is still the key to succeed. Keep creating signature foods to bring them in, and maintain a great level of personal service, and hopefully it will be enough to keep going.

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Tony Orlando, Owner, Tony O's Supermarket & Catering

There are 15 things you need. We know, we already have those 15 things waiting for you. You need green beans not Green Giants. You don't have time to price shop, so we've done that for you too. Oh yeah the kids need milk, always, always the best price.

Greg Morris, Vice President, Morris&Brumlow PC

Based on the lack of responses here (as well as in the previous Aldi thread[s]) I'd say it's achieving success while avoiding attention. Seriously though, it seems to be an exaggeration to say they "reinvented" discount—no frills, limited marketing, limited selection had all been tried before—more that they refined it.

To ask what other retailers can borrow misses the point: everything is designed to reduce costs, and all of the components work together, so unless that is part of a business' MO, there's really nothing to borrow...and it would be folly to try. (There ARE perhaps keys to success—like hire well/pay well and avoid debt—that other businesses could follow, but those weren't discussed here.)

'notcom'

No debt, own most of their buildings, no credit cards, cart deposit, no unions and no loyalty cards.

Conventional grocers already know what Aldi knows. Expanding with debt doesn't always work out. Best to be the turtle than the hare when expanding. Trader Joe's, Woodman's, and Wegmans are good examples. No conventional grocer can be price competitive if they accept credit cards. WinCo, and Woodman's copied this. Customers love the cart deposit because the parking lots and surrounding neighborhoods are not littered with carts and you can be sure one is waiting for you at the entrance. Not sure why more grocers don't do this. Hiring non union, fit, quick-on-their feet employees and paying them well works too. Costco copied this idea. No confusing loyalty card or game with complicated rules, but use the KISS method—keep it simple stupid. Even Walmart's ad match program...no one knows exactly how it works.

David Livingston, Principal, DJL Research

This is the first time I have seen Aldi's "ads," and if they deliver on each thing they promise, I'd rush right over to be a customer, too. The unique attributes in Tom's article above (no frills, limited selection, and private label) are ALL key elements of Aldi's success, but private label of equal or superior quality to the brands is the biggest secret that all retailers—whether groceries or hard goods—are going to have to pursue in order to stay with, and ahead of, the competition.

The key to avoiding direct price competition, especially from the big boys, says our CEO, is "differentiate, differentiate, differentiate." "Continue launching and extending your own brands, a trend which will accelerate," he says. There's some good detail of how to do this in a download on our website, but I'm not trying to advertise here, just point out that this is the direction retailers are going to have to go to compete.

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Naomi K. Shapiro, Strategic Market Communications, Upstream Commerce

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