Watch Out Whole Foods, Aldi Has Organics
It wasn’t that many years ago when speaking with a category manager at a supermarket operator in the Midwest that I inquired about how well the chain was doing with a popular new organic item on the market. Evidently, the question was funny because after the giggling stopped I was informed that the item might sell well on the coasts but, in the nation’s heartland, there wasn’t much of a market outside some cities and/or college towns for organics.
Today, there’s little doubt that organics have gone mainstream. The latest case-in-point is Aldi, which has added organic produce in a number of its divisions following a rollout of its Simply Nature private label organic and natural line in September. It even sells the occasional branded organic item, as well. This week the nearest Aldi was advertising Nature’s Path Love Crunch Organic Granola for a lower price than I could find anywhere else locally.
So how do organic products make sense for limited-assortment, pay to use its carts, Aldi? In a word — price.
While many consumers like the idea of organics and removing chemicals from the foods they eat, the cost for these items is typically higher than conventional alternatives. Few stores, if any, have lower prices than Aldi.
"It means a lot that organic is cheaper there," Becky Balder, an Aldi shopper who lives in Bloomington, MN, told the Minneapolis Star Tribune.
Aldi’s prices for organic items are typically 50 cents higher than the conventional alternative it offers, according to a report on al.com.
Further, shoppers at Aldi don’t run any financial risk by trying out the chain’s organics. Aldi’s "Double Guarantee" on its own brands promises that customers who are not 100 percent satisfied with one of the chain’s products can get a replacement item and have their money refunded.
Discussion Questions
Will Aldi be successful with its entry into organic foods? Are the sales of organics in Aldi more likely to bring the chain’s existing consumers into the category or capture them from other retailers? If from other retailers, what stores selling organic groceries are most likely to take the hit?
As a co-organizer of an organic food group in NY/NJ, I can tell you that yes, for many, price is a big factor in purchasing organics or not. Better pricing might cause some existing Aldi shoppers to buy more organics, but that will cannibalize sales for non-organic products. Unless they create a big selection of the proper organic foods and really promote it, there’s not going to be much impact on their bottom line or their reputation amongst hardcore organic consumers.
I don’t see competitors taking much of a hit since Aldi is a limited assortment store with only a handful of organic items. Aldi has sold organic products for awhile now. Apparently Aldi believes it should expand its variety.
As Aldi moves into higher income areas with more educated consumers—typically the organic buyer—it just makes sense to increase the variety and try new products. I think they will fine tune what sells and what doesn’t, and keep the higher volume products.
To be (a spartan price leader) or not to be (with popular organic items), that (could be) the question.
Many consumers believe that organic products are much better other products and are willing to pay more for them. As Aldi penetrates more areas comprised of devoted Organic Fans, it is good policy to increase organic assortments even its more rustic settings.
As to who will take a hit as Aldi sells more organic foods cheaper than other chains, it will be the same retailers who lose business to Aldi because of its lower prices.
I do not see Whole Foods or other grocery chains running scared because Aldi is adding organics. Aldi is a limited brand market in limited areas. As an example for me, the closest Aldi is a 30 minute drive. Whereas the closest Whole Foods is five minutes. Publix even closer. Any savings made by going to an Aldi is lost in time and fuel.
Selling organic groceries at Aldi is not the issue. The issue is giving the consumer what they want. Since one grocery chain (Whole Foods as an example) has had success in this category, it doesn’t surprise me that another chain, like Aldi, would want to grab some of that success.
Years ago a hotel decided to give newspapers away to guests. That “amenity” helped to differentiate them from the hotel down the street. It wasn’t long before other hotels saw that this attracted a certain type of guest to that hotel (business executive type). They decided to start giving away newspapers, too. Just about every amenity that you get at a hotel—the newspapers, mints on the pillow, fluffy robes, etc.—was first tried by a hotel and then others started copying. Copying is not necessarily a bad thing. You have to keep up, modify, change the game, etc., if you want to be competitive.
Whole Foods has done an excellent job of differentiating themselves from their competitors with selection, organic foods, fresh meal selections. There is no surprise that others would choose to compete. Aldi getting into the organic grocery category is the same as the second hotel deciding to give newspapers away.
What it comes down to, as mentioned above, is giving customers what they want. If the retailer does that, and at the same time retains or grows the relationship with the customer, they have the winning combination that can lead to success.
The new category for Aldi is organic groceries. They may get some new customers from other retailers that don’t sell organics. They may bring existing customers into the new category. And, then there will be another category, in the not to distant future, that will start the cycle all over again.
The existing shopper at Aldi probably would not be buying organics because such customers are largely price driven. The addition of organics, however, may draw new shoppers to Aldi stores to buy these products at a lower price than found elsewhere.
I can see this working in higher income areas where Aldi might be landing, e.g. a rumor to be a possibility for the Magruders stores up for grabs in the D.C. area. Also, let’s not get too snobbish/elitist in our thinking. Doesn’t every income level/price level of shopper deserve a shot at organics? Also, think about the shopper that hits Target and a high-end clothing store on the same trip.
Here again we get into a semantics issue with what is meant by “successful.” Will they become the go-to place for organics? Not likely, any more than they are the go-to place for groceries in general. But successful in the sense that the items sell and they make money off them? Why not? Just because you’re poor and/or cheap—Aldi’s presumed demographic—doesn’t mean you fry everything.
I don’t see Aldi seriously challenging Whole Foods, but what makes people think value shoppers aren’t also health conscious? I don’t see how they miss, frankly.