Aldi Cuts Costs, Adds Markets
With locations in roughly half of the states in the U.S., Aldi has a lot of room to grow. The limited assortment chain is looking to add another state to its list of places its stores call home with planned units in the Tampa and Orlando, Fla. markets.
As elsewhere, the Aldi model is no secret. The company builds small box stores with a limited assortment of mostly private label products at prices well below what consumers pay in other outlets.
Aldi shoppers bag their own products (pay for bags supplied by the store), pay by cash or debit cards (no credit cards here), and rent shopping carts for a quarter (quarters are returned when the cart is put back).
Aldi, while prices are low, is also known for the quality of its products. The company, which along with Trader Joe’s is owned by the Albrecht brothers, stands behind the quality of the items it sells and returns are of the no-hassle variety.
Dave Behm, vice president of Aldi’s Florida operations, told the St. Petersburg Times what makes the company so successful. “We keep it simple,” he said.
Aldi is looking to open 100 stores in Florida with 40 combined in the Tampa and Orlando areas.
Discussion Questions: What businesses have the most
to fear from an Aldi opening up nearby? What lessons can other operators, perhaps
even those serving a more upscale consumer, learn from Aldi?
Paul Waldron asks a good question as to why other chains do not develop a concept like Aldi’s. Some have, with success, and other have, with huge failures. Nash Finch flopped with Buy N Save and Fleming never really got Yes Less off the ground. Supervalu has done well with Save-A-Lot, however they are not going to roll them out in areas where they have corporate stores, such as Minneapolis. Sure, there might be some overlap, since they bought Albertsons, but don’t expect them to expand Save-A-Lot in those areas now.
If a chain opens low priced limited assortment stores in the same markets it has high priced vanilla stores, it undermines the pricing strategy at their more expensive stores. Consumers will not understand why they just couldn’t have the same low prices in their conventional stores. And the consumer makes a good point.
Further, from my experience, no other limited assortment group has been able to consistently meet or beat Aldi in pricing. Not even Wal-Mart. Aldi sells many items below the cost of their competitors. Therefore, there is no point in opening stores to compete with Aldi. Site analysis is easy at Aldi. All they have to do now is find a town that has a Wal-Mart Supercenter, but no Aldi. Then just build a store.
I’ve never understood why major retailers do not have a store prototype to compete with Aldi. They’ve always been known for their limited selection, good prices and reasonable quality. They certainly have a niche. A traditional grocery retailer certainly could open the same type of stores and still have their larger ones.
People who shop at Aldi don’t do all their shopping there. They shop at Aldi and still go to the larger traditional stores. Aldi has certainly shown that private label and house brands sell in a stand alone store.
As Wal-Mart and Aldi continue to grow, I think competition will heat up between them.
Aldi is taking a page from the A&P Economy Store of the 1920s and 1930s, but with parking.
Keeping it simple has always been Aldi’s motto. Whether shopping in Germany or here in the States, Aldis are niche stores that find bargain shoppers who like the limited selection and the extra low prices.
But the competition keeps on coming. PriceRite, FoodBasics, BottomDollar and Save-a-Lot show no signs of letting up. But there will always be room for the low price competitor with lots of stores. Remember John’s Bargain Stores? They had stores about everywhere on the east coast. They made a go of it for a while, but didn’t have deep pockets. Aldi has deep pockets and will continue its expansion, steady and gradually.
“Retailers with the most to lose?”: Extreme Value Retailers (dollar stores) heading into food.
“What can we learn from Aldi?”: focus, Focus, FOCUS!
It is a tribute that a single parent company can understand and adhere to the principle of focus so well that they can execute it multiple times in very different formats (Trader Joe’s; Aldi’s) without crossing themselves up.
I don’t think Aldi will be able to eat into a significant portion of Publix’ customer base. Their models are at opposite ends of the spectrum (do-it-yourself vs. over the top service). Publix is clearly dominating in the Orlando and Tampa CBSA markets with a 40% plus market share. Winn-Dixie and Kash N’ Karry might want to look over their shoulders.
Aldi is a very good example of a tight focus on a value concept with relentless execution. The question is not so much what Aldi will take from other retailers as what other retailers can learn from Aldi. Customers are focused on the product, value and convenience. Aldi offers all three. They don’t worry about the frills because its customers don’t worry about frills.
As the market consolidates, Aldi also is showing the way that competitors can find niches where there are significant opportunities for success. While the big box market may consolidate to two or three players, there will be plenty of opportunity for the smaller boxes to find a niche and prosper.
Keeping it simple is the best lesson to be learned from Aldi, as well as the clear focus of what you are great at that they share with Trader Joe’s. Consumers will do there what they do at Trader Joe’s, Costco and Stew Leonard’s… enjoy the shopping experience, have a little adventure, get some of what they want but look at it as a change of pace, since in none of these places can you really do 100% of your shopping. But they all break the monotony.
Aldi is quite unique but I don’t think any retailers have anything to fear. While they are very successful, they still fall under the radar screen. The typical Aldi is about $125,000 a week and it’s spread out over a larger distance. I’ve never seen Aldi put anyone out of business.
Aldi operates with probably the highest sales per man hour production of any supermarket retailer, typically achieving over $600 per man hour… quite impressive when compared to Save-A-Lot’s $200 per man hour. Only recently has Aldi been adding a bit of fresh meat and opening on Sundays.
Just like Trader Joes’s, Aldi has set itself so far apart from other food retailers that they really have no similar competition. One thing I admire about Aldi is they love to be on an outlot parcel of a Wal-Mart Supercenter. They are the only food retailer I can think of that actually benefits competing close to a Supercenter.
The higher the market is priced, the faster Aldi will mature in a new market. In the Twin Cities, Aldi cannot build fast enough because groceries are so expensive there. Normally, Aldi will do about $25-30k per checkout per week with 4-5 checkouts per store. When you see an Aldi with 7-8 checkouts, then you know that one is really cranking out the sales.
In the past few years, Aldi has taken a page from its cousin Trader Joe’s and has been adding more upscale items. The lesson learned is that even upscale customers don’t want to pay too much.
Aldi will take share from warehouse stores, conventional supermarkets and dollar stores. The Albrecht brothers understand that a profitable focused approach takes guts and care. It’s no accident that one Albercht brother (Aldi Nord) owns Trader Joe’s, while the other brother owns the US Aldi (Aldi Sud). Both Aldi and Trader Joe’s have among the most disciplined assortment planning in the supermarket industry. They’d rather not please as many customers as possible. Instead they use a rifle approach and please their bottom lines.