Aldi Not Messin’ Around in Texas
Limited assortment grocer Aldi plans to open its first 27
stores in Texas this spring as part of the chain’s aggressive growth strategy
in markets across the country.
Eleven locations will open this month in the
Dallas/Fort Worth Metroplex area, followed by nine other North Texas stores
in April and seven in May.
Aldi has invested more than $150 million in capital
expenditures in Texas, including $50 million to open a 500,000-square-foot
distribution center in Denton.
“There’s no better time than now for great prices, good jobs and
a lasting community investment,” said Scott Huska, Aldi Denton division vice
president, in a press release. “Whether shoppers need to stretch a budget or
simply choose to have more money to spend on other things, North Texans can
count on us for high quality select brands at prices no one else can touch.”
Discussion Questions: How is Aldi affecting
how other grocers go to market in the U.S.? From which channels and retailers
do you expect Aldi to grab its market share in Texas?
I spend quite a bit of time in the Dallas/Fort Worth area and every time I’m there, I wonder how in the world it can support so much retail. Many stores that have been there since I was a girl have stayed put even as every imaginable super center, chain and specialty concept wedges in. A sea of retail! I know that not every town in Texas is like DFW and I can see Aldi doing quite well in more underserved areas. I have to wonder if this is a preemptive move on Walmart in urban markets. I expect Walmart to greatly expand its urban presence and small format concepts in the coming years and Texas would be a key market for that. Therefore, I see Aldi’s expansion in Texas as biting into the future more than the present.
Aldi services a demographic that has potential for expansion in Texas and given their usual good job of site selection, they can do well. They will take a bite out of most retailers in their trading area no matter the name on the storefront.
Limited assortment stores have been a bust in Texas but I think Aldi has a good chance. YesLess, Grocery Outlet, and Save-A-Lot have all been duds. Aldi will be successful because they actually have lower prices than Wal-Mart and use Wal-Mart as muscle by building near them, feeding off Wal-Mart’s traffic. Aldi will have to turn the Hispanic marketing up a notch if they want to make a quicker impact.
Like everywhere else, Aldi will do well without impacting the competitors to any great extent. Market shares will probably end up in the 3-4% range and won’t upset the applecart. Minyards, Tom Thumb, and Albertsons are on the verge of extinction in the DFW metro area as their market shares have tailspinned towards zero. Aldi will benefit as these competitors exit the market.
The two biggest effects Aldi has on other retailers are to make them sharpen their private brands game and to challenge how efficiently consumers can shop their stores.
The primary impact initially will be on traditional supermarkets–but Carol makes a very interesting observation about how this may play into Wal-Mart’s future prospects.
Aldi has been refining and executing their concept and operation for years. They have made few mistakes. They have determined what their competitive advantage is and made it sustainable. They have picked a market segment where retailers will not make competitive responses. Aldi is not interested in the concepts of other retailers or the latest retailing fads.
Similarly, they will not go where they do not see a market for their limited assortment offering. They will not try to attain double digit share of markets. The competition will not feel their intrusion.
This will be an interesting game to watch. Texas is one of the toughest grocery markets out there and many retailers have attempted to take this low cost, limited assortment route. No one has ended up owning this market share accept or actually making it pay off big time.
I look to see this stall just like Fresh & Easy has on the West Coast.
Peter Deeb has stated it succinctly and very well. Aldi is a superb niche player. They service and capture market share from an important demographic group, that they don’t have to ‘share’ when it comes to some other larger box grocers.
Based on the February, 2010 BIGresearch ‘Consumer Intentions & Actions (CIA) Survey of 8,500+ Adults, the Consumers who say that they “Shop ALDI Most Often” or “Shop ALDI Second Most Often”, are:
Likely to be from lower income households ($43,000 per year vs. $55,000 for the general population), lower education levels (14.1 years vs. 14.5), have a lower incidence of children, have a higher percentage of shoppers who are female (60% compared to 55% for Kroger for example), have a higher lever of home ownership than the general population (69% vs. 65%) and a lower level of mortgages on those homes (59% vs. 66%). Equally interesting is the fact that they are not as likely to be members of Warehouse Clubs, and the eat out less often.
Aldi will do very well in Dallas, as they do in many other markets.
Aldi runs a great operation. Some newer stores I visited were a great improvement over years ago. Aldi should be viewed as an alternative channel just like clubs. They attract the lower income segment, but also the thrifty medium income segment.
Aldi, Save-A-Lot and the dollar formats are a real challenge to the traditional supermarket. Supermarkets that have this income group in their target market will have to work harder to keep them. The more likely result will be some lost sales, but no reduction in customer count. Only a reduction in transaction size.
Based on what I have observed of their operations, they will do very well in Texas. As others have noted, they know their niche and execute it flawlessly. They make Wal-Mart’s prices look high and unreasonable. I can’t imagine that they won’t have as much success in Texas as they seem to have everywhere else that they go.
Some really great insights.
The clear message is that each retailer (if they are to survive) must focus on what makes their value proposition unique in a market with overlapping competition and then relentlessly fine-tune that unique aspect. Trying to be pretty good at this and pretty good at that only works when there is lots of discretionary spending. This is definitely not that environment.
Incumbent Texas grocers, look out. The store that sells 49-cent tuna and $1 pickles is headed your way, and customers are going to follow. Forewarned is forearmed.
Aldi draws a wide spectrum of shoppers. It’s where all segments of American life converge to shop for great value.
Shopping the Aldi Way saves money. It has been proven here for over 30 years. They don’t make mistakes in site selection or SKUs. They know their reach and they fill a nice niche in each and every market they enter.
Besides they are fun to shop.
The opportunity for Aldi is significant not just in Texas but across the US.
From my experience, the stores do not offer a wide enough range of product (meats and produce) to make it a one-stop shop, but is very attractive for “targeted” shopping for canned goods and the like.
In Western New York markets where Wegmans and Topps are dominant, Aldi is making noise. To my understanding they have entered the Northeastern Ohio market as well and may split market share away from Whole Foods and Heinen’s for staples.
While some might relegate Aldi’s to low price competition with Walmart, remember that the chain is owned by the same German group that purchased Trader Joe’s, a grocery chain that thrives on customer service.
Aldi is one to watch.
As Mr. Hanifin says, Aldi is the one to watch. Luckily for them, most haven’t been and I suspect that their growth will continue to be successful. It’s all taken place while we’ve hardly noticed.
I suspect that to continue for some time, and at some point the commentary will be “Where did they come from all of the sudden?!” How they seem to be able to fly under the radar has been amazing. However, they are beginning to be a little bit of a blip on the radar, or else we wouldn’t be talking about them. Albeit a single-engine blip on the radar. They could quickly become a 747 with little notice.
Aldi sells basic, good value products. Shoppers learn if the quality is good enough to warrant repeat purchase, and for a growing segment, it works well. The stores are easy to shop. Products easily located, and quality/value dependable and consistent in supply.
It will be a target destination for stock-up trips, and will impact Walmart to a small but increasing extent, as discount shoppers see how far their dollars stretch across categories. Other chains will see a small change as the Aldi message spreads. Shoppers today are more aware of the price of things, and have many ways to comparison shop. Aldi will win hearts and wallets of these savvy shoppers.
Regardless of how Aldi plays to the customer base, this is really smart for Aldi to get into DFW before HEB does. If you were gonna do it, best to do it now for the HEB reason let alone post-recession reasons. Surprisingly–and perhaps there’s a good reason why–I don’t think HEB has ever made it in past some ancillary pockets around Dallas though that will change eventually. Perhaps Aldi’s push will accelerate HEB’s expansion? But methinks you’ll see Aldi with a slower methodical movement into south Texas, especially San Antonio–if ever.
HEB seems to have pretty good command of the region even when head to head with the likes of WMT. Extremely loyal customer base from what I’ve heard and seen in a limited sampling. And again, from limited sampling, they seem open to adapt and innovate towards different demand-drivers which is essential anywhere but one could argue especially in Texas.
I think aldi is definitely a player to watch. The Dallas area has stores that are fairly large and their small stores will definitely have an impact on the market. Smaller stores have always been less expensive to operate. Since land is hard to come by, Aldi should not have a problem positioning smaller stores.
I am from South Texas and their are a lot of small towns and markets that Aldi could easily serve. With Walmart and supermarkets becoming increasingly larger, the Aldi concept will definitely be a breath of fresh air for value customers and time conscious shoppers. Supermarkets will definitely have to speed up the development of a great small store format.