Aldi Sees Lots of Room for Growth
By George Anderson
It primarily offers private label goods. It charges a quarter to rent a shopping cart. It doesn’t take credit cards. Its stores are small, no frills operations and they’re closed on Sundays. Customers bag their own groceries and pay 10 cents a shopping bag. It is Aldi and with prices between 25 and 40 percent below most others in the grocery space, it is kicking retailer competitor butt all over the landscape.
David Livingston, principal at DJL Research and a member of the RetailWire BrainTrust, told the Detroit News, “Aldi has taken efficiency to a whole new level. They’re the masters at limited assortment. I haven’t seen anyone beat them on price.”
Low prices are not the only strengths for Aldi, say consumers and company executives who are quick to point out that the quality of the chain’s private label products are equal to or superior to nationally branded goods. Aldi has rolled out gourmet food items at prices that the chain’s average shopper can afford.
“We aren’t trying to have our products look like someone else’s,” said David Kapusansky, director of real estate for Aldi stores in Michigan. “We try to look like Aldi. We are confident people trust Aldi brands and customers don’t have to think it’s someone else’s to buy it. We are confident in our products.”
The German chain, which first came to the U.S. in 1976, currently operates 800 stores in the U.S. Its plans call for opening 40 new stores a year through 2010. Its parent company, Albrecht, also owns the Trader Joe’s chain.
Moderator’s Comment: In your mind, how formidable a retail competitor is Aldi and why? Who has the most to fear from Aldi competing in the same market?
– George Anderson – Moderator
Since Aldi first came to into Burlington, IA in 1976, after acquiring Benner Tea, they have been on a steady roll. Aldi has learned a great deal from Trader Joe’s, while Trader Joe’s has taken Aldi’s mantra to control costs and manage vendor relationships to improve margin. The two chains complement each other very well.
I’m not sure that by opening select Aldi locations on Sundays adds any additional profit after expenses are deducted, the Sunday option gives shoppers an alternative to other hard discounters such as Save-A-Lot or Wal-Mart.
I’ve often wondered what many of those loyal Trader Joe’s customers would think if they knew that Aldi owned TJ’s? Why Aldi continues to have this low-quality stigma is beyond me. Sure, it’s not Bristol Farms, Trader Joe’s or Stew Leonard’s but you feel good that your wallet hasn’t been cleaned-out by an over-priced retailer that does not offer a compelling story to shop its store.
Do you think we’ll ever see Theo Albrecht open Aldi in California before he passes away? He’s rapidly moving-up in the age bracket.
My wish is that Theo will make one last brave move and open Aldi stores in California before leaving this great planet.
Aldi – Trader Joe’s…you have to believe that there are some great internal discussions on assortment, quality and price that have to make all retailers take notice. They may never replace traditional shopping experiences, or whatever that means, but they will capture more category share which will make others have to reevaluate their go to market strategies.
It’s easier to show value when you’re at the bottom or the top than when you’re in the middle. Aldi takes customers from everyone but the top tier, such as Whole Foods. People might not do all their grocery shopping at Aldi, but the volume is significant.
Aldi been around long enough for many people to know their proposition. During this time the economy has formed a “dumbbell” shaped distribution of wealth and income, as some wise observer stated. This could only help Aldi. New shoppers at an Aldi are either turned off by the environment or pleasantly surprised by what they find. While we in the business know it as a limited assortment, I’ve seen several consumer surveys where they get credit for much more than that. Aldi is a perfect example of what happens when a retailer holds the course with a successful offering. You can probably name a dozen who monkeyed around with success and are no longer around.
In Europe, the Aldi format is classified as a hard discounter. This is a limited assortment store that covers the majority of product categories. There is clearly a market for this format in the United States. Customers tend to be lower income single head of household and seniors. The common dominator is little disposable income. Due to their small foot print, it is relatively easy to find locations as compared to a supermarket. This places them closer to their target market. What Aldi does is take sales from the supermarket’s center store, not unlike membership clubs. This limited assortment could provide the majority of a households food needs, but more likely only about 85 percent. The growing competition for this format appears to be the dollar stores, which have been expanding their food offerings.
I find it interesting that Aldi operates three stores right here in Northwest Arkansas, all of them within 30 miles of Wal-Mart HQ (where many other retailers dare not tread). Smaller format hard discounters such as Aldi are a real alternative for aging baby boomers and Aldi still manages to fly under the media and retail-watch radar for the most part. The threat to supercenters is obvious, however, any of the smaller format multi-category-and-growing retailers including C-stores and drug chains will need to keep an eye on Aldi as well.
Mr. Biehl’s comments should grab the attention of all U.S. grocery competitors. While it is true that the U.S. market and consumers have not traditionally acted in lock step with Western Europe (or even our Canadian neighbors) when it comes to value shopping, those times do appear to be changing. U.S. retailers are finally getting private brands right, for example, and consumers are responding. Clubs, Dollar Stores, and other extreme value retailers are also having an impact. Remember, it was David Glass no less who said that dollar stores were the greatest threat to Wal-Mart’s growth.
I don’t think any retailer fears Aldi. They are very successful without having to get into a heated battle with other competitors. Aldi loves to be in the outlot of a Wal-Mart Supercenter and each business compliments the other. Aldi rarely gets above 5% in market share in any given market so they continue to fly under the radar. The typical Aldi does about $120,000 per week or about $30,000 per checkout, give or take. When you see an Aldi with 7 or 8 checkouts, then you know it’s cranking. Aldi has been able to be successful where other limited assortment stores have failed. Good examples are Minneapolis and Detroit. Nash Finch failed with their format and Aldi is now cleaning up. A&P flopped in Detroit with Food Basics and now Aldi is expanding. Aldi has many untapped markets and I expect them to continue their pace of growth. The biggest new thing at Aldi is they have pretty much opened all their stores on Sunday.
Aldi has left several clues for us to follow. I believe Aldi deserves its reputation as the “silent killer.” As noted in the article, Aldi delivers on its promise: no frills, low prices. It is the poster child for the “price/value” end of the market. In my opinion, the big middle of the market is vulnerable to both the Aldi’s of the world, as well as the “cool” end (Wegmans, Whole Foods, etc.).
The real threat to the major supermarkets from Aldi is not the immediate loss of market share. Rather it is the notion that there are viable alternatives to the “plain vanilla” formats that most offer to the market. Also, Aldi underscores the concept of clear target marketing and the alternative of how difficult it is to be all things to all people.
There’s a lot of room for Aldi, and it’s ironic but the customer they have a strong chance of taking is the Wal-Mart Loyalist since their loyalty has been built around low prices. It simply proves the theory that price is not a sustainable competitive advantage. For conventional grocery chains the growth of Aldi and other similar operators only means traditional grocery operators must be anything but traditional to survive. Traditional grocers must create a shopping experience from their perimeter / fresh / service departments to sustain their role in the marketplace.
Aldi has 45 years of experience in Germany and today, it is nearly the only nationwide retail banner with 4000 stores serving 80 million people. Think what this could mean to the U.S. with 280 million people. There is much room. And 86 percent of the Germans – of every income group – shop at Aldi. In nearly all the categories Aldi has listed, its market share is above 35 percent of the grocery sales. Its general grocery market share is only 17 percent, the 40 percent cited by the Detroit News counts all the hard discounters in Germany together. U.S. Grocers have to watch out for what is coming there. They underestimated Wal-Mart’s Supercenters in the 90s.
I do not feel that retailers are fearing Aldi.
Aldi has its own customer. Others have theirs. And it is not good or possible to follow everybody’s style in day-to-day retail business. Moreover, copying of others will spoil the originality of the business.
One thing is very important in retail; we have to regularly sharpen our innovative thinking and approach. Let Aldi follow their STYLE and other retailers do differently.