Aldi to open grocery stores next to Kohl’s

Discussion
Photo: Aldi
Mar 02, 2018
George Anderson

In January, Kohl’s CEO Kevin Mansell said the retailer had “identified a whole list of partners” from the convenience and grocery channels to lease space within Kohl’s stores that had been “right-sized” in recent years. The first food retailer to partner with Kohl’s, it was announced yesterday, is Aldi. The hard-discount grocer will open stores next to — not inside as previously speculated — between five and 10 Kohl’s locations.

Speaking on the company’s fourth quarter earnings call yesterday, Mr. Mansell said the company was “accelerating” its plans to right-size stores and that he believed that roughly 500 standard stores would have additional space for lease by the end of the year.

“We believe the opportunity to leverage our real estate through this effort has benefits on both the top line with increased traffic and the bottom line through expense offsets, both fixed and variable,” said Mr. Mansell (via Seeking Alpha), who will be stepping down as Kohl’s CEO in May.

Kohl’s reported an increase in same-store sales of 6.3 percent during the fourth quarter, while its earnings per share were 11 cents higher than its guidance.

“We’re focused on traffic driving retailers with good strong balance sheets and outlooks. So certainly, the one [Aldi] that we’re doing the pilots with falls into that category,” Mr. Mansell told analysts.

Aldi, which is known for a no-frills approach to retailing that uses high quality private labels and low prices to drive sales, has been rapidly expanding its store count. Last year, it announced a plan to invest $3.4 billion to expand to 2,500 locations across the U.S. by the end of 2022. If all goes according to plan, Aldi will be the third largest supermarket chain by then.

“We pioneered a grocery model built around value, convenience, quality and selection and now Aldi is one of America’s favorite and fastest growing retailers,” said CEO Jason Hart last June. “We’re growing at a time when other retailers are struggling.”

Aldi has taken steps in recent years to upgrade its image, including adding more organic foods, antibiotic-free meats and other healthier options. The chain began a test of home delivery in partnership with Instacart last year. The chain currently offers the service in select areas in California, Florida, Illinois and Texas.

DISCUSSION QUESTIONS: Do you think the Kohl’s/Aldi pilot will prove successful? Is the decision to operate the businesses next to one another rather than placing Aldi inside a Kohl’s primarily based on operational issues or do you see other factors being involved?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"If the target demographics align in the selected locations, I think this has a shot at being win-win all around."
"Yes, this will be a successful model. Aldi works hard to become a destination location, and it speaks to the same audience that Kohl’s does."
"I think this is a brilliant move, especially when it comes to stocking these stores with Aldi’s private label goods. "

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25 Comments on "Aldi to open grocery stores next to Kohl’s"


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Cathy Hotka
BrainTrust

At a time when department stores are struggling, new approaches make sense. Aldi’s limited inventory, no-frills approach, and high quality merchandise may make them a productive partner for Kohl’s. That said, we’ve seen some pretty notable failures in grocery concepts lately. Kohl’s competition will be watching closely.

Dick Seesel
BrainTrust

On a previous discussion about Kohl’s finding a grocery partner, I said that a store-within-a-store presents all kinds of operational challenges. (Just ask Target about its grocery business.) So the concept of a downsized Kohl’s store next to — but not connected to — Aldi or another retailer makes more sense. (And my usual “full disclosure” that I worked for Kohl’s from 1982 to 2006.)

The key choice of a “next door neighbor” depends on a lot of things — is Aldi competing against itself in a nearby location? Would another food retailer (say, 365 or Fresh Market) be a better fit in an area with especially upscale demographics? Given Kohl’s emphasis on health and activewear, they have also mentioned these kinds of merchandise categories as potential “neighbors” so it’s not hard to see a good match with a grocer like Fresh Thyme.

David Weinand
BrainTrust

Can’t ask for any better perspective on Kohl’s! As others have stated, based on the many failures of non-U.S. based grocers in the States, I didn’t think Aldi would succeed. But they are making a solid go of it and partnering with Kohl’s is a mutually beneficial proposition. We’ve learned that even upscale shoppers appreciate a bargain and I’ve heard good things about the quality of the Aldi product.

Max Goldberg
Guest

This may portend a trend where retailers with similar demographic customers partner to mutually drive sales. Kohl’s is right-sizing stores to play to their sweet spot. Adding Aldi and other non-competitive retailers to the mix benefits the retailers and consumers.

Adrian Weidmann
BrainTrust

The co-habitation of Kohl’s and Aldi could prove to be a viable experiment. The traditional lines of demarcation between grocery, retail and foodservice have been blurring for some time. Amazon’s acquisition of Whole Foods completely eradicated those lines. These two brands cater to a very similar demographic so it makes sound commercial sense. Now all they need to do is add a complimentary restaurant to complete the trifecta. Any suggestions?

Paula Rosenblum
BrainTrust

It’s a good way for Kohl’s to shed excess space, that’s for sure.

I am one of those naysayers who simply did not believe that Aldi could achieve the kind of scale in the U.S. it was talking about. Or Lidl either for that matter. This may help the company expand its base.

You know, part of Aldi’s problem is that we have so many ways to buy food in this country that in many cases we are close to over-stored. I know people in small towns love it. I don’t see it being competitive in large cities. This could be helpful for it.

And good for Kohl’s finding a way to shed that space.

Kim Garretson
Guest

I think this is a brilliant move, especially when it comes to stocking these stores with Aldi’s private label goods. While Aldi is my go-to grocer these days, I still find many of my colleagues have never shopped those stores, and think of them as selling low quality, low price items. By contrast, I have found Aldi’s private label items to be of a similar or even higher quality than Target’s private label brands, for instance. The Kohl’s shopper discovering this aspect of the Aldi brand should be a win-win.

Richard Layman
Guest
1 year 2 months ago

FWIW, in my opinion, only in the last couple years, and especially now, have Aldi’s nonstandard private label goods gotten really good.

Lee Peterson
BrainTrust

I’m sorry, that’s just weird. I thought they had totally different customers, but I guess not? Talk about grasping at straws. But in a way, it’s a good test. Just one that could’ve been thought through a little more (Trader Joe’s?) in my opinion.

Dick Seesel
BrainTrust

Aldi has come a long way from its original position (and perception) as a bottom-feeder grocery store, and its location strategy reflects it. There is a “power center” in nearby Grafton, Wisconsin (I’d describe it as a middle to upper-middle tier exurb) with such anchors as Kohl’s, Costco, Best Buy and PetSmart. Smack dab in the middle? A busy Aldi store.

You are correct (see my comment posted above) that the “neighbor” needs to be the right fit. Could be Aldi … could be Trader Joe’s … could be 365.

Richard Layman
Guest
1 year 2 months ago

From the perspective and brand promise position of TJ’s and 365 by Whole Foods, I can’t imagine those companies being interested in co-location.

Frank Riso
BrainTrust

This should be a win-win for both retailers since it will increase traffic to both stores and they both have low price leadership in their respective segments. Since they will be separate stores, this is an ideal arrangement since buying a new dress and a bag of leaking chicken parts always appeared to be done best on two different shopping trips. This is a good move for both and maybe a better deal for Aldi. I would like to see some of the Aldi locations be Trader Joe’s instead of under the Aldi banner.

Lee Kent
BrainTrust

Instead of a store-within-a-store, this sounds like a sublet with a twist. It will always be the same subtenant. Would it be interesting to have different subtenants depending on the neighborhood? This looks to me to be a great approach in addressing the need to reduce square footage and, by choosing your next door neighbor, drive the right traffic. This concept is worth watching and my 2 cents.

Steve Montgomery
BrainTrust

Aldi is a good destination driver. Having one in or next door to a Kohl’s location should not only draw traffic to the location but also increase its frequency. The two companies’ customer base is similar. It should be a win for both. The difficulty will come if, and when, they try this within a single location. Operating a food location inside a general merchandise/clothing location is far more complex than having one next door.

Richard Layman
Guest
1 year 2 months ago

In high school (40 years ago), living in Greater Detroit where Kmart was created, I used to read books about the development of department stores and shopping centers and the various experiments with discount stores like Kmart and shopping centers having supermarkets, and the general failures to succeed. People shopping at Fred Meyer, Walmart Supercenters, Meijers, HEB Plus, and Kroger Marketplaces have to have a different approach to shopping, at least if they buy frozen goods and other perishables. They are not likely to shop at other stores, or take a long time.

The advantage today is that people eat every day and buy the other types of goods infrequently, so adding food helps build frequency. The challenge is to do the right kind of product and merchandising mix to have both types do well, along with the challenge of extremely low margins on food, which reduces overall store profitability.

Dave Bruno
BrainTrust

I applaud Kohl’s for this move, and if the target demographics align in the selected locations, I think this has a shot at being win-win all around. That is a big if, of course, but I am sure the leadership teams have studied these factors closely. To be honest, when initially announced I was excited by the idea of a store-within-a-store concept, so this “store adjacent” is slightly less exciting to me, but I still applaud the effort and look forward to seeing the results.

Doug Garnett
BrainTrust
Doug Garnett
President, Protonik
1 year 2 months ago

Given Kohl’s move to team with Amazon, this is concerning. I’m sure it’s called “reinvention” internally at Kohl’s. But from the outside it’s looking like chaos that could well reflect panic or poor strategy.

This has all the appearances of a move made from weakness rather than toward strength. Kohl’s would be far better served to develop a product-based strategy for drawing shoppers into their stores to buy items that fit well within their brand.

Karen McNeely
Guest

This Milwaukee girl is chuckling and thinking, why don’t they just open their own grocery store and call it Kohl’s? Sorry, I’m showing both my age and my geographical bias. Kohl’s originally started as a grocery store back in 1927 (OK, I’m not THAT old) and the department store didn’t open until 1962. Obviously, the department store has withstood the test of time and the grocery store did not.

The history lesson aside, I think this is a great move for Kohl’s. They’ve recognized the need to right-size their stores, encouraging additional traffic, and are getting financial gain from it as well.

Kai Clarke
BrainTrust

Yes, this will be a successful model. Aldi works hard to become a destination location, and it speaks to the same audience (women buyers, especially from families) that Kohl’s does. Their presence is complimentary in the same retail area, so they both should be able to build upon each other’s audience, as they shop at one store or another. This is better than locating a store inside of Kohl’s where Aldi may not have the exposure to a non-Kohl’s target market.

Cate Trotter
BrainTrust

This is a really interesting idea that bears keeping a close eye on. Here in the UK, Aldi is a really popular supermarket choice and the buzz around it means that people are keen to visit — even if it’s just once to see what it’s about. If some of that buzz has carried over to the US then Kohl’s may benefit from the traffic that Aldi brings in. Also if people shift over to using Aldi for regular grocery shopping then Kohl’s may be able to pick up extra trade on the basis that people may want to fulfill all their shopping requirements in one trip. The demographic cross-over may also be wider than some may think. If you look at the UK again, Aldi is popular among middle-class and high-earners in a way that belies its discounter status — it offers high-quality products at a decent price which makes it appealing to a lot of different people.

Dave Wendland
BrainTrust

In an article I penned about a year ago for Drug Store News, I encouraged retailers to think beyond the box. This is definitely the type of partnering I was envisioning (ironically, the article also speaks to collaboration between drugstores or grocery stores with hardware stores … sounds like Kroger/Ace to me!).

I’m encouraged that this will be adjacent to Kohl’s rather than inside. However, for it to succeed and to cross-pollinate shoppers, there must be some shared promotion and “teasers” in both locations to get the shoppers entering both spaces.

Properly executed, I see this as a win-win-win. Good luck to Kohl’s as it innovates and reinvents itself for the future.

James Tenser
BrainTrust
Kohl’s is not the first retailer to figure out that it can make a higher return by leasing real estate versus selling merchandise in the same space. Why not locate a proven traffic driver right next door and collect rent? Meanwhile, the “right-sized” department store delivers a better total return in less space. It’s a little unclear to me what they mean by “next door” versus “inside.” Sounds like the tenant Aldi stores will sit within the footprint of the original Kohl’s locations, but with separate entrances and barriers between. If correct, that seems like the optimal arrangement. It allows each retailer to set its own operating hours. (A grocery store may want to open earlier and close later.) Grocery stores are quite differently equipped compared with apparel stores too, and they may have different procedures for sanitation, climate control, receiving, etc. We’ve commented here on a different kind of “right-sizing” going on in some Macy’s stores by repurposing space within its large, multi-level mall stores. Kohl’s may have a certain advantage in this regard… Read more »
Ricardo Belmar
BrainTrust

This should be a win-win for both brands, assuming they’ve looked at their customer demographics and choose locations wisely such that they maximize common shoppers between them. Good move not trying to force a grocery footprint within a Kohl’s. Grocery isn’t easy, and Kohl’s seems to keep on track focusing on what they know works for them and partnering with others who bring an added value in an adjacent specialty.

Mike Osorio
BrainTrust

What I love about this is the piloting approach, with “5-10 locations,” allowing both Kohl’s and Aldi to test the efficacy of the idea and how consumers react, their shopping behaviors (shop one, shop both on the same trip), etc.

As noted, while not explicit, it seems the intent is to carve space from the existing footprints and give Aldi a separate entrance allowing for appropriate store hours, temperature control, and eliminating issues of grocery smells in the department store environment. This makes good sense. Cross promotions though would be logical and value adding.

I look forward to seeing how or if this works. It isn’t a requirement to become ubiquitous across most or all Kohl’s locations, just where the demographics and competitive set makes it work. Other locations may do best with a different partner — grocer or otherwise.

Ken Morris
BrainTrust

Based on their similar customer demographics, Aldi appears to be a smart choice for retail partner for Kohl’s.  Consumers appreciate convenience and when they can park once and shop twice, it saves time and reduces headaches on their shopping trips.  The close proximity of the two stores should help increase the customer visits for both brands.
 
Locating the Aldi’s store next to Kohl’s instead of inside the store makes sense.  It would seem awkward to shop for grocery items and clothing at the same time (tomatoes and sweaters don’t belong in the same cart).  Also, it eliminates the confusion of where to check out for items that may be from two different companies. 

wpDiscuz
Braintrust
"If the target demographics align in the selected locations, I think this has a shot at being win-win all around."
"Yes, this will be a successful model. Aldi works hard to become a destination location, and it speaks to the same audience that Kohl’s does."
"I think this is a brilliant move, especially when it comes to stocking these stores with Aldi’s private label goods. "

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