Aldi’s evolution leads to credit cards

Discussion
Mar 03, 2016
George Anderson

Aldi has succeeded because of its differences with over retailers, including its almost singular emphasis on private labels, its shopping cart rental system, and its policy of not accepting credit cards. That last item is no longer a point of difference for Aldi, which announced this week it is accepting Visa, MasterCard, Discover and American Express in all its U.S. stores. The company’s management has apparently concluded that the upside of greater sales from cardholders outweighs the expense of the transaction fees.

“As Aldi continues to evolve by expanding its product lines and moving into new markets, the way we do business will continue to evolve as well,” said Jason Hart, CEO, Aldi, in a statement. “We care about being able to make our customers’ shopping experiences simpler and better every time they come to see us; and offering them the convenience of using their credit cards will help us do just that.”

Aldi’s decision to accept credit cards can be seen as another move by the chain to attract more upscale shoppers. The company has expanded its selection of organic foods and taken steps to remove synthetic colors, trans fats and MSG from its private brands.

In Australia, a separate division of Aldi has tested a more upscale store format with better lighting, more attractive freezer cases and displays of produce and other shelf-stable items.

Aldi’s credit card announcement precedes the chain’s big push into the Southern California market. On March 24, Aldi will open eight of 45 new stores planned for the market.

“We are unlike any other grocery store in the market right now,” Gordon Nesbit, division vice president for Aldi, who will oversee the company’s operations in Southern California, told the Inland Valley Daily Bulletin. “We’re bringing a combination of high-quality product at exceptionally low prices. And that’s really the value proposition we’ve been offering customers throughout the United States for the last 40 years.”

Aldi’s Athens Georgia location

DISCUSSION QUESTIONS: Do you see Aldi’s decision to accept credit cards as part of an attempt by the chain to attract more middle class and upper middle class in addition to its current customers? Are you concerned that moves to go more upscale may muddy Aldi’s points of difference in the marketplace?

Braintrust
"In reality, it was only going to be a matter of time before Aldi began accepting plastic. How could they have not known credit cards are a way of life and business in the U.S.?"

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18 Comments on "Aldi’s evolution leads to credit cards"


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Laura Davis-Taylor
Guest
Laura Davis-Taylor
2 years 1 month ago

Wow is this a good one. There’s a lot of love for Aldi and people are buzzing about their new organic section. I don’t see why they can’t expand into new territory without issue. After all, we are now a world of “high-low” shopping. Take a walk in an average dollar store and I guarantee you’ll see some designer purses. Chat with the average twenty-something and you’ll likely find that they scrimped on groceries to splurge on “that” pair of shoes. Walmart trained us!

Zel Bianco
Guest
2 years 1 month ago

I can’t imagine that not accepting credit cards would be a draw for any shopper — no matter their economic status. If Aldi has done the math and determined that they will not lose money by accepting credit cards then it is a strong move. Aldi does need to keep focusing on low price points but improving the range and value of products offered seems like a great way to grow the business.

Richard J. George, Ph.D.
Guest
2 years 1 month ago

Yes and no. While it may appear that this is one of the objectives, I believe Aldi realizes the place of plastic in most Americans’ wallets. The key is to maintain its current low price and good value perception. Assuming the transaction fees can be assimilated without having to significantly raise prices, I only see upsides to this move.

In addition, I believe Aldi is adding cards in anticipation of another German value retailer entering the U.S., namely Lidl. Lidl accepts credit and debit cards in Europe and I expect it will do the same in the U.S. Thus, I think Aldi is introducing credit cards to preempt Lidl.

Gene Detroyer
Guest
2 years 1 month ago

Let’s not read too much into this except society is going cashless. There are various predictions that some European countries could be cashless anywhere between 2020 and 2030. Some Northern European countries will or have already eliminated the existence of checks. Frankly, I think it is all going to be faster than that. Many developing countries have leapfrogged to entire electronic pay systems and that is all they are using. Cash is not a factor.

Though they will be taking credit cards now, be assured, in the not too distant future, that plastic card in your wallet will go the way of checks and cash. Aldi knows this and they will be ready for it.

Bob Amster
Guest
2 years 1 month ago

This is a good move only to the extent that accepting credit cards and paying the fees associated with that do not impact Aldi’s pricing proposition, which his where they differentiate from others. Is Aldi willing to take the credit card discount rates on the chin, or will they raise prices commensurately and thereby threaten their model? I trust that they have done the analysis.

Peter Charness
Guest
2 years 1 month ago

I think it’s just the pragmatic approach to expanding in the U.S. where credit is so prevalent among every demographic. I don’t see how any retailer can be big here without credit.

J. Peter Deeb
Guest
2 years 1 month ago

All the relevant points have been made already. However, it does remain to be seen whether this move will attract more shoppers. I am not sure the use of cash only has kept many shoppers from frequenting Aldi’s stores. Better selection and quality is what the next step should be.

Larry Negrich
Guest
2 years 1 month ago

Taking credit cards is a requirement, fees to the retailer is the reality. I’m not sure taking a credit card has an “upscale” brand connotation/association. Now, their profit margin just took a hit which may be of bigger concern. Profit margin vs. increased transactions, that’s the trade-off.

David Livingston
Guest
2 years 1 month ago

Aldi already has the middle and upper-middle class shopper. Lower-income people are going more upscale asking for organic and gluten-free products. Aldi changed with the market. To me Aldi is seeing a growth in the lower-middle class. The very poorest have food stamps. The middle class and higher have cash. However the lower-middle class has easy access to credit cards but are short on cash. Aldi wants to get the chronically broke people who are shopping at stores that take credit cards.

Ed Rosenbaum
Guest
2 years 1 month ago

In reality, it was only going to be a matter of time before Aldi began accepting plastic. How could they have not known credit cards are a way of life and business in the U.S.? My take is they knew it before entering the marketplace but wanted to hold out as long as they could while testing to see if the American buying public would agree to shopping in a store that did not accept credit cards.

Ross Ely
Guest
2 years 1 month ago

Aldi’s value proposition already extends to middle- and upper-class shoppers with its high-quality private-label products and minimum-frills shopping experience. Unlike the dollar stores, Aldi naturally appeals to a broad range of shoppers, many of whom prefer to use credit cards.

Accepting credit cards will make Aldi even more attractive to a broader range of shoppers with no impact to its core constituents.

Karen McNeely
Guest
2 years 1 month ago

Who pays with cash any more? Seems like a no-brainer to me and with a business the size of Aldi I’m sure they can get pretty favorable bank rates, so I’m sure the extra volume will make up for the slight increase in costs. Since Trader Joe’s takes credit cards, I would hope they could look at that business as a model to see how it might impact Aldi.

Herb Sorensen
Guest
2 years 1 month ago
OK, which other stores are most like Aldi? Here’s a short list for you, besides Lidl: Costco, Stew Leonard’s, H-E-B Central Market (some.) Why are these stores all like Aldi? They are all big head stores (limited selection) and minimize big brand sales, brand-on-brand mayhem in the aisles. And they are all thriving, with Costco now the number two global retailer, right behind Walmart. If you are a retailer, don’t give me all the crap about “we don’t run OUR stores that way!” No kidding! Stew Leonard’s hits $100 million annual sales in some oversized supermarkets, and Costco hits many millions of dollars in DAYS in their best store. So why bring all this up in terms of payment methods? Costco is breaking its relation to American Express, but Aldi is including AMEX in the mix. There are at least two phenomena involved here in the payment paradigm. First is that Costco has annual membership fees which are a MAJOR share of their bottom line profit. (Amazon does the same with Prime fees.) So a… Read more »
Craig Sundstrom
Guest
2 years 1 month ago

It COULD be. Then again it could just be a common-sense move to fully embrace their existing demographic. The premise that only the wealthy use credit cards is one that should have been left behind with those venerable department store names. It’s that outdated.

Camille P. Schuster, PhD.
Guest
2 years 1 month ago

I do not see accepting credit cards as a sign of being upscale. It is a recognition that fewer people carry much cash and prefer to shop with credit cards.

Brian Numainville
Guest
2 years 1 month ago

Not really a big surprise. Aldi started testing credit cards in Minnesota back in December of 2014. Only a matter of time until this took place — competitors accept credit cards, and who carries cash to shop anymore? Good move to stay with the cashless trend and be friendly to anyone wanting to spend money at Aldi.

Li McClelland
Guest
Li McClelland
2 years 1 month ago

I don’t think a person has to necessarily be “upscale” to possess and use a credit card in this day and age. It seems that accepting credit cards is a nod of convenience to all current customers and future customers of Aldi regardless of socioeconomic status. I do wonder how the fees Aldi will need to pay will affect their prices, though.

Mike B
Guest
Mike B
2 years 1 month ago

Moving into southern California they had to do this. They don’t want any barriers to shopping there. Maybe Lidl is a factor too.

Hopefully this will get them a higher average ticket. Some of us who use credit cards for almost all purchases may buy more now. I know I buy far less at cash or debit-only WinCo than I would if they accepted credit.

Same when I come across a cash-only quick independent restaurant from time to time. I have limited cash, I’m not using an ATM, so I have to make a minimal order. It loses you sales.

I’m waiting for WinCo to cave in on this, they haven’t done as well in some of their new territories; their Tempe, AZ store is a ghost town. Any barriers to shopping somewhere are an uphill climb, more so in some markets than others.

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Braintrust
"In reality, it was only going to be a matter of time before Aldi began accepting plastic. How could they have not known credit cards are a way of life and business in the U.S.?"

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