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ALDI’s Next Generation

January 4, 2013
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Chances are, when brothers Karl and Theo Albrecht began their fledgling retail grocery business in postwar 1940s Germany, taking over their mother’s small grocery store that had been started by the family in 1913, they could have barely fathomed the long-term, far-reaching impacts of their efforts. The fraternal duo sowed a seed in the form of a single store that strove to offer the lowest discount prices possible without an appreciable cut in quality. By the early 1960s, the fledgling chain was known as Albrecht Discount, or “ALDI” for short. The concept soon spread throughout their homeland and abroad, rapidly reaping significant rewards and ranking the notoriously secretive Albrechts among the richest families in Germany—even the world—and owners of a thriving international supermarket powerhouse (the late Theo Albrecht, who passed away in July 2010, also went on to bankroll Joe Coulombe’s concept, Trader Joe’s—another hot ticket in today’s retail grocery game; watch for a profile in the March 2013 issue).

The Albrecht brothers are largely responsible for democratizing retail grocery, finding exceptional value in their sensible, cost-competitive concept that traditionally eschewed advertising, minimized store displays and limited available perishables, along with other cost-shaving devices (paying a quarter for use of a shopping cart and receiving a refund upon return, no offered disposable grocery bags, not accepting credit cards, etc.). Stores carried what corporate buyers deemed the clear-cut household essentials, keeping stock numbers much lower than traditional grocery stores—in the ballpark of 1,400 different regularly stocked products these days per store compared to the tens of thousands at traditional chain supermarkets. ALDI also capitalizes on its large international footprint to leverage its buying power—a major factor in its ability to maintain cost-competitive price points. ALDI’s legendary supplier standards are beyond tight. The bottom line: the highest possible quality at the lowest possible price point.

By the 1960s, their operation had expanded to over 300 units in Germany, divided into two independent corporate units: ALDI Nord and ALDI Süd, at first serving just the northern and southern regions of the country, and eventually bringing Australia, the United States and various countries around Europe into the fold. International expansion began in the 1970s—the United States saw its first ALDI in 1976—and the chain now operates over 9,000 units globally, with more than 1,200 in 32 U.S. states, primarily concentrated in the Midwest and East. The chain is thriving in the United Kingdom and expanding rapidly in the United States.

And although ALDI traditionally focused on shelf-stable foods offered in no-frills “displays” of stacked pallets still retaining remnants of plastic overwrap, or on generic wire racks, today’s stores carry an extensive range of perishable products, including meat and poultry, in-store bakeries, fresh produce, deli items, frozen foods, and dairy—some of which is decidedly high-end. It’s this aspect of ALDI—the rise of its perishables sections and diversification of its store brands into premium territory—that will continue to help propel the ALDI legend forward into the next generation of retail grocery.

Store Brands Reign Supreme

Private label and store brand activity has gained significant momentum over the last few years, and the state of the new U.S. economy’s general austerity will help ensure that this trend continues. Rabobank Group, Utrecht, the Netherlands, has predicted that store brands will approach 25% to 30% market penetration in the United States over the next 10 years. Consumers are enacting a mass meeting in the middle of our fiscal road, with lower-income demographics trading up for periodic affordable indulgences and higher-tier Americans trading down in order to help maintain their accustomed quality of life. This flight to value fosters opportunity for discount retailers like ALDI—a category of grocery that’s currently expanding at an aggressive rate—that can maintain high quality perceptions at value price propositions.

We’ve hit a point of unprecedented sophistication in terms of private-label foods, and ALDI is clearly ahead of the curve. ALDI has long taken the store-brand concept to its quintessential peak, with the majority of the store’s offerings appearing under one of its myriad brands—often comprising up to 95% of available products. ALDI store-brand perishable products range from basic and everyday to health-focused and borderline gourmet. National brands do find their way into the lineup at ALDI from time to time—and with increased frequency in some markets these days.

Casting favorable light on premium-positioned store-brand perishables through targeted promotions and advantageous displays can drive sales. And focusing on middle-of-the-road price points avoids scenarios that steer consumers too far into extreme value directions. In the value spectrum, it’s the middle ground that proves most profitable. A prime example of this strategy is ALDI’s Priano house-brand frozen meal solutions, such as its Lasagna Italiano—a convenient, freezer-to-oven, value-priced dinnertime solution for a family of six that forms a plausible tradeoff for a restaurant meal.

The Grandessa Signature line was ALDI’s foray into gourmet-level store-brand goods. Notable

perishable products from the line include a selection of refrigerated fresh salsas (Artichoke Garlic, Santa Fe Southwestern, Sweet Onion, Jalapeño) and hummus (Original Tahini, Garlic Lover’s, Roasted Red Pepper), center-cut bacon, and several types of frozen fruit bars, including exotic flavors like Piña Colada and Caribbean, the latter featuring a mix of pineapple, mango, passion fruit and coconut.

Health and wellness are top-of-mind for consumers these days, suitably catered to by ALDI’s store-brand Fit & Active line, found in several perishable categories, including refrigerated, frozen, deli and dairy sections. The health-conscious line prominently displays the product’s “Fit Facts” (i.e., total calories, fat, sodium and sugar) on the front of the label—a forward-thinking move in a time when label reading continues to factor into consumer purchase decisions, while the smart label design helps attract first-time store-brand buyers. Fit & Active dairy selections include two types of RTD refrigerated fruit smoothies, various flavors of yogurt, string cheese and Neufchâtel cheese. Frozen novelties from the line include fudge ice cream bars and ice cream sandwiches. Other Fit & Active perishable highlights include microwavable frozen meals (Chicken Florentine Alfredo, Five Cheese Lasagna, Shrimp With Pasta & Vegetables) and sandwiches (Turkey & Broccoli Stuffed, Southwest Veggie Stuffed, Pepperoni Pizza Lean Stuffed), and deli meats, ground beef, and turkey bacon.

Moving Into Premium

Although ALDI is widely known as a discount grocer—named the top supermarket for best prices two years in a row by Market Force Information, Louisville, Colo.—ALDI recently made headlines with its announcement that it would begin selling premium wines as part of what it is calling “The Exquisite Collection.” Nielsen, New York, reports that, as of April 2012, the number of consumers from the wealthiest social classes in the United Kingdom shopping at ALDI had grown by 18%.

In response to this development, Tony Baines, UK managing director of buying, ALDI, said: “It is no secret that our shopper demographic is changing. In Britain, we have experienced a fundamental shift in our perception of value in the past five years, and with that shift we have seen a dramatic increase in the number of more affluent shoppers who are choosing ALDI for the quality and value it delivers.” A similar migration of relative affluence to value is underway in the United States.

ALDI was also named the 2012 Supermarket of the Year by Which?, a UK magazine focusing on consumer issues. In the United Kingdom, ALDI has been rapidly gaining market share. Kantar Worldpanel, London, notes that, for the 12 weeks ending 10th June 2012, ALDI had 2.8% of market share, up 24.7% from the previous year; in Ireland, market-share growth rates were as high as 30% by the end of September.

New ALDI stores—in Germany and elsewhere— have an attractive, modern design that maximizes use of natural light. In-store bakeries are commonplace in new units, offering goods like freshly baked rolls, croissants and multigrain bread. On-trend organic perishables, like yogurt, are also hitting the refrigerated section. ResearchFarm, London, reports that ALDI has plans to invest €280 million to renovate roughly 2,500 units in Germany through 2014.

A spate of new U.S. units have gone up in recent months with the updated, “new look” store model, and established locations are seeing ongoing redesigns to incorporate flattering natural light, raised ceilings, wider aisles to accommodate more prominent displays, and an increased range of fresh products. Newly penetrated markets include Texas and, just this year, New York City. ALDI opened 75 stores in the United States in 2011; by the end of 2012, the chain projects that it will have opened over 80 more U.S. stores.

The overall net effect of this repositioning is to cultivate a more-pleasurable shopping experience to better compete with chains positioned to attract the increasing number of consumers, including affluent demographics, who continue to seek organic, upscale, artisan and gourmet offerings, with a clear emphasis on fresh, perishable foods—but at the best possible price.

 

KEY POINTS
  • Roughly 95% of the products typically found in ALDI units are store brands.
  • Perishable options at ALDI are increasing, including in-store bakeries.
  • Every product is backed by a “Double Guarantee” policy that will replace the product and refund purchase price if the customer is not satisfied.

 

ALDI At A Glance

Company Names:

            >   ALDI Nord, Aldi Süd

Founded:

            >   1913

Headquarters:

            >    Essen, Germany (Aldi                         Nord), Mülheim an der                       Ruhr, Germany (Aldi                           Süd), Batavia, Ill. (North                     America)

Stores:

            >    9,000+ Globally,

                  1,200+ United States

Locations:

            >    Concentrated in the                             Midwest and East with                       stores in nearly every                         state east of the                                   Mississippi, along with                       units in Texas,                                     Oklahoma, Kansas,                           Nebraska, Missouri,                           Minnesota, and Iowa

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