Is there any stopping Aldi as it makes SoCal move?

By George Anderson

FEBRUARY 25, 2016

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Aldi has grown to be one of the nation's largest grocery chains, attracting legions of customers to its small box stores with low prices on its limited selection of predominantly private label foods. Now, the chain thatSupermarket News ranked number 22 on its list of the top 75 grocery retailers and wholesalers in the U.S. and Canada, is about to become even bigger as it opens stores in the Southern California market for the first time.

On March 24, Aldi will open the first eight of 45 planned locations in Southern California for 2016 with stores in Beaumont, Fontana, La Quinta, Lake Elsinore, Moreno Valley, Palm Springs, San Bernardino and Yucaipa.

"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."

Photo: aldi.com

The combination of factors Mr. Nesbit described has helped Aldi become not only one of America's biggest, but favorite grocers. In a 2015 consumer poll by Market Force Information, Aldi ranked third behind Trader Joe's and Publix as America's favorite supermarket. Consumer Reports put Aldi as number 14 on its list of the best supermarkets in the U.S.

Jack Brown, executive chairman of Stater Bros., told Supermarket News that he doesn't expect Aldi opening to have a significant impact on his company's business. Mr. Brown said Stater Bros. has succeeded for 80 years with larger stores, broader product selection and service. He doesn't expect to change that with a new competitor in the market.

Aldi and Lidl are two European big head retailers (limited selection) who have done very well there. Aldi in the US is not the same chain, but I think the ownership is family related.

Notice how Americans act as if a limited selection (big head) store with good quality just isn't right. Never mind that Stew Leonards is doing something like $100 million PER STORE with a couple thousand SKUs and Costco is now the #2 retailer GLOBALLY with 4000 SKUs of high quality at low cost.

It is like people really think that 30,000 - 100,000 SKUs is the way to go, not recognizing that those voluminous "rat maze" warehouses were not built to meet shopper demand, but to take advantage of incredible supplier demand (and funding,) for more in-store "warehouse" space.

None of this means that the long tail, the tens of thousands of items that sell a few copies per month or year, do not provide an ATTRACTIVE force for shoppers - "They have EVERYTHING there at that store!" Walmart paid seriously for "The Misguided Bobbing of the Long Tail."

But the overwhelming value of the store remains REACH — how close can you get to the shopper? There is ZERO sales if you do not reach the shopper, and you can REACH shoppers better with smaller stores near them, than with inefficient giants that are expected to attract the shopper to them. (Of course high traffic locations help.)

But there is a new game in town: Amazon, the "Everything Store." Their strategy is to take the merchandise TO the shopper. The big trend overall is closing of large stores and hopes to repurpose the massive inefficient real estate ... to WHAT?

It isn't that we are overstored, but that our stores are pathetic examples of what they should be: communal pantries — neighborhood markets, as it were. Double or triple the number of stores sounds about right. But you can't work that into the dying mindset of an industry built on merchant warehouseman principles, over the past 100 years, and REFUSES to give up.

Fine, bankruptcy driven by new players will get the job done — it's called creative destruction. And Aldi is the "new" player in town; and Amazon is the sheriff of this town. Not that none of the players haven't been around for quite some time — including Aldi. I'm pretty sure they were active in Chicago back in the '70s. Just get your head above the turmoil of modern retailing, and pay attention to who is winning this new game of "get closer" to the customer.