Aldi Tries High-End Food and Discounts, Too

The bare-bones retailer is adding higher-end foods to woo shoppers

by Leslie Patton

 Reprints

August 6, 2015 — 2:38 PM EDT

An Aldi grocery store in Katy, Texas, on April 8, 2013.

 

Share on FacebookShare on Twitter

Aldi became one of the world’s biggest food retailers using a simple formula of no-frills stores offering a small assortment of products at rock-bottom prices. After decades of expansion in Europe, it followed the same strategy in the U.S., where it gets about $8 billion in annual sales and is growing from 15 percent to 20 percent a year, estimates Jim Hertel, managing partner at food-retail consultant Willard Bishop. Now the low-end discounter is working to also make itself more attractive to a different consumer: the type that shops at Trader Joe’s.

Both supermarket chains are controlled by different factions of Germany’s billionaire Albrecht clan, but there’s more than just a family rivalry at play. Aldi U.S. Chief Executive Officer Jason Hart has seen American shoppers become more concerned about the content and quality of the foods they eat. So his chain recently added organic quinoa and coconut oil, chia seeds, and grass-fed beef. It’s also testing cage-free eggs and sriracha sauce to pull Americans from not only traditional supermarkets, but also specialty chains. Aldi’s own SimplyNature all-natural and organic line has become its fastest-growing brand. Says Hart: “This isn’t your grandmother’s Aldi. … We’re attracting more consumers.”

The grocer, with 1,400 U.S. locations, is set to compete fork-to-fork against established West Coast foodie favorites such as Trader Joe’s and Sprouts Farmers Market. Next year, Aldi will enter California, and it plans to reach 2,000 locations nationwide by the end of 2018.

Aldi’s reputation as a low-end retailer has changed since the recession, says Hertel. “People got forced into it and realized that it was good quality food and great value,” he says. “The perception started to change.”
The secretive company was founded more than a century ago when Anna Albrecht opened a small store in Essen, Germany. In 1948 her sons, Karl and Theo, took over and expanded to 30 locations in seven years. The name was shortened from Albrecht Discount to Aldi in 1962, the year the Albrecht brothers split the chain into separate companies—Aldi Süd and Aldi Nord—following a feud over whether to sell cigarettes.

Closely held Trader Joe’s is owned by TACT Holding of Monrovia, Calif., which is held in a trust by the Albrecht family branch that owns Aldi Nord. Aldi Süd oversees Aldi’s U.S. locations and those in the U.K. and Australia. Globally, there are about 9,950 Aldi stores.

Aldi made its U.S. debut in 1976 in southeastern Iowa with just 500 items (it has about 1,300 core ones now). In 1998 it had 500 stores in the U.S. and a decade later expanded beyond the Midwest to Florida and Connecticut. Hart, who took over as CEO in April, plans to have 45 stores in Southern California by the end of 2016.

Americans, who spent about $33 billion on organic goods last year, according to the Nutrition Business Journal, increasingly expect to find them at both traditional supermarkets and discounters such as Aldi. The store plans to give them such goods but at the extreme discounts it’s known for. In Chicago, it sells a regular can of tomato sauce for 25¢, while bananas are 38¢ a pound. Hart says Aldi’s prices are as much as 40 percent below that of traditional grocery stores and 25 percent less than big-box discounters such as Wal-Mart Stores.

A July grocery price survey by Bloomberg Intelligence found Aldi to be cheaper than other discounters including Wal-Mart and SuperValu’s Save-A-Lot chain. A basket of 78 private-label items, including cereal and sour cream, was $121.59 at Aldi, compared with $149.58 at Wal-Mart and $133.66 at Save-A-Lot.

The chain, which Hart says primarily targets 25- to 45-year-old moms plus anyone looking for a deal, keeps its costs low. Aldi stores are small, averaging just 10,000 square feet of retail space—about a third the size of a Walmart Neighborhood Market small-format grocery. Multiple and large barcodes are emblazoned across most items at Aldi, making checkout faster for cashiers. As few as four employees can run a store, and customers bag their own groceries—with the store charging from 4¢ each for a paper bag to $1.99 for a reusable eco sack if they don’t bring their own.

Although Aldi is based in Germany, it’s seeing most of its expansion in other areas as consumers worldwide look for low prices in smaller, easy-to-shop stores. Its “growth really comes from the U.S. and also from the U.K. and Australia,” says Denise Klug, an analyst at Planet Retail in Frankfurt. “In European markets and in some industrialized nations, big boxes in general are losing their importance.”

Discount grocery competition is about to increase in the U.S. as Germany’s Schwarz Group moves toward the American debut of its bare-bones Lidl chain before the end of 2018. Lidl, which copied Aldi’s limited-assortment/low-price format in the 1960s and is expanding quickly now, is Aldi’s biggest competitor globally, Klug says. Lidl’s been more willing than Aldi to try new things, she says, and may be able to lure shoppers with fresh fish, upscale wine, and in-store bakeries. “It will be very adventurous for them to go into the U.S.,” Klug says. “This might also be the reason why Aldi is really accelerating their expansion.”

The bottom line: Discount supermarket Aldi, which logs an estimated $8 billion annually in U.S. sales, will add 600 stores by 2019.