How Grocery Giant Aldi Will Conquer America

How Grocery Giant Aldi Will Conquer America

Bare walls, dim lights and concrete floors.

Almost no selection, smallish and as Spartan as an East German pharmacy.

This is the future of grocery shopping in America if retail giant Aldi has their way.

The secretive German company already operates 1,700 of stores in the country, and they have 10,000 in 17 other countries.

But they’re thinking bigger.

This summer, Aldi turned the page in their book on slow and steady growth and said they’re going to grow their American presence to nearly 2,500 stores in the next five years. That would make them the third largest retailer in the country, behind WalMart and Kroger.

That commitment – $3.4 billion – is on top of another $1.6 billion in renovating their existing stores – many of which have been around since the 1970s, The Wall Street Journal reports.

This amidst a flurry of change in the American grocery market. Google has just inked a partnership with WalMart for retail shopping and Amazon purchased Whole Foods.

Aldi’s strategy is simple, spokesman Florian Schilbeck said.

It offers a deliberately pared-down selection, sometimes a tiny fraction of the number of items sold by rivals, which helps Aldi cut costs to levels U.S. grocers can only dream of. Among other benefits, fewer items means faster turnover, smaller stores, less rent, lower energy costs and fewer staff to stock the shelves. That parsimony enabled Aldi to establish itself in Europe and then launch into the U.S.

Aldi got its start with a single store in the 1930s, run by the Albrecht family. After World War II, they began their expansion as Germany expanded in the 1950s and 1960s.

In his only known public remarks on Aldi’s business model, Karl Albrecht said in a 1952 speech that the brothers had once toyed with the idea of following the supermarket trend.

In the end, they decided to keep their limited selection after realizing it gave them an edge: “We had much lower expenses,” Mr. Albrecht said.

By keeping costs low, the Spartan assortment allowed the founders to sell their inventory for less and turn it over at lightning speed, boosting profit margins, according to former executives.

“Speed wins, speed kills,” said Craig Johnson, president of the Connecticut-based retail consultancy Customer Growth Partners.

The company is notoriously secretive. What we know is that they are actually two groups “Aldi North” and “Aldi South” to avoid being too big to require German financial disclosure

Each store typically offers a tiny number of items compared to a WalMart. Aldi may have 1,500 products to choose from while WalMart may have 150,000.

On a basket of 30 typical household items, Aldi’s prices are on average almost 17% lower than Wal-Mart’s, according to research conducted by Mr. Johnson of Customer Growth Partners.

“It’s a system of 1,000 details all made against the backdrop of costs,” said Dieter Brandes, who sat on Aldi Nord’s board of directors with Theo Albrecht until 1985. “Nobody needs 50 different types of toilet paper,” he said.

With its limited assortment, Aldi’s biggest problem, according to Eberhard Fedtke, who managed Aldi Nord stores in the flagship region in Essen in the 1970s, was “where to get enough stock, and where to put all the cash we were making.”

Aldi has an interesting motto: “Poor people need us and rich people love us.” They gambling that their pare-down shopping experience is going to appeal to American tastes – smaller, more nimble stores.

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