How Aldi, a brutally effective grocery chain, beats Walmart at low prices

Running a supermarket in America has never been more difficult.

Profits are harsh. Online shopping and home delivery change the way people buy their food. Dollar stores and pharmacies sell more groceries. The presses are so intense that regional chains such as Southeastern Medicines, the owner of Winn-Dixie and Bi-Lo are filed for bankruptcy. Large corporations constantly control the industry, which had long operated as a scattered network of smaller, local merchants. And even Walmart – the biggest player of all – faces new competition from Amazon, which bought Whole Foods in 2017 for nearly $ 14 billion.

But when Walmart's US CEO Greg Foran mentions words like "hard", "good" and "smart", "When he speaks almost admirably about one of his competitors, he doesn't refer to Amazon. He doesn't point to big chains such as Kroger or Albertsons, dollar stores such as Dollar General or online players such as FreshDirect and Instacart.

In front, Aldi, the free German discount buying chain that grows aggressively in the US and

  Aldi has in recent years expanded its production and organic offers to attract more customers.
In recent years, Aldi has expanded its products and organic offerings to attract more customers.

Initially, new customers may be surprised by the experience of shopping with an Aldi, who expects customers to suffer from a number of minor disadvantages that are not typical of other American food stores. Shoppers need a quarter to rent a shopping cart. Plastic and paper bags are only available for a fee. And at checkout, the cashier throws away shoppers and expects them to pose their own groceries in a separate place outside checkout.

But Aldi has built a cult-like following. When it enters a new city, it is not uncommon for hundreds of people to settle for the grand opening. Allure is everything in rock bottom prices, which is so cheap that Aldi often beats Walmart on his own low-cost game.

"I'm willing to do the extra work because the prices are amazing," said Diane Youngpeter, who runs a fan blog about the merchant called Aldi Nerd and an Aldi Facebook group of 50,000 members. "There are many Aldi nerds out there," she said. "I didn't realize there were so many of us."

On a recent trip to an Aldi in New Jersey, antibiotic-free chicken was 4.29 pounds. At nearby competitors, Trader Joe's "All Natural Chicken" and Whole Foods "365 Organic Fresh Chicken" were $ 4.99 and $ 6.99 a pound, respectively.

Aldi has more than 1800 stores in 35 states and is focused on growing in the Midwest, the Middle Atlantic, Florida and California. It's on track to become America's third largest supermarket chain behind Walmart and Kroger, with 2,500 stores by the end of 2022. The close competitor Lidl, another German food product with a similarly cheap business model, races to grow in the US, too.

During their aggressive growth halt, the two discount chains have forced the rest of the food industry to make major changes to hold on to their customers. Aldi has changed at Walmarts turf – literally. As if throwing a gallop down, Aldi opened a store in Bentonville, Arkansas in October, just a mile from Walmart's headquarters.

"I never underestimate them," said Foran at an industrial conference in March. "I have competed against Aldi for 20 plus years. They are strong and they are good."

But when competitors fight back, can the company hold on to its cost advantage? Can it stick to what is called the Aldi Way?

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Aldi way: How the chain beats Walmart on price

It's no secret how Aldi keeps prices so low: The company strips down the shopping experience in an unapologetic and brutally effective

"They are able to drive out every fraction of the cost without compromising on quality," said Katrijn Gielens, professor of marketing at UNC's Kenan-Flagler Business School.

Aldi is kept private and through A spokesman refused the company to make its managers available for interviews, but Gielens estimates that the operating costs are about half of the regular retailers, and the company also has lower profit margins than its competitors, she said.

From the customer's point of view, the distinctive experience begins. one in the shopping carts that Aldi holds.

Instead of hiring a team of runners to retrieve wagons from the parking lot all day, Aldi expects customers to return the carts to the store after each shopping trip. It forces that behavior by charging customers a quarter deposit as they return when returning their wagons.

This is not a new idea. Several US merchants tried it in the 1980s and 1990s, but left the exercise after it annoyed customers who had come to expect more services in their grocery stores. Aldi, who opened his first American store in Iowa in 1976, is stuck in the model and insists on the deposit system being at the heart of the low-cost strategy. The shop's most lethal fans even celebrate it, heralding when Aldi offers time cards from the "quarter keeper" from time to time. Some fans even knit their own versions. A search on Etsy for "Aldi quarter keeper" shows more than 500 results.

"I never underestimate them. I have competed against Aldi for 20 plus years. They are strong and they are good."

Greg Foran, CEO of Walmart's US business

Quirks does not stop there.

When customers enter stores, they see that they look almost nothing like traditional supermarkets in the United States. With five or six major times, Aldi stores only about 1,400 items – compared to around 40,000 in traditional supermarkets and over 100,000 in Walmart supercents.

  Aldi displays products in their original cardboard slips, instead of stacking them individually, to store workers with timelines.
Aldi shows products in their original carton ships, instead of stacking them individually, to save workers time on the storage shelves.

For timed buyers like Youngpeter, Aldi edits its simple setup and limited selection time. "I'm a busy mom. I don't have time to navigate in a big grocery store with kids asking to get out and go home," she said. "I can get in and out of an Aldi in no time. I don't seep through 50 different kinds of salsa."

And good luck trying to find big name tags. More than 90% of the brands Aldi sells are private labels such as Simply Nature organic products, Millville cereals, Burman's ketchup and specialty bread. (If this sounds like Trader Joe, it's not a coincidence. The two companies share a common story.)

The packaging of these items looks as often as the brand names that customers find to do with a double roof. Aldi's Honey Nut Crispy Oats, for example, come in a box that is almost like shades of orange, yellow and brown like General Mills' Honey Nut Cheerios, and with a similar font as well. Aldi sells its Tandil detergent in an orange plastic can with blue and yellow graphics reminiscent of the tide. Millville Toaster Tarts, an Aldi badge, looks strikingly like Pop-Tarts – but a 12-pack of the Millville version is $ 1.85 while a 12-pack of Pop Tarts costs $ 2.75.

  More than 90% of products Aldi sells are own private labels. In many cases, the packaging resembles well-known brands.
More than 90% of the products Aldi sells are their own private labels. In many cases, the packaging resembles exactly known brands.

"I'm like," these grain flakes are just as good, if not better than those who have a chicken on the box! They are the same exact, "said Allison Robicelli, a food writer in Baltimore who describes himself as an Aldi loyalist.

Although it may not be obvious at first glance, Aldi uses several key design details that maximize cash efficiency as well In many of the products, barcodes are either super-sized or printed on multiple pages to speed up the scanning process.When groceries are raised, there is no place for them to hesitate in. The cashier drops the items directly into a shopping cart below. Customers need to roll their shopping carts behind their own groceries in a separate section on the front page. Since the stores do not offer free bags, customers often shed the empty cardboard box store instead.

"These lines are flying. You are not waiting for people behind. They don't care there, "said Robicelli." When you see that kind of efficiency, it goes to other supermarkets that are very annoying and very boring. "

Aldi has other tactics to keep real estate and labor costs down.The size is a factor.A Walmart supercenter is around 178,000 square meters. About 145,000 square meters, Aldi's small box office stores only a fraction of this room, on average 12,000 square feet.

1,400 VS 40,000

Aldi stocks only about 1,400 items compared to 40,000 in traditional supermarkets.

And unlike other stores where there is one clear division of labor – runs runners, cashier calls customers and clerks – Aldi employees are crossed-trained to perform each function. Their tasks are also streamlined. Aldi shows products in their original carton boxes, instead of stacking them individually, to save the workers' time on the storage shelves. Most stores do not list their telephone numbers publicly because Aldi does not want their workers to spend time answering calls.

Result: A single Aldi can have only three to five employees in the store at any one time, and only 15 to 20 on the entire payroll. The company claims to pay its employees over the industry average, but still saves on total wage costs by having fewer people.

All these cost savings add and transfer to customers. Aldi claims prices are up to 50% cheaper than traditional supermarkets, and independent analysis by Wolfe Research shows that prices are around 15% cheaper than Walmart in markets like Houston and Chicago.

  Aldi invests $ 1.9 billion in rebuilding 1,300 US stores, including extended frozen and refrigerated parts.
Aldi invests $ 1.9 billion in conversion of 1,300 US stores, including extended frozen and refrigerated sections.

"They've driven the prices down, wisely," said Walmart's Front. Last year he noted that when he visited Aldi, a gallon of milk and a dozen eggs each cost 99 cents. The front said he and his team couldn't risk losing on the popular products.

Despite discontinued store experience, Aldi sees higher customer satisfaction surveys and benefits far more from word-to-mouth marketing than Walmart and other supermarkets. It has one of the highest Net Promoter Scores – an important target for how likely customers should recommend the brand to their friends and family – in the grocery industry, according to Bain & Company.

Cheap kombucha on the shelves, BMWs in the parking lots

After Aldi first entered the US, it took two decades for the company to expand to 500 stores.

Now, in its rapid growth phase, Aldi is on its way to opening more than 130 new stores this year alone.

  It's not uncommon to see luxury cars at Aldi parking lots - a detail even a top Walmart executive has noted.
It's not uncommon to see luxury cars at Aldi parking lots – a detail even a top Walmart executive has noted.

The big recession and the slow recovery contributed to the discount buyer gaining popularity among budget conscious customers in the United States. Aldi's latest expansion is based on that momentum. "For the last 10 years, they have really blossomed in the United States," said Mikey Vu, partner at Bain. "There is instability in the economy. People are concerned. They pay much closer attention to the pennies at their malls than before.

85% 85% of American customers say they are open to trying out store brands.

Source: Bain & Company survey

Of course, Aldi is not the only discount store that grows in retail. TJMaxx, Ross and Burlington open all new doors, and their cheap prices have put pressure on the stores. Ollie's Bargain Outlet and Five Below Dollar General have opened thousands of stores in recent years.

For Aldi, part of their success lies in appealing not only to low or medium-sized buyers, but also to richer. Aldi's core product tends to make more money and have a slightly higher education level than ove rall grocery shopper, according to Bain. On a recent trip to an Aldi in Hackensack, New Jersey, luxury cars, including a $ 50,000 Jaguar and a $ 80,000 Tesla Model X, drove the small parking lot along with Toyotas, Ford and Hondas. Walmart's Front has wondered that when he visited an Aldi in Australia, BMWs and Mercedes were also in the parking lot there.

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"People love to save money on staples. And that would apply to every person in this room," he told an audience of investors and retailers at a Four Seasons Hotel in Boston. "You feel pretty good if you can save $ 10 on the grocery bill because it makes you feel better when you go out for dinner on Saturday night and spend $ 200 at a restaurant."

In those later Over the years, Aldi has increased its efforts to appeal to high-income customers by offering more fresh organic products as well as imported goods such as Irish cheese, brioche from France and pasta from Italy.The stores now offer private label versions of kombucha, cold-pressed juice, a variety of gluten-free products and peanut butter powder.

"It used to be e the white label-off item that you were a little embarrassed to buy, but it was cheap. Now people don't care more about the big brands they used to. It plays right into the Aldi playbook. "

Mikey Vu, partner at Bain & Company

Aldi invests $ 1.9 billion to rebuild 1,300 natural-light stores and up-to-date products, diary and meat products. Since 2017, the new stores have become more populous, upper middle class suburbs, according to Bain, Aldi new stores are in zip code with an average income of $ 658 household income – about $ 4,500 above the national average. "They are obviously trying to go for a more upmarket customer," said Vu.

By its plan to attract a wider range of American customers, Aldi offers several special products at low prices, including its own peanut butter powder and kombucha.

Part of Aldi's appeal is not in a lower grocery store alone, but in the way Aldi strikes its discounts, UNCs Gielens said. Bargain hunters over the income ladder eventually feel like they are knocking out other, more expensive supermarkets and big brands when they see their purchase receipts. Aldi wants to "spread the message that traditional merchants and brands simply scratch consumers," she said.

Aldi hammers home the message on their signs in the stores. "The same is always better when it costs less." "New offers every week. Find them here. Brag like crazy." Aldi encourages customers to groom their grocery stores: "Swap and save."

The Americans are listening. Last year, 19% of customers who switched dealers began buying from Aldi, according to a Morgan Stanley survey. There were others just for Walmart.

] Aldi relies on brands from private brands, and also helps to win Millennials, which are increasingly agnostic, and are instead drawn to lower prices and convenience, according to Bain data. Private label products have undergone a renaissance in recent years, and are now growing faster in supermarkets than the top 20 national brands, Nielsen's data show.

Stores like Trader Joe and Costco have built empires selling their own brands. Costco's Kirkland signature lasted nearly $ 40 billion last year, an increase of 11% from 2017. Kirkland's sales last year knocked out Campbell Soup, Kellogg and Hershey. Dealers' brands are challenging these heavyweights for consumer goods, which spend billions marketing their products.

"It used to be the white label rejection items that you were a little embarrassed to buy, but it was cheap," said Vu of store brands. Now Bain shows customer surveys that 85% of US customers say they are open to trying private label products. "People don't care more about the big brands they used to," he said. "It plays right into the Aldi playbook."

  The Aldi Finds hall, which includes seasonal and quirky elements, is popular with regular shoppers.
The "Aldi Finds" walk, which includes seasonal and quirky items, is popular with regular shoppers.

Everything began with a frugal family

Aldi is obsessed with frugality, comes from his former owners: brothers Theo and Karl Albrecht, who took over the family trade in Essen, Germany after World War II. Out of necessity, early stores first set up a handful of things, but the brothers planned to expand the selection when the business grew. Over time, however, they realized that they could succeed in selling a narrow range of basics. "If we didn't want to offer our customers a wide range of products, then at least we had to offer them another advantage. From that point on, we sold our products for decisively less," Karl said in 1953, according to a book by former Aldi Director Dieter Brandes

Theo was so insistent on keeping the costs low that he was known for taking notes on both sides of a piece of paper and turning off the lights in the shops during the day, the brothers purposefully kept the storage capacity of a spartan minimum. "There are no decorations in the shops," said Karl in 1953. "All our promotional measures are set at discounted prices."

In 1961, the brothers split the business into two, allegedly over dispute over whether to sell cigarettes in the stores. Aldi Süd and Aldi Nord remain separate companies today, dividing the two in Germany, known as "Aldi Equator."

  Aldi shops are less than traditional su permarkets and have wide times.
Aldi stores are smaller than traditional supermarkets and have wide times.

Aldi Süd is the company that is expanding rapidly now in the United States as well as throughout Europe. Aldi Nord also has an American presence through Trader Joe's, which it acquired in 1979 – but its growth is less ambitious than its cousin company. Trader Joe's had 484 stores in the US at the end of 2018.

The Albrecht brothers both went away during the last decade. Now, the two chains operate in 18 countries, which gives an estimated USD 98 billion in combined sales last year, according to Deloitte. That revenue makes Aldi companies not only one of the biggest merchants, but also the eighth largest retailer in the world. The two Aldis combinations are now larger than CVS or Tesco, and just a few steps down from Amazon, Home Depot and Walgreens Boots Alliance.

Competitors Respond

Aldi Süd's rapid growth in the US mimics its broader international expansion in places such as Ireland, Hungary, Switzerland, Australia and even China. The company has also grown rapidly in the UK, where many local merchants ignored Aldi until it was too late.

But as Aldi scales in the United States, there are real concerns about whether it can maintain its low advantage. American competitors have learned to react faster when Aldi lowers prices, which can interfere with its influence.

  Customers bag their own groceries at Aldi. Once again, the store saves on labor costs.
Customers bag their own groceries at Aldi. There is another way the store saves on labor costs.

"They've taken Aldi as a much more credible threat," Vu said.

Walmart has reduced the price gap with Aldi since July 2017, according to a survey conducted by Wolfe Research analyst Scott Mushkin, which recorded prices of 40 best-selling items on a Houston Walmart and an Aldi across the street. Walmart also reduced this gap with Aldi in the Chicago stores, he found.

To counter Walmart and other buyers, Aldi has begun to destroy its bareben approach. In September, it launched a national advertising campaign, including television advertising, to drive the message that it sells high quality products. Aldi also commits to cutting plastic and transition to 100% sustainable packaging by 2025 – not a cheap effort. Aldi increased its food by 40% by 2018 by expanding its selection product and adding new vegan and vegetarian dishes. And it began to offer several alternative milks, including soy and almonds.

These changes are expensive and can be eaten out in Aldi's margins. "The model works only if they are the cheapest," said Simon Johnstone, Kantar analyst.

"These lines fly. You are not waiting for people behind. They do not care out there," said Allison Robicelli, a frequent Aldi shopper.

Customers also say they are beginning to notice a few brand names on the shelves, such as Coca-Cola, Tide and Old Spice deodorants. "I honestly don't like it when they bring in national brands. I like the Aldi Holiness," Robicelli said, adding that she worried that the prices could go up.

At the same time, Aldi faces increased competition from his closest rival Lidl. Lidl cut the band at its first US stores in Virginia, North Carolina and South Carolina in 2017 and recently opened three stores outside of Atlanta. It also grows in upper social economy. Lidl now operates more than 60 stores in the country.

Aldi closely follows Lidl's growth. In a federal lawsuit filed in March, Aldi alleged that two former US employees illegally shared confidential sales information, future businesses, and property strategies with Lidl.

A Lidl spokesman said the company "believes in fair competition and the allegations in the lawsuit are not in line with our business practices and values. We look at the claims we take seriously."

  Other US merchants have tried deposits Deposit, but left the exercise after it annoyed the consumers. Aldi has been stuck in the model and insists on the core of the store's reasonable strategy.
Other American merchants have tried deposits on deposits, but left the exercise after it annoyed shoppers. Aldi is stuck with the model and insists on the core of the store's cheap strategy.

Aldi's Lasting Impact: Lower Prices and Fewer Merchants

Although big competitors can reduce prices to compete with Aldi, regional supermarkets are being pressured by the grocery war.

Tops Markets and Southeastern Grocers, the owner of Winn-Dixie and Bi-Lo, have recently filed for bankruptcy. Save-A-Lot, the second largest discount grocery chain in the United States by Aldi, is deep in debt and cannot afford to continue lowering prices without sacrificing profits.

"Aldi and Lidl will be a major disruptive force in the United States, threatening less regional supermarket chains and forcing larger players to cut prices," said Fitch Solutions in a March research report.

Several bankruptcies are on the way for US food stores, "The US has a much larger tranche of second and third managers grocery stores," said Vu from Bain. "They are the ones who die of."

When smaller buyers disappear, there is enough room for both Walmart and Aldi to pick up the pieces, adds Vu. Meanwhile, Aldi will continue to lead the price war and push the big players too.

"They are incredibly successful," he said. "We have not seen a disturbance in the grocery store such as for a long time time. "

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