Aldi seeks grocery marketshare with $3 billion expansion

by The City Wire staff ( 31 views 

Aldi recently announced a five-year, $3 billion, strategic plan to open 650 new stores across the nation. The grocery retailer also said it will build a regional headquarters and distribution center in Moreno Valley, Calif., as part of its plan to stretch the Aldi footprint from coast to coast.

The grocer discounter’s plan is to open 130 new Aldi stores over the next five years, ramping up from the 80 or so openings averaged in recent years in an attempt to gain share in an already crowded grocery market amid Wal-Mart’s aggressive Neighborhood Market build out.

"We're ramping up our expansion plans to meet growing demand for Aldi from customers across the country," said Jason Hart, president. "Recently, we successfully entered new markets such as Houston, and expanded our presence in competitive markets like South Florida and New York City.  At Aldi, we believe that great quality can be affordable, and we are eager to bring the Aldi difference to new markets like Southern California."

When the expansion is complete, Aldi will have stores coast-to-coast and anticipates serving more than 45 million customers per month. While that is a fraction of the 200 million shoppers who visit Wal-Mart each week, Aldi’s low prices, small format and quality guarantee resonate well with bargain seekers like Tommy and Kelly Davis of Forney, Texas, a bedroom community located southeast of Dallas.

The couple shops Aldi each week for their groceries, choosing the values and freshness of Aldi products over discounter Wal-Mart and regional full service grocer Brookshires.
The couple said the values are great, particularly in fresh produce and dairy. They also love the treasure hunt possibility with the deep closeout items that randomly show up in the store as well.

Aldi said its growth is accelerating because of its unique business model that lets smart shoppers save up to 50% on more than 1,300 of the most commonly purchased grocery items, including nearly 70 varieties of fresh fruits and vegetables, without the hassle of clipping coupons or buying in bulk.

“I think Aldi will be very successful with this expansion, although I’m a little surprised by the aggressive pace of store openings planned.I believe they’ll be successful because they really have no direct competitors in their niche,” said Jason Long, a retail analyst and CEO of Shift Marketing Group.

He said Dollar General and Family Dollar are adding food, and are competitive on price, but Aldi’s has a broader assortment of items.

“Another advantage to Aldi is their small store size, as Boomers continue to age they’ll value taking fewer steps inside an Aldi’s or Dollar Stores. It all adds up to more pressure on Wal-Mart to keep the footsteps they have and to prevent consumers from fleeing to Aldi, Dollar Stores, etc.,” Long added.

A broad market survey by Market Force Information for the past three years has shown Aldi as the consumers’ choice for the affordable price leader in the U.S. and Canada. An annual report by Kantar Retail released in October found Aldi trailed Dollar General, Wal-Mart and Family Dollar in their opening price basket study, which looked at the lowest price point available in 21 categories across the entire grocery segment, including health and beauty aids.

However, Kantar found that Aldi recorded the lowest edible grocery basket across the retailers surveyed. The edible food items totaled $11.40 at Aldi, $13.20 at Dollar General and $14.18 at Wal-Mart.

Driving its lead position, 90% of edible grocery items in Aldi’s basket were private label and priced under $2. The edible grocery sub-basket included 10 staple items: cereal, dry spaghetti, canned tuna, bread, half gallon of milk, peanut butter, canned vegetable, ketchup, pasta sauce and eggs.

Since opening its first store in 1976, Aldi has achieved steady growth entirely through organic expansion to nearly 1,300 stores across 32 states. Supermarket News ranks Aldi as the 25th largest grocer in the nation with more 25 million customers each month.

"When we open a new store, word of mouth about the amazing quality and freshness of the products available at Aldi spreads quickly from loyal shoppers to friends and neighbors. While new customers are sometimes surprised that Aldi  doesn't look or feel like other grocery stores, once they learn how our efficiencies directly impact their savings at the register, they embrace the Aldi way of grocery shopping," said Hart.

Aldi generates savings for its customers through a low-overhead, focused approach that includes volume purchasing of 1,300 of the most common grocery items in the most popular sizes, which it sells at sizable discounts to other retailers.

Private label comprises more than 90% of the grocery products at Aldi, which is backed by a satisfaction guarantee that includes a replacement product and a full refund.

"We've updated our new store design to be brighter and more welcoming than ever before," said Hart. "And we continue to increase our healthy food options, including fresh produce, meats, dairy and baked goods. Our Fit & Active line offers a number of foods that have less fat and sodium, and fewer calories, and we are preparing to introduce our new SimplyNature line of natural and organic foods.”

Long said as more consumers are slowly learning that Aldi is owned by the same company as Trader Joe’s which gives Aldi a little more cachet than in the past.

“The model of deeply discounted groceries and heavy private label is a model that could have been a winner for Wal-Mart. It could have co-existed nicely with Wal-Mart’s current grocery strategy which is still largely a branded house,” Long said.