Aldi U.S. plans 900 new stores, likely to pull market share from Wal-Mart, other grocers

by Kim Souza ([email protected]) 5,405 views 

Aldi has moved under the media radar while much attention has been given to Amazon’s challenge to Wal-Mart Stores and other discount retailers. But folks in Bentonville have their eye on Aldi.

Last month German discount grocery chain Aldi announced plans to build 900 new stores expanding its U.S. footprint to 2,500 locations over the next five years. This expansion will cost $3.4 billion and another $1.6 billion is earmarked for 1,300 store remodels by 2020.

Aldi’s news was lost in the shuffle of Lidl’s opening its first 10 stores in the U.S. and the $13.7 billion Amazon bid to acquire Whole Foods.

Aldi is a fierce competitor to mainstream grocers because it offers low prices on fresh produce and dairy and many private label items popular with value shoppers. A wide range of organic and better-for-you product formulations also capitalize on the healthy eating trends among many consumers today.

It’s been nearly three years since Aldi U.S., based in Batavia, Ill., announced a $3 billion plan to expand to 2,000 stores by 2018. The discount grocery chain now has 1,600 stores and it will surpass the 2,000 store count as the retailer continues toward its newest goals.

Aldi CEO Jason Hart said Aldi’s leadership in the discount space and the assortment evolution supported by renovations and new stores have positioned the company to take market share as it’s seen as a less-expensive alternative to traditional grocery. Lidl and Aldi are seen as trend-right, less-expensive alternatives to traditional grocery stores, according to analysts.

“We pioneered a grocery model built around value, convenience, quality and selection and now Aldi is one of America’s favorite and fastest growing retailers,” said Hart. “We’re growing at a time when other retailers are struggling. We are giving our customers what they want, which is more organic produce, antibiotic-free meats and fresh healthier options across the store, all at unmatched prices up to 50% lower than traditional grocery stores.”

Aldi estimates the expansion will allow it to serve 100 million customers every month in the U.S. To put that in perspective, Wal-Mart averages 140 million shoppers a week in its U.S. business, but Aldi’s growing footprint could dampen those numbers.

“Aldi is a formidable competitor to Wal-Mart on a few fronts but is not an all-encompassing threat on the whole. Aldi’s highly-efficient operating model, loyal and well-paid store associates, private label prowess and convenient, easy-to-navigate locations definitely offer a compelling proposition. Shoppers feel smart for discovering Aldi and many have developed loyalty to various Aldi brands and products. Wal-Mart has a distinct advantage as a true one-stop-shop across multiple categories and its growing ability to synergize its digital and physical scale. Wal-Mart’s online marketplace presents another scale-bending advantage that Aldi can’t replicate,” said Carol Spieckerman, CEO of Spieckerman Retail.

Aldi’s much smaller 12,000-square-foot stores are a threat to Wal-Mart and bigger box grocery chains. A complete shopping trip for a full basket can take only 15 minutes from start through checkout.

Compare that to a typical Wal-Mart supercenter 100,000 square feet and mammoth footprint that requires shoppers to walk to the back of the cavernous store for the milk, eggs and other dairy products. Neighborhood Markets are about 40,000 square feet and still shoppers must go to the back of the store for milk and as well as toilet paper.

Wal-Mart has worked to provide a faster checkout process, but there can be long waits at a supercenter depending on the time of day of the shopping trip. Wait times at Neighborhood Markets are less and there are more self-checkout options for customers. Walmart Pay is also designed to help speed up the checkout process, but it is not used by a majority of shoppers.

Walmart U.S. CEO Greg Foran says the supercenter through its large footprint offers customers convenience because it is a one-stop shop, and with online grocery pickup now available in 700 stores customers don’t have to walk the entire store for their grocery order. An easy re-order button also helps shoppers expedite their online grocery order time, another convenience play the retail giant is offering.

One weakness at Aldi is the number of items carried is much less than what traditional grocers offer which means shoppers will likely have to visit other retailers to finish out their grocery list, which works against the convenience play.

“Price is only part of the story and it actually works to both Aldi and Wal Mart’s advantage that so many of Aldi’s products are unique in terms of branding, formulation and even size. It would be quite difficult to conduct true side-by-side comparisons. That’s where convenience, or the perception of convenience, makes all the difference,” Spieckerman told Talk Business & Politics.

Aldi said it expects its prices to be 21% below U.S. competitors and it’s those low prices and quick shopping option that keep customers returning. Aldi has garnered about 8% of the grocery market share in the U.S. but that is expected to increase as the retailer grows its footprint. Wal-Mart has about 22% of the U.S. grocery share.

Wal-Mart does offer Savings Catcher cash back against Aldi on branded products, but not produce, dairy or meats, all of which Aldi is cheaper in price on checks in Northwest Arkansas. Wal-Mart will match produce prices at the checkout against Aldi if the customer asks. That’s not the case for meat. A one-pound chub of 85% lean beef at Aldi is $2.99, and at Wal-Mart that same item costs $4.57. Last week, Aldi promoted an organic, grass-fed ground beef 85% lean for $4.49.

Analysts say Aldi uses its store brands to drive prices as about 90% of the goods it sells are private label. This has worked well for Aldi in Europe. U.S. consumers are more willing to try private label brands in recent years, according to Kantar analyst Mike Paglia. He said value-oriented millennials don’t have the same stigmas about private brands as their parents and grandparents. Paglia expects to see Aldi doing well with millennials looking for the best values in some categories.

Wal-Mart also continues to push for higher quality private label items. Foran said private label must be equal to quality of the brand or better and also provide a value in terms of lower prices. He said Wal-Mart won’t sacrifice price for quality – both have to be there if a private label is going to be successful.

At Wal-Mart’s recent Open Call, Cindi Marsiglio, vice president of Walmart U.S. manufacturing, told prospective suppliers the retailer was looking for private label opportunities across the entire box. A recent Kantar Retail shopper survey found that 64% of respondents said they trusted store brands from big retailers, and 42% said buying them made them feel like smart consumers.

“Aldi knows exactly what it stands for and to its credit, doesn’t step out of that lane in hopes of making incremental gains,” Spieckerman said. “The looming threat is the arrival of Lidl in the U.S. and the combination of Aldi and Lidl as two different-but-strong small format competitors. Both have fine-tuned their models down to every detail, with Lidl in testing stages for site-to-store capabilities in Germany. Wal-Mart will need to stay on its game, with a particular focus on driving innovations within its Neighborhood Market locations.”