The Supply Side: Aldi pushes to grow market share in southeast U.S.

Despite tough competition from Walmart and other regional players like Publix, Aldi USA is making a big bet to try and take market share in the southeastern United States.

The Batavia, Ill.-based discounter recently announced the acquisition of 397 stores from Winn-Dixie and Southeastern Grocers in five southeastern states. Neither party disclosed the terms of the deal, which should close in early 2024. Southeastern Grocers is the parent of Winn-Dixie and Harveys.

Scott Benedict, CEO of omnichannel retail consultancy Benedict Enterprises in Rogers, said the acquisition would be interesting to watch, given the significant differences in the formats and business models of Aldi and Winn-Dixie.

“We still don’t know Aldi’s plans with these locations,” he said. “Will Aldi convert the stores to its discount format over time and perhaps sell off some locations for cash or try to run two very different models? The second option doesn’t seem likely given the already tough competition from Walmart, Kroger and Publix.”

Aldi said the acquisition supports its long-term U.S. growth strategy, and the discounter has already added stores to this fast-growing region. Aldi will operate 2,400 stores at the end of this year, which includes 120 stores opening in 2023. With the new acquisition of 397 units, Aldi will grow its store count to about 2,800 next year. Aldi increased its store count by 15% between 2019 and 2022, and the new deal will expand Aldi’s square footage by 48%. In Florida, Aldi’s store count would more than double to 510, accounting for 19% of all grocery stores in the state, second to Publix with 32%. That would rank Walmart third in total store count across the populous state.

Aldi USA ranked 24th in the U.S. with $18.2 billion in revenues in fiscal 2022, and Winn-Dixie and Harveys combined rank was 39th with $9.6 billion in revenues in fiscal 2022, according to Progressive Grocer. That is a fraction of Walmart’s total grocery sales in excess of $272 billion in 2022.

Retail analyst Walter Loeb said the deal makes sense for Aldi and Winn-Dixie/Southeastern Grocers. Traditional grocers have struggled in recent years against Publix, the dominant grocery chain in Florida and surrounding states, which has been lowering its prices. He said discounters like Walmart and Aldi have been taking share away from traditional grocers amid sustained inflation. Whether the stores will run under the Aldi banner or Winn-Dixie, the word on the street is food prices are coming down, Loeb added.

“Like Aldi, Winn-Dixie and Harveys Supermarkets have long histories and many loyal customers in the Southeast, and we look forward to serving them in the years to come. The time was right to build our growth momentum and help residents in the Southeast save on their grocery bills,” said Aldi USA CEO Jason Hart.

Walmart continues to report a growing market share in grocery because of its focus on lowering prices and expanding other revenue streams like advertising and health and wellness. However, the Ad Age-Harris Poll conducted during the fourth quarter of 2022 ranked Aldi as the No. 1 brand that gained the most attention from the food-focused generation. Analysts also said Winn-Dixie has a 93-year history and loyal shoppers. The grocery chain did say it was selling its pharmacy business, which makes the business better aligned with Aldi.

Benedict said selling the pharmacy business is a clue that Aldi may convert the Winn-Dixie stores into larger Aldi formats. He said consumers love Aldi for their low prices and private brand excellence. Still, a shopper can’t usually purchase everything on their shopping list at Aldi, given the limited number of items in a smaller store. He said the larger stores of Winn-Dixie could allow Aldi to capture sales they might have lost to Walmart or Publix.

Retail analytics company Placer.ai reports that Aldi stores have grown foot traffic quickly. For the first seven months of 2023, average Aldi store visits increased by 2.7% compared with a year ago. Winn-Dixie stores, which saw a 0.6% reduction in foot traffic over the same period, likely will see a boost in average store visits under Aldi’s ownership.

Benedict said he expects to see more consolidation of the traditional grocery segment. He said Kroger and Albertson were like competitors with full-service grocery store models, advanced advertising businesses and popular loyalty programs. That is not the case for the Winn-Dixie and Aldi marriage, but he does see the move as strategic for both parties looking to partner in the low-price, value game that seems to be winning share today.

Aldi did say it plans to convert some locations to its brand and format, which cuts costs with features such as limited selections and self-bagging. But it also plans to operate some stores under the Winn-Dixie and Harvey’s brands.

Neil Saunders, an analyst with GlobalData Retail, said the deal is unusual for Aldi, which usually opens its own stores. He said perhaps Aldi wants to experiment with more traditional supermarkets that don’t follow the low-cost model. Saunders said Aldi’s deep pockets and efficient supply chain will make Winn-Dixie stores more competitive.

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Firebend.