April 15, 2009
PL Buyer: A Frugal Force
By Kathie Canning
Through a special arrangement,
presented here for discussion is an excerpt of a current article from Private
Label Buyer.
In these scary days of retail, where bankruptcies
and store closings seem to occur on a daily basis, a success story has
the power to intrigue and amaze us. And one particularly intriguing success
story is that of Batavia, Ill.-based Aldi Inc.,
a retailer that, steadily and quietly, has been winning over
a growing base of value-minded U.S. consumers.
Aldi Inc., PL Buyer‘s 2009 Retailer of the Year,
is part of the Aldi Süd division of the German Aldi company,
but operates independently.
Today, Aldi boasts
approximately 1,000 stores in 29 states. Although its locations still rely
on a “no frills” approach – products are displayed within
their cardboard shippers; shoppers must supply or buy bags and pay a 25-cent
(refundable) deposit to free up a cart – Aldi now
offers more than 1,400 regularly stocked items. And 95 percent of those
products are Aldi’s own items, presented under 118 select brand names.
Expansion remains a critical element on the Aldi agenda.
It opened more than 100 stores in 2008, plans at least 75 more openings
in 2009, and will enter into Texas in 2010. Its newest stores sport a pleasant
pastel décor and higher ceilings that let in more natural light.
“Aldi today
is opening in more attractive facilities in higher-income areas,”
noted David Livingston, principal of DJL Research. “They have evolved
from catering to low-income groups [to catering] to all income groups.”
What’s more, Aldi’s new products continue to skew more upscale and innovative.
Case in point: The retailer recently entered into the premium skin-care
market with the introduction of its Lacura brand, an
award-winning product line with European Aldi roots.
And this year, Aldi’s Fit & Active brand
became the first private label brand to include guideline daily amounts
(GDAs) on product packaging.
“The Aldi shopping
experience continues to evolve positively,” stressed Jim Hertel, a
managing partner with Willard Bishop. “They
have long been operationally focused as a core part of being able to deliver
such great consumer values – reduced SKU counts, low in-store labor
levels, cut-case/pallet merchandising, etc. – but seem to be taking
the shopping experience much more into account.”
Doron Levy, president of Captus Business
Consulting, believes Aldi’s product quality has
only improved through the years, and that the retailer’s implementation
of its special purchase program also has done much to grow business with
new customers.
“U.S. consumers are in value mode, and
they are ready to jump on private label, as most of the quality stigma
has diminished,” Mr. Levy said. “Aldi’s presentation and layout
give its brands a shine that other stores are missing. … Product branding
and labeling is really on par with, and in some cases, exceeds name brand
standards.”
Discussion Questions: Why has Aldi been so successful?
What has most impressed you about its evolution over the years? What
challenges do you see to its continued expansion?
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Aldi is growing for all the obvious reasons associated with the recession but also because the “brand” is being widely advertised and marketed more heavily in markets where before it was not.
More questions than answers – are they successful because they are expanding or is same store growth driving success? The article would suggest the latter, but no information is provided. The big question for the future – can you change your positioning to upscale and keep your core franchise? Have we ever seen this work?
When Aldi first entered the US market, they did not meet with immediate success. They used their expertise from Europe, and modeled the US stores on these successful ventures. But it was not necessarily right for the US market. Over time, the smart marketers of Aldi altered their model, and started to find the success they expected.
Why are they so successful today? Because they understand their target customer, and they don’t try to be something that they aren’t. They gained their momentum selling staple products, to people looking for the best value possible, never increasing the size of their store footprint, and never offering services that didn’t meet the needs of their targeted consumer.
I’m not sure that they are going upscale. Instead, I think they are enhancing their current product offerings slightly, still providing value to the lower-income shopper, but also offering products that are perceived “slightly upscale” to take advantage of the middle-income shopper, who is now looking to save money, while not trading down.
Aldi has done a great job of owning a niche, defending the niche well, and while the Tesco’s and Wal-Mart’s of the world get the majority of the trade press, Aldi quietly has built up to a chain of over 1000 stores, one strip mall location at a time.
Kudos to Aldi for sticking with what they know, and executing it so well.
Quality products in their brand make their value priced products a bargain with this economy. They have fast checkout with self service and are convenient, with easy in and easy out. You put a quarter in the gadget on the basket to get in unchained and then when you bring it back you get your quarter back. This reduces carts in the parking lot and provides labor savings. Their stores are also eco friendly.
They will only grow in popularity.
Aldi has persevered. They were not too successful in the U.S. initially. More recently, the economy changed, Aldi marketed more aggressively and many more people were exposed to their stores and their array of private labels, which seem to be “cousin-like” to the other Aldi company, Trader Joe’s. Now Aldi is expanding into new geographies for additional growth in America.
Go to an Aldi store. Look at the customers. Many appear to have found some status sovereignity in Aldi. That is a powerful marketing asset for Aldi and it will likely grow with their price conscious customer just as Trader Joe’s has grown with its niche. Aldi appears on a roll.
Aldi’s approach to retail delivers meaningful value in an environment where consumers are seeking avenues that will extend their buying power. In most instances there are only two employees on the clock (one of whom is the manager/cashier/receiving manager et. al.). Combine this with their rock bottom physical cost structure and they likely have the lowest operating costs in the business – beating Wal-Mart at their own game. I’m impressed with the value they drive, as much as I am with their merchandising choices. This economy is a catalyst for their growth and it will not be long before we see Aldi’s dotting North America like Family Dollar or Dollar General.
Joel hit it on the head. Aldi’s success is the result of the chain sticking to its business and developing its own niche. But along the way, similar to its cousin Trader Joe’s, it has developed a cult following among all income and demographic groups.
Some may feel that in going “upscale” the chain is now following a trend. More than likely it is developing its own type of upscale marketing that will still be around when others have abandoned the concept. I am still amazed that after all these years, and its success both here and abroad, some in the industry still dismiss Aldi as an anomaly.
I am surprised there was no mention of the relationship with Trader Joe’s. As Paul Harvey would say, “the rest of the story” that makes sense of the story: Do You Know Who Owns Trader Joe’s? – NY Times
When I visited my Mom recently in McKees Rocks, PA, I just had to stop by the new Aldi’s which had opened on March 19, 2009.
The new Aldi store prototype/format is absolutely beautiful; a European style two story open air skylight temple to saving money on quality groceries, without the brand name prices.
I’ve never seen 17,000 square feet used in such an architecturally appealing way. The wall graphics, the colors, wow, everything just pops in pure visual pleasure.
If you didn’t see the traditional Aldi product stack layout on the selling floor, you would have thought you were in a very expensive food emporium.
The new Aldi rocks!!!!
Aldi’s is another case of retail success that probably has little to do with what is the foundation of their image, particularly among the commentariat. Plenty of solid research has shown that shoppers have a very poor idea of what they are paying for things in the stores. And yet, retailers and the professional “consumerists” seem to think shopping is mostly about the pricing.
It is true that a good value proposition is needed in all stores, to feed shoppers inherent need to feel good about their rationality – when in fact they (and the merchants) are not very rational at all.
Probably the real sales generators in Aldi stores are the limited selection with the consequent clarity of the offer. These are two separate issues, but closely related. The limited selection radically reduces choice angst. (See Schwartz’ The Paradox of Choice.) But the other side of this is that the fewer the SKUs, the larger the displays per SKU. This means that every display, even those down the aisles, have some of the essential character of endcaps – limited selection and large display.
This limited selection and large display can be implemented anywhere in the store, not just on endcaps. This is one proper way to manage “the big head,” the high volume 1% of supermarkets, which may be more like 10-20% in an Aldi’s. Since Aldi’s (like other big head stores before them) continues to proliferate SKUs (but at a much lower level than the typical supermarket), they prove that a long tail is important in ANY retail store. In a 40,000 SKU supermarket, 20,000 of those SKU generate, in aggregate, less than 4% of total store sales. But this massive amount of parked, mostly non-selling merchandise, is VERY ATTRACTIVE, in the sense of bringing shoppers into the store.
The fundamental rule is that the long tail attracts shoppers to the store, where they mostly buy the big head. One major reason I shop Amazon for my few books is that with 50 million in their offer, I can be quite certain they will have those few I want. So Aldi is making their stores more attractive (it’s not just the decor). If they can just resist the sales suppression that most retailers embrace by “hiding” the big head in the long tail, in the hopes of frustrating the shopper into more purchases. That’s right! Trying to sell more of the long tail by keeping shoppers in the store longer is brain dead standard retail strategy.
So sane, rational management of big head/long tail merchandising blunders along, encumbered with misguided obsession with pricing as the key to retail heaven, instead locking retailing into the hell of mediocrity.
It would appear from the article that Aldi has successfully segmented their consumers and targeted geographies. My assumptions would only be correct if the product offerings change per RTA. It’s also possible that lower real estate prices have made higher income RTAs available to Aldi, when in the past their business plan limited the real estate available to them.
From the consumer’s perspective, frugal is the new fashion. Not that the high end products have lost appeal, but it’s fashionable to be a bargain shopper. Customers are looking for value, and if they can find their traditional brands in a modest retailer they will flock to it…and then blog about it.
Another reason Aldi has room to grow is the enlightenment factor which shopping there provides. And I think the enlightenment will have permanent effect even when the economy improves. Shoppers who find quality party crackers and snacks, bags of chocolate chips, cream soups, and canned veggies at Aldi for HALF the price – even of other grocers’ store brands – mention it to their friends. They all sit over coffee and discuss why they have allowed themselves to be price gouged at the classic food stores for so long–and resent it.
Tons of wonderfully insightful comments here — but the one driver that directly addresses the question asked is culture. To the extent that Aldi is attracting a more upscale customer, the answer is no more complicated than the 1970’s gas crisis.
“Huh?” you say.
Remember the ubiquitous “housewife in the running togs, filling up her BMW at the self-service gas pump” we all talked about incessantly in the marketing community? She was making a social statement — and a popular one at the time — about her frugality. Today’s best equivalent, up until the recession, was the “green” consumer who only shopped at Whole Foods to be seen and wouldn’t know organic if it landed on their shoe. Now “green” is being replaced by “smart shopper” with the trendy set.
Oh, and it doesn’t hurt any that all those good things everyone else said about Aldi are also true. My immigrant father-in-law goes there because they have his favorite brand of German beer!
I view Aldi as a professional marketer–and as a regular customer. On basics, it consistently offers substantial savings over Walmart or Kroger. Its private brands are excellent quality, rivaling national brands in virtually every instance. From a marketing standpoint, Aldi offers quick in-and-out, simple selection of key categories, and intriguing non-food specials. Our local Aldi seems to be getting more traffic, and a second store has opened about 4 miles away as the crow flies to accommodate a nearby area.
Is there truly any surprise to Aldi’s success? They have stuck with and intelligently evolved their offering over a long period of time. They have grown into a store where the customer can fulfill their entire shopping list, while growing their presence in key opportunistic markets. Now, in the current economic environment where more CPG firms are looking at the growing private label footprint, Aldi has again been in the right position at the right time.
Sid’s insightful reference in his post to Aldi’s ownership of Trader Joe’s only points to further confirmation of their corporate strategy: 1) target your customer (value-driven, regardless of income) 2) Give them what they want (quality, value-based merchandise) 3) Maximize private label to maximize margin and retailer brand loyalty.
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Aldi is growing for all the obvious reasons associated with the recession but also because the “brand” is being widely advertised and marketed more heavily in markets where before it was not.
More questions than answers – are they successful because they are expanding or is same store growth driving success? The article would suggest the latter, but no information is provided. The big question for the future – can you change your positioning to upscale and keep your core franchise? Have we ever seen this work?
When Aldi first entered the US market, they did not meet with immediate success. They used their expertise from Europe, and modeled the US stores on these successful ventures. But it was not necessarily right for the US market. Over time, the smart marketers of Aldi altered their model, and started to find the success they expected.
Why are they so successful today? Because they understand their target customer, and they don’t try to be something that they aren’t. They gained their momentum selling staple products, to people looking for the best value possible, never increasing the size of their store footprint, and never offering services that didn’t meet the needs of their targeted consumer.
I’m not sure that they are going upscale. Instead, I think they are enhancing their current product offerings slightly, still providing value to the lower-income shopper, but also offering products that are perceived “slightly upscale” to take advantage of the middle-income shopper, who is now looking to save money, while not trading down.
Aldi has done a great job of owning a niche, defending the niche well, and while the Tesco’s and Wal-Mart’s of the world get the majority of the trade press, Aldi quietly has built up to a chain of over 1000 stores, one strip mall location at a time.
Kudos to Aldi for sticking with what they know, and executing it so well.
Quality products in their brand make their value priced products a bargain with this economy. They have fast checkout with self service and are convenient, with easy in and easy out. You put a quarter in the gadget on the basket to get in unchained and then when you bring it back you get your quarter back. This reduces carts in the parking lot and provides labor savings. Their stores are also eco friendly.
They will only grow in popularity.
Aldi has persevered. They were not too successful in the U.S. initially. More recently, the economy changed, Aldi marketed more aggressively and many more people were exposed to their stores and their array of private labels, which seem to be “cousin-like” to the other Aldi company, Trader Joe’s. Now Aldi is expanding into new geographies for additional growth in America.
Go to an Aldi store. Look at the customers. Many appear to have found some status sovereignity in Aldi. That is a powerful marketing asset for Aldi and it will likely grow with their price conscious customer just as Trader Joe’s has grown with its niche. Aldi appears on a roll.
Aldi’s approach to retail delivers meaningful value in an environment where consumers are seeking avenues that will extend their buying power. In most instances there are only two employees on the clock (one of whom is the manager/cashier/receiving manager et. al.). Combine this with their rock bottom physical cost structure and they likely have the lowest operating costs in the business – beating Wal-Mart at their own game. I’m impressed with the value they drive, as much as I am with their merchandising choices. This economy is a catalyst for their growth and it will not be long before we see Aldi’s dotting North America like Family Dollar or Dollar General.
Joel hit it on the head. Aldi’s success is the result of the chain sticking to its business and developing its own niche. But along the way, similar to its cousin Trader Joe’s, it has developed a cult following among all income and demographic groups.
Some may feel that in going “upscale” the chain is now following a trend. More than likely it is developing its own type of upscale marketing that will still be around when others have abandoned the concept. I am still amazed that after all these years, and its success both here and abroad, some in the industry still dismiss Aldi as an anomaly.
I am surprised there was no mention of the relationship with Trader Joe’s. As Paul Harvey would say, “the rest of the story” that makes sense of the story: Do You Know Who Owns Trader Joe’s? – NY Times
When I visited my Mom recently in McKees Rocks, PA, I just had to stop by the new Aldi’s which had opened on March 19, 2009.
The new Aldi store prototype/format is absolutely beautiful; a European style two story open air skylight temple to saving money on quality groceries, without the brand name prices.
I’ve never seen 17,000 square feet used in such an architecturally appealing way. The wall graphics, the colors, wow, everything just pops in pure visual pleasure.
If you didn’t see the traditional Aldi product stack layout on the selling floor, you would have thought you were in a very expensive food emporium.
The new Aldi rocks!!!!
Aldi’s is another case of retail success that probably has little to do with what is the foundation of their image, particularly among the commentariat. Plenty of solid research has shown that shoppers have a very poor idea of what they are paying for things in the stores. And yet, retailers and the professional “consumerists” seem to think shopping is mostly about the pricing.
It is true that a good value proposition is needed in all stores, to feed shoppers inherent need to feel good about their rationality – when in fact they (and the merchants) are not very rational at all.
Probably the real sales generators in Aldi stores are the limited selection with the consequent clarity of the offer. These are two separate issues, but closely related. The limited selection radically reduces choice angst. (See Schwartz’ The Paradox of Choice.) But the other side of this is that the fewer the SKUs, the larger the displays per SKU. This means that every display, even those down the aisles, have some of the essential character of endcaps – limited selection and large display.
This limited selection and large display can be implemented anywhere in the store, not just on endcaps. This is one proper way to manage “the big head,” the high volume 1% of supermarkets, which may be more like 10-20% in an Aldi’s. Since Aldi’s (like other big head stores before them) continues to proliferate SKUs (but at a much lower level than the typical supermarket), they prove that a long tail is important in ANY retail store. In a 40,000 SKU supermarket, 20,000 of those SKU generate, in aggregate, less than 4% of total store sales. But this massive amount of parked, mostly non-selling merchandise, is VERY ATTRACTIVE, in the sense of bringing shoppers into the store.
The fundamental rule is that the long tail attracts shoppers to the store, where they mostly buy the big head. One major reason I shop Amazon for my few books is that with 50 million in their offer, I can be quite certain they will have those few I want. So Aldi is making their stores more attractive (it’s not just the decor). If they can just resist the sales suppression that most retailers embrace by “hiding” the big head in the long tail, in the hopes of frustrating the shopper into more purchases. That’s right! Trying to sell more of the long tail by keeping shoppers in the store longer is brain dead standard retail strategy.
So sane, rational management of big head/long tail merchandising blunders along, encumbered with misguided obsession with pricing as the key to retail heaven, instead locking retailing into the hell of mediocrity.
It would appear from the article that Aldi has successfully segmented their consumers and targeted geographies. My assumptions would only be correct if the product offerings change per RTA. It’s also possible that lower real estate prices have made higher income RTAs available to Aldi, when in the past their business plan limited the real estate available to them.
From the consumer’s perspective, frugal is the new fashion. Not that the high end products have lost appeal, but it’s fashionable to be a bargain shopper. Customers are looking for value, and if they can find their traditional brands in a modest retailer they will flock to it…and then blog about it.
Another reason Aldi has room to grow is the enlightenment factor which shopping there provides. And I think the enlightenment will have permanent effect even when the economy improves. Shoppers who find quality party crackers and snacks, bags of chocolate chips, cream soups, and canned veggies at Aldi for HALF the price – even of other grocers’ store brands – mention it to their friends. They all sit over coffee and discuss why they have allowed themselves to be price gouged at the classic food stores for so long–and resent it.
Tons of wonderfully insightful comments here — but the one driver that directly addresses the question asked is culture. To the extent that Aldi is attracting a more upscale customer, the answer is no more complicated than the 1970’s gas crisis.
“Huh?” you say.
Remember the ubiquitous “housewife in the running togs, filling up her BMW at the self-service gas pump” we all talked about incessantly in the marketing community? She was making a social statement — and a popular one at the time — about her frugality. Today’s best equivalent, up until the recession, was the “green” consumer who only shopped at Whole Foods to be seen and wouldn’t know organic if it landed on their shoe. Now “green” is being replaced by “smart shopper” with the trendy set.
Oh, and it doesn’t hurt any that all those good things everyone else said about Aldi are also true. My immigrant father-in-law goes there because they have his favorite brand of German beer!
I view Aldi as a professional marketer–and as a regular customer. On basics, it consistently offers substantial savings over Walmart or Kroger. Its private brands are excellent quality, rivaling national brands in virtually every instance. From a marketing standpoint, Aldi offers quick in-and-out, simple selection of key categories, and intriguing non-food specials. Our local Aldi seems to be getting more traffic, and a second store has opened about 4 miles away as the crow flies to accommodate a nearby area.
Is there truly any surprise to Aldi’s success? They have stuck with and intelligently evolved their offering over a long period of time. They have grown into a store where the customer can fulfill their entire shopping list, while growing their presence in key opportunistic markets. Now, in the current economic environment where more CPG firms are looking at the growing private label footprint, Aldi has again been in the right position at the right time.
Sid’s insightful reference in his post to Aldi’s ownership of Trader Joe’s only points to further confirmation of their corporate strategy: 1) target your customer (value-driven, regardless of income) 2) Give them what they want (quality, value-based merchandise) 3) Maximize private label to maximize margin and retailer brand loyalty.