Whether supply chain disruptions, labor shortages or inflation, the rapidly expanding hard discounter is uniquely positioned to meet today’s challenges.
Ask any supermarket operator to name the biggest challenges they’re facing right now and they’re likely to list supply chain disruptions, labor shortages and inflation. Batavia, Ill.-based hard discounter Aldi is no exception, but industry observers say it’s in a better position than many competitors to overcome those obstacles.
CONTROLLING THE SUPPLY CHAIN
For example, since its assortment is predominately private label, the retailer exerts more control over its supply chain while others are largely at the mercy of national brands. And while rising supply chain costs can be particularly detrimental for a very low margin operator like Aldi, the company’s size — it’s on track to become the third-largest supermarket chain in the country by the end of 2022 — generates economies of scale it can use to protect profit margins.
On the labor side, Aldi actually pays better than most other grocers, insulating it against staffing shortages experienced by many rivals. Plus, its no-frills stores don’t require as much labor to start with, thanks to the chain’s reliance on cut cartons and shelf-ready shippers, self-bagging and carts that consumers have to return to the corral themselves in order to get their 25 cent “deposit” back.
But it’s that third challenge, inflation, where Aldi really has the advantage over competitors. Just last month, for example, it issued a press release touting a Thanksgiving meal (for up to 10 people!) for less than $30. “As food prices rise and budgets become squeezed, it’s inevitable that more consumers will turn to Aldi as a way to make food dollars stretch further,” says Neil Saunders, managing director of retail at New York-based GlobalData. Even more compelling, though, is the fact that, historically, customers who begin shopping at Aldi during economic downturns never completely return to their old supermarkets even after their situation improves, often opting to blend their grocery shopping between discounter and mainstream grocery store. “We’ve seen that happen in other countries, such as the U.K.,” says Saunders, who believes other U.S. supermarket operators should be worried.
Aldi shouldn’t be dismissed as a low-price, no-frills retailer because that is not how it is positioned now.
“Aldi has flown under the radar a bit, but it’s a retailer everyone should pay attention to — because once it gets a toehold in the market, it can be very disruptive.” He adds, “Aldi shouldn’t be dismissed as a low-price, no-frills retailer because that is not how it is positioned now.”
‘NOT THE ALDI YOU ONCE KNEW’
“The Aldi of today is not the Aldi you once knew,” confirms Kathy Hayden, senior vp/general manager of customer success at Inmar Intelligence, Winston-Salem, N.C. Beyond its sometimes shockingly low prices, “Aldi has continued to offer a variety of products in each category that cater to the different lifestyle needs of its shoppers, including natural, organic, plant-based and gluten-free,” which consumers are not accustomed to finding in a limited assortment discount store. On one recent visit, for example, we spotted everything from plant-based patties and keto ice cream to organic almondmilk and cauliflower crust pizza. And then there are the “gourmet” items, including European meats and cheeses, high-end frozen appetizers and premium desserts, plus a wide array of seasonal favorites.
Many of those products are “get ‘em while they last” in-and-outs included in the chain’s Aldi Finds program, which creates the treasure hunt experience for which the retailer is known. These “special buys” not only generate a sense of excitement, they drive impulse sales since consumers never know when or if those items will be back. “They also provide additional options during key timeframes when certain products are
There are also plenty of cool non-seasonal items that consumers are unlikely to find elsewhere, says Bill Bishop, chief architect at Barrington, Ill.-based Brick Meets Click, citing recent Finds such as Texas BBQ meatloaf, eggplant parmesan cutlets, shrimp and crab ravioli and meatball and sausage calzones as examples. But the program does more than just differentiate Aldi from the competition. It also enables what Bishop describes as perpetual market testing. “It’s a win-win because shoppers get to try new products and the retailer gets to see how the market responds to those products without a big investment,” he explains. “It’s a fairly substantial economic advantage that bigger companies like Aldi can create for themselves.”
Between Aldi Finds and regular buys, industry observers say the chain’s offer is “more than sufficient” for a full shop. “Even though the range is limited, it’s far more extensive than at other discount formats like dollar stores — with a more comprehensive assortment of fresh and frozen,” says Saunders. “Plus, Aldi really prides itself on the quality of its own brand products in particular. Coupled with low prices, it provides a very strong value-for-the-money message.”
In addition, says Bishop, Aldi is one of only a handful of retailers that offer a “twice as nice” double guarantee (item replacement plus a refund). “So it really puts its money where its mouth is.”
ROOM FOR IMPROVEMENT IN E-COMMERCE
While industry observers are generally bullish on Aldi’s prospects for the future, one area where they see room for improvement is e-commerce. While grocery delivery via Instacart is available from almost all stores and curbside pickup is now offered at more than 1,200, “The online shopping experience is klugey,” which, in computer science-speak, means clumsy and inelegant, says Gary Sankary, retail industry strategist at Redlands, Calif.-based Esri. He acknowledges that balancing the upcosts associated with omnichannel fulfillment against razor-thin margins represents a considerable challenge for the chain, but there’s no avoiding the issue.
In fact, says Bishop, an enhanced online experience could be key to expanding the customer base since it offers those who don’t want to be seen shopping at Aldi a more discreet opportunity to save. (Yes, there’s still a bit of a stigma associated with hard discounters, but it continues to lessen, especially in areas with new stores.).
What else can Aldi do? “Offering pickup and delivery is only a first step,” says Hayden. “In order to expand further, Aldi is in a great position to develop a loyalty platform that provides digital coupons and gamification and maximizes media options to drive awareness, trial and repeat purchases.”
‘New, larger stores give Aldi more space to take an already winning formula and expand the product range and item assortment. That will put the chain up against the next tier of grocers in those markets.’
Interestingly, notes Bishop, Aldi doesn’t accept manufacturer coupons in stores, but shoppers who buy online through Instacart can use them. “My belief is that’s not by chance. It allows Aldi to offer some national brand choices to folks who may not be able to afford them otherwise.”
SOON-TO-BE NUMBER THREE (IN STORE COUNT)
With more than 2,000 stores across 37 states, Aldi expects to open approximately 100 new locations in 2021, with a focus on Arizona, California, Florida and the Northeast. It also broke ground on a new regional headquarters and distribution center in Loxley, Ala., that will support its expansion efforts in the Gulf Coast region.
Still, says Saunders, “In a country the size of the U.S., Aldi has really only scratched the surface in terms of store numbers and market share. There are huge areas, including whole states, which don’t have easy access to Aldi, so there are significant opportunities for growth.” He adds, “Now is a good time to be expanding, both because of the economic situation and also because there are some good deals to be had on property.”
Many of the newest stores are a bit larger, which Sankary thinks is a great idea for the U.S. marketplace where consumers often equate bigger with better. “It gives Aldi more space to take an already winning formula and expand the product range and item assortment. That will put the chain up against the next tier of grocers in those markets,” which may create some angst among existing players. “They have reason to be worried,” says Sankary. “I honestly think the market is ripe for Aldi’s format and offerings. They’re a disruptor at the moment, and I just haven’t seen a ton of competition that can slow them down.”
The upside, he says, is that Aldi is disrupting the market for good, providing nutritious food at the most affordable prices, which is a positive for consumers. But that may be just the beginning. In Germany, the home of its parent company, “Aldi is the go-to place for everything from groceries and hardgoods to cellphone plans and bill-paying,” says Sankary. “As the chain continues to grow here in the U.S., I suspect we’ll see growth in some of these areas as well.”