Aldi, the German discount giant, was one of 2008’s success stories in the UK food retail sector. In 2009, the company has signalled it wants to further expand in that notoriously tough market – the US. Dean Best examines the prospects for Aldi across the pond.
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The rise of Aldi, the discount retailer, into the nation’s consciousness was perhaps the defining story of UK food retailing in 2008.
Rising food prices, the credit crunch and a downturn in the wider economy, coupled with an aggressive expansion plan and, let’s face it, some effective marketing and PR, propelled Aldi into the minds of consumers desperate for value.
The emergence of Aldi in the UK even led Tesco, by far the country’s largest grocer, to ditch its previous indifference to its German counterparts and frantically try to steal back the limelight with its claims to be “Britain’s Biggest Discounter”.
However, while the “Aldi effect” may have crept into the national lexicon, the discounter was by no means an overnight success in the UK. Aldi first arrived on UK shores in the early 1990s but struggled to win over shoppers unconvinced by its basic, no-frills approach. However, a combination of the gloomy economy and some well-executed moves to improve the perception of the quality of its offer has seen Aldi’s UK sales soar: in 2008, the retailer increased its sales by almost 25% in the UK.
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By GlobalDataNow, Aldi is hoping for similar success across the pond in a market that has proved a graveyard for many an ambitious retailer – the US. Aldi spent last year expanding rapidly in the US, opening 100 stores in a bid to capitalise on greater consumer demand for value, amid the economic downturn and the slump in the housing market. And while a gloomy outlook continues to cast a shadow over consumer and business sentiment in the US, Aldi this week again signalled its confidence with plans to open a further 75 outlets in 2009.
Nevertheless, similar to its experience in the UK, it has been a long haul for Aldi in the US. Aldi first entered the country back in 1976 but initially the business had problems winning over US consumers not used to a retailer offering a basic level of service and almost exclusively relying on private-label products.
However, Aldi’s emergence as a serious player on the US retail scene has echoed the development of its UK business. As Neil Stern, senior partner at US retail consultants McMillanDoolittle, contends, Aldi has not just benefited form a downturn in the economy – the retailer has also made significant and necessary changes to its stores to make them more appealing to local consumers.
“For the majority of the time, Aldi has operated under the radar but there has been substantial changes to its US business,” Stern tells just-food. “As opposed to just being about basics, Aldi has upgraded its products, its assortments and its packaging. The stores now have brighter lights and better signs. Aldi had been seen as a dark and dingy shopping experience; now it’s a more pleasant place to be.”
Aldi plans to open stores in the 29 states between Kansas and the East Coast where it already has outlets. A spokesperson said, however, that particular focus would be given to the north-east and to Florida in 2009. Each new store will be approximately 17,000 square feet in size and carry around 1,400 SKUs, covering about 90% of a typical grocery list.
Some 95% of the products on sale in Aldi’s stores are private label and the spokesperson said the retailer believes consumers will be lured by its low prices. “All of Aldi’s US stores offer high-quality fresh produce, fresh meats and grocery items at up to 50%-less than the competition,” the spokesperson said.
Of course, competition in the US, as elsewhere, has grown particularly fierce amid the economic downturn. The battle to attract cautious consumers has heated up in recent months, with US retailers focusing increasingly on Aldi’s core competencies – price and private label. The likes of Publix, Supervalu and Safeway have looked to boost their own-label ranges, while ominously for the whole of the US retail sector, last autumn Wal-Mart launched a series of price comparison ads to highlight its value credentials.
The competition, however, does not seem to faze Aldi. “Aldi is typically very successful in competitive markets,” the spokesperson insisted. “Aldi offers a solution to consumers looking to save money on their grocery bill without compromising on taste and quality.”
For Stern, however, Aldi’s business in the US has yet to reach the size and scale where it could present a serious threat to the country’s largest retail chain.
“There is not a market in the US where Aldi has more than 3-4% of the market,” Stern says. “The US business is organised regionally and Aldi is not significant enough regionally for us to say, for example, that they are hurting Kroger. Seventy-five Aldi stores is like 25 regional supermarkets and in a market the size of the US that is not enough volume to shake up the market.”
Others agree that Aldi faces a fight in the US. Gavin Rothwell, senior business analyst at IGD, says Aldi has become a more attractive “grocery shopping destination” for US consumers as private-label products become more popular.
Rothwell argues, however, that those retailers with a greater insight into the behaviour of US shoppers and the economic climate will be best placed to prosper.
“Aldi will not have its own way,” Rothwell tells just-food. “Many US grocery store operators are boosting their private label assortment, recognising the role it can play in demonstrating value.
“Value retailing is clearly well embedded in the US grocery retailing landscape. From a broader perspective, at the current time, our view is that the value retailing growth opportunities in the US will be much more about those retailers already present in the market – Dollar Tree, for example, has been reporting impressive recent growth, while Aldi is clearly pushing ahead with its own expansion. At this time, it’s more important than ever to understand your shoppers; those with an in-depth understanding of the US shopper and the economic climate are those best placed to succeed.”
The race for value will be one of the key trends in many consumer goods markets in 2009 as businesses battle the economic downturn. What looks certain, however, is that Aldi, while still a relatively minor player in the US in terms of market share, will create some waves across the pond just as it did in the UK in 2008.
