Aldi to Add 100 Stores
Could no-frills, limited-selection grocer leverage tough economy to steal c-store customers?
BATAVIA, Ill. -- Seeking to exploit its no-frills offering during toughening economic times, and with a model that could step on convenience retailers' toes, discount grocer Aldi Inc. is in the midst of a national expansion that aims to open 100 stores in 2008, reported The Cleveland Plain Dealer. And with shoppers feeling the pinch from $4-per-gallon gasoline and soaring food prices, retail experts say this might be the perfect time for Aldi to grow.
"Everybody loves a bargain," Eugene Fram, professor emeritus of marketing with the Rochester Institute of Technology's E. Philip Saunders [image-nocss] College of Business, told the newspaper. If the Midwest flooding pushes food prices any higher, discounters such as Aldi and Wal-Mart Stores Inc. will attract people who can afford to shop anywhere, he said.
Aldi, whose parent company is based in Muelheim, Germany, operates more than 8,500 stores worldwide with estimated revenues of $57.5 billion. Aldi opened its first U.S. store in 1976 and now operates more than 900 stores in 28 states. The U.S. division, based in Batavia, Ill., has estimated revenues of $5.8 billion, according to the report, citing Supermarket News.
"When I came here 10 years ago, we only had four stores in the Cleveland market," Thom Behtz, vice president of Aldi's Northern Ohio division, based in Hinckley, Ohio, told the newspaper. Now he oversees 57 stores in 24 counties. "Looking at the market, there's no reason I shouldn't be able to grow another 20 stores" within the next 10 years, he said.
Behtz has seen a "tremendous" spike in customers since the end of March, a trend he expects to continue. Though he won't provide dollar figures, he said sales at stores open at least a year have increased in the "high single digits" over last year.
With stores that average 17,000 square feet, Aldi is about one-third the size of a typical grocery store, with a limited assortment of the kinds of food and other products people buy most. While most supermarkets carry more than 40,000 items, Aldi stocks only 1,300. The idea is to carry 90% of the foods people buy the most, in the most popular size or flavor, which reduces overhead and lets Aldi buy in greater volume.
"Obviously, you're not going to go to Aldi and see a lobster tank," Behtz said. "But most of what the average customer needs, we have at Aldi. That's why I can sell milk at $2.59 a gallon."
The layout is pretty much the same from store to store, the report said. Items are loosely organized among the four or five aisles, with milk, dairy, meat and perishables along the back wall and one aisle dedicated to frozen food. Except for produce and seasonal goods, the products are sold right out of the cardboard boxes they arrived in, stacked five or six feet high.
"Aldi follows the dictum of what has been the foundation of the discount industry since the 1950s: Heavy on the best-selling inventory and to heck with the rest," said Fram.
Aldi also skims costs by asking shoppers to rent shopping carts and bag their own groceries, said the report. A sign on the front wall of its newest Ohio store says, "Fancy stores have fancy prices. Keep it simple and save."
Aldi's stores are lightly staffed, with one full-time manager and five to seven part-time employees.
While Aldi might appeal to budget-conscious shoppers, retail expert Peter Schaeffer, a partner with the Carl Marks Advisory Group in New York, said Americans are so brand-conscious, they might not fully embrace the Aldi concept. "They want to see 14 kinds of toothpaste, not two," he told the paper. It might be an opportune time for Aldi to expand, he added, but some big questions remain to be answered: "No. 1, is the American consumer ready for Aldi, and No. 2, what happens when the economy changes?"