Where Wal-Mart Failed, Aldi Succeeds (2011)
Where Wal-Mart Failed, Aldi Succeeds
AdvertisementSKIP ADVERTISEMENTEven though Aldi, like Wal-Mart, is nonunion, it has faced little  resistance, compared with the heated opposition often headed by unions  and politicians that Wal-Marts have encountered in larger markets.Credit...Chester Higgins Jr./The New York TimesMarch 29, 2011While Wal-Mart revives its plans to get into New York City, a giant German retailer has slipped in relatively unnoticed.In February, with virtually no opposition — a Queens politician even showed up at the grand opening in Rego Park, Queens — a discount retailer called Aldi opened its first store in the city, and plans to open a second one, in the Bronx, later this year.After decades spent fleeing cities for the strip malls and boulevards of the suburbs, grocers and discount retailers are doing an about-face. Target plans to open its first smaller, city-size store in Seattle next year, and Wal-Mart announced recently that it would build “hundreds” of smaller, mostly urban stores in the coming years.Meanwhile, Aldi has quietly been setting up its shops in cities around the country.“They’re not only doing the small format more rapidly, but they’re getting into the urban areas more rapidly than either Wal-Mart Express or the city Targets,” said Craig Johnson, president of the consulting firm Customer Growth Partners. “Even though the company’s headquartered in Germany, they’ve opened up a New York store quicker than Wal-Mart has.”Even though Aldi, like Wal-Mart, is nonunion, it has faced little resistance, compared with the heated opposition often headed by unions and politicians that Wal-Marts have encountered in larger markets.“There’s no reason to oppose an Aldi — it’s a small format, and they usually get space from an existing landowner or landlord, a small guy who’s plugged into the community, not a big guy like a Forest City Ratner,” Mr. Johnson said. “Wal-Mart has sort of become a bad guy that there’s a concerted effort against. I’m not sure that Aldi has really gotten on anyone’s radar screen.”Aldi first came to the United States in 1976, but it opened a relatively small number of stores a year — 25 or so on average. Within the last few years, it has accelerated its expansion by adding more than 250 stores, with plans for 80 more both in 2011 and 2012, said Jason Hart, co-president of Aldi’s United States division, in a recent interview.The company capitalizes on the bargain hunter, who is not embarrassed to choose frugality over name brands. Aldi’s mainly sells its own private-label items at cheap prices — a five-ounce bacon-wrapped beef filet costs $1.79 at the Queens store.“It’s the one format that seems to have increased the most, and has sustained a number of new stores,” during and after the recession, said Jonathan P. Feeney, a grocery analyst with Janney Capital Markets. As “prices are going to go up, it’s going to be a growing opportunity.”Aldi was founded by the Albrecht brothers, who worked in their mother’s German retail business and took it over in the 1940s. In 1961, they introduced the Aldi name, short for Albrecht Discount.According to Stores magazine, the Aldi group was the eighth-largest retailer in the world in 2009 (the most recent figures available), with an estimated $67.7 billion in revenue. According to estimates by Mr. Johnson, about $6.5 billion of Aldi’s revenue stems from sales in the United States.Aldi’s model is to sell groceries and basics like dishwasher soap and laundry detergent in drugstore-size spaces — its Queens store is 17,500 square feet, about 16 percent the size of an average Wal-Mart — in urban, suburban and rural areas, though the focus lately has been in cities.About 95 percent of its goods bear an obscure private label. For example, rather than Skippy, Jiffy, natural, and jam-swirled peanut butter, Aldi sells one kind, which it commissions itself. (It’s similar to the higher-end Trader Joe’s, which is owned by an Albrecht family trust.)“We carry 1,500 of the most popular grocery items out there,” Mr. Hart said. “You won’t find some exotic spice or exotic produce items in our stores; you won’t find every flavor of every items. When you look at the large supermarkets that may have 20- to 30,000 items, or superstores, with over 100,000 items, it’s surprising to the customers how much of the shopping list we’re able to fit into our smaller store.”Fewer product lines translate into making even a small, high-rent space quite profitable.“It simplifies everything — supply chain, delivery,” Mr. Johnson said. “You stock the stuff that’s the highest velocity and that you make the highest margin on.”ImageEstimates are that Aldi, a privately held, nonunion chain, has more than 8,000 stores worldwide and 1,000 in the United States.Credit...Chester Higgins Jr./The New York TimesThe Aldi stores cut costs in other ways. In most, customers drop in a quarter to get a shopping cart, and get the quarter back when they return the cart, to prevent theft. Carts are locked so they cannot go beyond the store in any case.The stores do not accept checks or credit cards. There is no butcher or bakery, and fruit is sold in bags to speed checkout.Given those savings and the absence of advertising costs, Aldi officials say their discounts amount to up to 45 percent off competitors like Wal-Mart’s private-label brands. But analysts provide a lower estimate, a discount over all of about 20 percent.Those expecting dusty, cluttered aisles with expired dates on cereal boxes and dented tin cans might be surprised by the Aldi atmosphere .“This is not just the knockoff, cheapo, old model of discount stores,” Mr. Johnson said.In the Queens store, aisles are eight feet wide — standard at Aldis in the United States. Cheerful pictures of produce and cheeses adorn yellow-painted walls.Aisles are lined with basics like hand soap, soup and bread, as well as anise-flavored waffle cookies at $2.69 for seven ounces. A pretty five-inch tall orchid sold for $5.99. And in “special values” aisles, items carried for a week or two included private-label appliances like quesadilla makers.“It used to be private label was really a white box with black lettering, and that’s not what private label is now,” said David Fuselier, an investor in urban grocery stores. “Now it’s private label that is attractive, that has nutritious labels on it, and that are part of the corporate strategy.”Though almost all the products are made by Aldi, it has created hundreds of “brand names” that echo the national brands in name and design. While those enhance the store’s stock more than black-and-white generic labels would, the unknown brands have the unsettling effect of making a shopper feel as if she is on a movie set, à la “The Truman Show.” Yum, cheddar goldfish — but it’s Savoritz Sharks.“It’s just an opportunity to give a little more character to the product,” said Bruce Persohn, who oversees the region that includes New York City for Aldi. “For our loyal customers they really become household names.”To add to the confusion, occasionally Aldi will carry brand names, like Splenda, when it can’t find a good substitute. And it also has brands like Colgate — Mr. Persohn said it had sold private-label toothpaste at one point, but “we opted for Colgate. People just like Colgate.”On a recent Wednesday afternoon, shoppers at the new Queens Aldi seemed a little perplexed by its quirks.“Do these carts go outside or no?” said a woman who was trying to wrestle her cart, with three shopping bags, to a nearby parking lot. “So you need two people to come shopping with you,” she said crossly.Two middle-aged women were looking for Milky Ways, with no luck.“So this is all, like, no brands?” said the younger-looking of the two.An elderly woman with a thick German accent approached an executive, asking why the store did not carry strudel. “It is strudel season!” she insisted.“There is a little bit of an education that comes along with shopping the store,” Mr. Persohn said.Analysts and industry executives say that bargain shopping, which became a necessity during the recession, is now attracting all kinds of shoppers.“With the recession, the concept of shame has gone out the window,” Mr. Fuselier, the urban-grocery investor, said. “People don’t really worry about going to a discounter.”AdvertisementSKIP ADVERTISEMENT