Affluent Consumers Like Saving at Aldi, Too
Aldi is moving to a better neighborhood.
Dan Gavin, a divisional vice president for the limited assortment grocery chain, told The Cincinnati Enquirer that changes in the marketplace have led the company to expand its real estate horizons.
“Early on, even 15 years ago, we were definitely in class B real estate market,” Mr. Gavin told The Enquirer. “But in the past year we have moved our real estate to Class A sites. All types of incomes like to save money. And we want to be by our competition.”
Today, Aldi has 12 stores in the Greater Cincinnati and Northern Kentucky area and the combination of low prices with high quality products is drawing consumers from across various demographic boundaries.
Martha Kidd, 69, is among Aldi’s happy customers. She’s especially happy since a new store in her area has cut down on the commute she used to make to shop at Aldi.
“We used to travel all the way to Middletown once a week to go to Aldi, and I’m glad I don’t have to do that anymore,” Ms. Kidd said. “Their prices are very, very good. And the quality is decent, too. I don’t think there’s anything I’ve bought there that isn’t tasty.”
According to Mr. Gavin, Aldi is scouting additional locations in the area as part of its steady national growth strategy. The grocer will open roughly 65 stores this year and another 100 next year.
While Aldi sticks to its limited assortment heritage, it has broadened its selection as new, more affluent consumers frequent the chain’s stores. The company has expanded perishables, including moving into more fresh meat, and added wine in select locations.
Aldi has been successfully picking off pieces of business from both independents and grocery powerhouses such as Kroger and Wal-Mart.
“They are feeding off the Wal-Mart and Sam’s Club shopper,” Al Ferrara, a partner and retail expert for BDO Seidman, told The Enquirer. “For a no-frills customer and from a merchandising standpoint, finding the right real estate is the most important thing Aldi can do.”
Discussion Question: Is there a competitive answer to Aldi? Does Aldi have the ability to make a significant move across demographic lines to bring in more affluent consumers? Does Aldi share some of the coolness factor of its cousin, Trader Joe’s?
Is there a competitive answer to Aldi? So far I haven’t seen one. Aldi operates around $600 per labor hour. No other competitor is even close. Aldi is just about the only supermarket operator that loves and benefits from being in Wal-Mart’s parking lot. As far as pricing, Aldi makes Wal-Mart look high priced.
Does Aldi have the ability to make a significant move across demographic lines to bring in more affluent consumers? They have already done it. Aldi now carries many upscale gourmet items in their stores. Aldi made this crossover about 3 years ago. Just looks like someone finally figured it out.
Does Aldi share some of the coolness factor of its cousin, Trader Joe’s? No. Aldi is plain and simple. Aldi is not trying to be cool.
I remember Aldi from my years in Denmark. High quality, low prices, locations a bit out-of-the-way, clientele from across the spectrum. It’s a great niche, and yes, has similarities to Trader Joe’s. Does it have the ability to make a significant move across demographic lines to bring in more affluent consumers? Well, it is a sweet spot: the growth of affluence has been extraordinary, and when you add that to the growth in sophistication (and hence, the “affluent-minded”), you have great potential. But the whole point of being in lower-cost locations was to keep prices low. So, as always, it’s an issue of expenses and margins, isn’t it?
There is nothing new in the Aldi formula and appeal. There are price shoppers at all income levels and most people have some place or things they want to save money on. High-end consumers will drive 5 miles out of the way to save 2 cents on a gallon of gas to fill their BMW, and at $3.00 a gallon, that is not a lot of savings. Some shop for items at dollar stores. Others try and save money on groceries or furniture. Consumers at all levels try and save money on something. Aldi will appeal to that group that thinks food is the place to save.
Aldi’s position is clear, distinct and desirable–no frills, decent quality, and the lowest prices. There are no surprises at Aldi. The same cannot be said for many of its competitors. What is the unique selling proposition of its competitors? In addition, while some consumers need to save money on food, everyone likes to save money. This move makes sense!
In Canada, we have a shopping phenomenon which is unlikely to be unique: middle-income shoppers frequent discount stores and then use their savings to help fund high-end appliances, spa treatments and vacations. Thus you see a considerable number of BMWs, Volvos and Lexuses in the parking lots of discount retailers.
It’s sort of mix-and-match. It’s the smart version of diet Coke wise, pizza foolish. In addition to the core discount shopper demographics, Aldi would attract the above crowd, too.
Aldi has the concept down pat and their merchandise assortment is unique and of good quality. What they need is to get to the customer service levels that Trader Joe’s has and then they will become a strong presence in the communities they serve. Word of mouth marketing spreads faster in the markets Aldi serves.
Aldi is a great stock-up store for basics, no matter what is in one’s wallet or bank account. Hint: Bags of very good real chocolate chips are 99 cents at my local Aldi. I’ll be loading up on those soon for holiday baking. The checkout line is sometimes an issue but we’ve mentioned here before that quite few stores seem to have problems in that area. Many people won’t drive miles to find an Aldi, but as their stores become more ubiquitous and move into wealthier areas, customers will flock there.
I am amazed at how much better Aldi’s prices are than Wal-Mart’s. If you can accept the small assortment and very generic looking private labels, you can save a lot of money on groceries at Aldi. I too have noticed expensive cars in the Aldi parking lot.
I wonder how many of the commentators have shopped at Aldi and tried the food? Decent quality is probably a fair description–maybe a little generous. To compare this to Trader Joe’s is, however, ludicrous. Aldi can say what it wants, but it is a low-rent image (as well as low-cost) and you don’t have to stand outside one here in Atlanta very long before you figure out that its demographics are fundamentally different from Trader Joe’s.
Poor people have to save money and rick people love a bargain. Aldi covers the entire spectrum of shoppers.
These are people who used to choose the tile on the floor so that it looked a little shabby and gave the impression of a low-end retailer with low prices.
However, if you really look at Aldi, they have a dual approach and indeed have begun to stock what might be called upscale items and fancied up some of their stores.
They’ve been in the U.S. since 1976 and been flying pretty much under the radar. But I get the feeling that in the next few years you are going to see more emphasis on store expansion in “A” and “B” sites.
Aldi has a niche in the marketplace with good (not great) quality products. If you are looking for staple items (canned vegetables, paper towels, etc.) Aldi is a perfect retailer. But to insinuate that they have the same potential cache as a Trader Joe’s is stretching it a bit. They lack the great “treasure-find” retail surprise that a Trader Joe’s provides. I think a closer competitor to Aldi is a 99¢ Only Store. They carry staple items, many of which are food, and they offer great finds at great discounts. Put these stores next to one another, and I think the affluent customers will choose 99¢ Only stores over Aldi every day of the week….
Aldi is a great example of a well managed retail chain. Since 1976 they’ve gone to 850 locations, concentrated in only 26 states. So they’ve kept their logistics and supervisory costs reasonable. They only have about 1,000 different items in each store, so they’re focused on what is profitable. Most of the assortment is private label, so they get better margins. They keep things simple for their suppliers: no slotting allowances, rebates, or coupons. They offer their suppliers entree to sell their sister stores on 3 continents. Well-managed retailers know their identity, their core customer, their competitive positioning, their sourcing and their cost structure. They don’t focus on copying others or worrying about whether they need to grow their locations quickly to shut out the competition. They don’t worry about one-stop shopping. They stick to what they’re good at, and get better continuously. Theo and Karl Albrecht are supposedly Germany’s richest men, earning 1.5 billion euros annually. Not bad for folks who run seemingly very “simple” supermarkets.
As more and more residents of affluent neighborhoods retire, the popularity of Aldi will increase with these consumers. You can believe the “low inflation” propaganda Washington is pushing but no one at the supermarket is listening. Today, hamburger costs more than ribeye did five years ago. Any retailer that stresses “value,” which I define as high quality at reasonable prices, will do well and grow their business among the affluent. If one believes the statistics, the most affluent group (the baby boomers) will begin retiring in droves and they won’t be cutting back on their recreation. Aldi seems to have the formula down for pantry stocking and saving money on pantry items means more money for other things.
The discussion about TJ’s is interesting since it’s owned by Aldi Nord, Theo Albrech’s branch of the business. Aldi Nord and Aldi Sud are legally separate operations but share information on suppliers, packaging and quality.
The Aldi stores in the US are operated by Aldi Sud. Thus it’s highly lightly that the Aldi stores have full access to TJ suppliers, pricing and logistics.
It would be interesting to see what sort of overlap occurs in product between TJ’s and Aldi.