Aldi Adds Gas to Fuel Future Growth
Is it a sign of things to come in the U.S.? Aldi, according
to reports, has opened three service stations in Austria and it is following
its standard script of undercutting the competition on price to capture
market share.
Aldi’s prices were so low that long lines were created by motorists looking
to fuel up. Motorists from nearby Germany crossed the border to get fuel
at prices well below market rates. According to Datamonitor, Aldi plans to
settle on prices in Austria that are E0.02-E0.03 below market rates.
The chain operates 8,400 stores in Europe and more than 1,000 stores in
the United States.
Discussion Questions: Is opening gas stations
a good move for Aldi? How much more formidable a competitor would it
become with gas operations in the U.S.?
This is an excellent move. It provides another reason for consumers to visit Aldi and is in line with the overall position of the Aldi brand: no frills and lower prices. If Aldi were to bring the same strategy to the US, lower gasoline prices would definitely drive more consumers to visit their stores.
People like to economize on those necessities they have to have but can’t touch, eat, drink or wear such as gasoline. Adding gasoline will be another economic rose bud in the Aldi retail garden.
It might work in some places in the US but some states have minimum markup laws preventing the discount selling of gas. Naturally, Aldi will probably be a cash-only provider. This presents a problem because let’s say gas is selling for $3 a gallon. Aldi sells theirs for $2.90 but consumers use a credit card that rebates them 5% for gas, for a net cost of $2.85. State regulators would prevent Aldi from selling too cheap and they would not be able to compete with the gas stations that enable consumers to get credit card cash rebates.
The addition of fuel to HVRs (high volume retailers) has been around for a long time. In Europe the hypermarkets have a very large portion of the retail fuel business. Aldi may have actually been at a competitive disadvantage there by not having fuel.
Here in the U.S. many years ago, companies such as Sears sold fuel and then stopped. With the advent of pay-at-the-pump and other changes many HVRs got back into the fueling business. For a period of time there was great concern that what had happened in Europe would happen here. It didn’t for too many reasons to include in this post.
Today, many of the HVRs have found that fuel can either be a good or bad thing. Companies like Costco and BJ’s got into fuel and suddenly found that they were selling so much that it could impact their profits (good and bad). Fuel went from something that they mentioned in annual reports to something that they stated caused large swings in their profits.
Others like Albertsons built a number of sites on their out lots only to sell them (Valero). Walmart had almost 1,000 of Murphy USA’s fuel locations on its out lots until they ended their relationship (sites still there but now independently operated by Murphy). Still others such H.E. Butt have learned how to not only use fuel to drive additional sales inside their supermarket, but also to be a stand-alone profit center.
Will Aldi add fuel to its sites in the U.S.? Unknown. Will it be a good thing for them or not? That will depend on their approach.
This is a great move. Hopefully Aldi will be able to extend the idea to the US market.
In Canada, Canadian Tire sells its own branded gas, as does 7-Eleven in the US. I guess the next step would be brands like Stop & Shop and Walgreens? Isn’t that what “one stop shop” is all about?
Will low price fuel drive traffic? The answer is yes. It has always proven to work. Now for the “buts”.
With pay at the pump, will they walk into the store? The fuel market in the US is very different than the fuel market in most of Europe. Some state laws control price. A lot of Aldi store are in poor fuel sales locations.
If fuel was such a great driver for the low-end retail sales market, why has the dollar store segment opted to stay out of it?
As others have said, this is tried-and-true in countries around the world. I’m surprised they haven’t done this already!
By driving customers to their fuel pumps, Aldi increases the traffic to their stores. This is why c-stores have moved to gas, as have Costco and many other retailers. This is a winning combination at retail. Aldi has recognized this, and as fuel continues to impact purchasing behaviors, people who might not go to Aldi, will now stop in since they are there getting gas.
For Aldi, this is another way to get people to the store. Expanding the value image to the pumps could work well for them. Aldi is often a stock-up destination, providing incentive for a consumer program that will reward their target shoppers. For c-stores, their gas pumps are for convenience; for club stores and similar sites, it brings the value proposition home.
This is an A+ move for Aldi, with their new store design and current economic conditions adding gas to the equation will be a win-win. For the consumer that is not a core customer this will bolster well for Aldi. Drive them in for gas, direct to the store and create a new customer. The Aldi group operates about 8,078 individual stores worldwide.