Credit Cards Not in Aldi’s Future
As an article on the Digital Transactions website points
out, Aldi doesn’t do credit cards. Sure, the company is running a test in
49 stores in Oklahoma, but that has been going on for three years now with
the company maintaining it has no plans to expand it.
Mark Bersted, vice president for Aldi, told Digital Transactions that
the cost of accepting credit cards does not make sense from the chain’s perspective.
“People not using credit cards would be paying for people who
do want to use them,” he said. “Because of the very high fees with credit
cards, we would be unable to keep our prices as low as they are.”
Adil Moussa, an analyst
with Aite Group LLC, said of Aldi’s policies, “People will pay cash if they
know they’ll get a good deal.”
Discussion Questions:
Is not accepting credit cards a competitive advantage for Aldi? Do you
think this approach only makes sense for retailers serving low income
consumers or does it have applications with other groups of consumers,
as well?
Gee, maybe they should try accepting only gold coins. And, oh by the way, we require you to wear a nice outfit when you shop in our store.
Seriously, this is a classic example of the opposite of customer-centricity. Most consumers stopped carrying cash in significant quantities long ago due to the convenience of carrying plastic and/or safety concerns. More importantly, in this hyper-competitive environment, the idea that a retailer would start setting conditions on how to shop in their store will lose a lot more customers than it will attract with claims that they are passing the savings on to the customer.
This is not a good idea.
This is nutty. How about not letting customers pay with crinkly old dollar bills? It just makes no sense. Let people pay however they want to, as long as they’re willing and able to pay. Credit card processing fees are a small cost when you think about the lifetime value of a customer.
Achtung! For Aldi to increase their costs one dime would be considered a crime. They appeal to their audience on price alone. Aldi isn’t in business to improve the quality of the shopper’s life and credit cards are a distant resistant.
It’s kind of worked for Costco for a all these years (granted in Canada they only accept AMEX which is not the most popular card). Accepting credit cards can be a costly proposition and Aldi’s mantra is low low low prices. Adding another .5-3.5% per transaction will eventually filter down to the customer. Aldi is in a critical growth phase right now and needs to keep customers coming in because of the low prices. Perhaps they could set up a gift card program and then sell those gift cards at gas stations that accept credit cards? I call it the Retailer’s Quarterback Sneak….
Not accepting credit cards is a competitive advantage for Aldi. This helps Aldi maintain its low price structure. Aldi caters to all income groups and lately they seem to be hitting it off well with higher income groups.
Oklahoma is an interesting market, particularly Oklahoma City. Typically, Aldi loves to be across from a Wal-Mart Supercenter because Aldi has lower prices than Wal-Mart and can feed from Wal-Mart’s regional draw. However in Oklahoma City, Wal-Mart has nearly a 60% market share with multiple Wal-Mart Neighborhood Markets in close proximity.
I’ve heard Aldi doesn’t do well in Oklahoma and my guess would be they are not drawing from greater distances due to over abundance of Wal-Mart locations restricting pulling power. Also in Oklahoma City is Crest Markets which my local insiders claim has slightly lower prices than Wal-Mart. OKC is a good city to do grocery shopping.
Aldi has a great proposition for those inclined to carry a lot of cash or a checkbook but as pointed out above, this not being customer-centric.
The data is clearly out there that in almost every category customers paying with plastic–whether credit or debit–have a higher average transaction. Yes it might “cost” more, but this is a classic example of a company not understanding how to test and develop a business case to make an investment in creating a better customer experience.
Credit and debit are not going away, cash and checks are continuing to decline and Aldi’s decision is great for competition!
I had shopped at Aldi a year back; I had to insert a pound to get the shopping cart out (though refundable when I put it back) and pay for extra bags at the sparsely staffed store, and yes I did pay cash! But, was glad that I had bought my weekly groceries for almost half the price I would otherwise pay at a Waitrose. Low cost is the key differentiator for Aldi and at times, certain minor things which are taken for granted add up to a huge cost.
Aldi’s strategy is clear: to offer products at low cost. They know that customers do not come to their stores for service or ambiance and are hence playing it right. Yes, not accepting credit card would mean customers not buying high ticket items, but based on the customer segment and the products offered at Aldi, the strategy suits them the best.
Not to stereotype, but I have found European retailers very cost conscious and focused on passing the value to the customer. One of our customers, another leading grocer in Europe has found several small but effective ways to reduce costs. They believe it’s not just about the image of low cost, but that a low cost and better quality attitude needs to be ingrained in the DNA of the organization. One good example of this is that they painted only three sides of the parking lot, instead of all four and saved over a million Euros just in painting costs. Such savings are passed on to the customer, to build a circle of trust and loyalty.
While I understand Aldi’s desire to keep all costs to a minimum, customer convenience needs to play a factor in their decisions, and since most customers carry credit cards, Aldi should accept them. They could take a Costco-like approach and only accept one card, which comes with favorable terms from the issuer or could accept them all. I wonder if they are seeing different basket sizes and store traffic in the test stores that are accepting credit cards.
The simple and obvious point is that very high value retailers can charge the fees they pay back to shoppers when they use their credit cards. Thus the shoppers are in charge.
Out of my area of expertise, but what about cash discounts, as I’ve so often seen at gas stations? Credit card companies have for too long had it all their way, although the changes coming next year will help a little. FMI has been all over the interchange fees; if you go to www.fmi.org you can read about it.
It should be an advantage to offer some type of credit/reward program, following the Costco model. Customers understand the costs of using bank machines in some regions; expecting that shoppers will accept transaction fees could be counterproductive. Surprising that Aldi wouldn’t use this kind approach, or a creative way to reward cash purchasers if one of the major cards was accepted.
The Consumer has an understanding that someone has to pay for the cost/use of a Credit Card. And, it is likely that a portion of ALDI customers are willing to capture cost savings that they feel ALDI shares with them, by paying CASH.
Could be that ALDI sees this group of Consumers as their target. If they can make the system run (and they have seen growth), sans credit cards, have at it.
Have any of you even shopped at Aldi? You can use debit cards so there is a plastic option. If they don’t want to accept actual credit cards so be it…their consumer base usually has a debit card first anyway, I would assume. I live in Chicago and they are doing quite well without credit cards.
Aldi has been doing quite well retaining and adding customers. They have been carefully growing and expanding for years without taking credit cards, by not using baggers, and by having customers bring in their own shopping bags if they don’t wish to pay for new ones. The cart scheme where customers re-park their own carts at the entrance and get their quarter deposit back completely eliminates the need for Aldi to hire a parking lot cart corraler, another overhead savings they have over their competitors. Most important, the people who shop regularly at Aldi feel they ARE getting good customer service by being able to purchase basic groceries in a no frills environment at the lowest prices anywhere.
Aldi has recently been opening stores in significantly higher income and higher education neighborhoods. They appear to be thriving in those areas so the low income stereotype is just that–a stereotype. The small footprint size of Aldi’s stores is also appealing to many who for various reasons don’t like the football field sized stores of Aldi’s competitors.
Aldi’s current business model and operation works well for them and has proven very popular with the growing segment of the population who love what Aldi represents. I hope that those urging Aldi to change their bare bones philosophy, which could only increase operating costs, are ignored by Aldi. The grocery stores which must charge higher prices because of the extra “services” they ostensibly offer–but continually fail in the execution of that enhanced customer service–are the ones we should be criticizing. Let Aldi be Aldi.
The debit card or cash option works just fine for them and their customer. Their sustained growth should speak to that–enough said.
I’ve shifted my buying to Aldi when I need to do a larger grocery shopping trip…it’s turned out to be the best value in the market and I’ve had to be trained by them in how to shop because I am used to using credit cards but this is food…highly perishable, so as a consumer I prefer not to used credit cards for grocery shopping anyway.
And in this environment I think they are striking the right chord with the consumer. They save me money, they make it easy. It’s an uncomplicated transaction overall in a shopping experience and because they save me on average $15.00/trip, the terms are worth it.
Then I go to their sister store, Trader Joe’s, for a little glam, but still derive the savings.
The problem, if there is any, is that their locations aren’t everywhere though where they are is still pretty convenient; however, I still have to do the fill-ins from my local grocer who is everywhere.
Fortunately for my life, Walmart is no longer in it. Since I made that decision, life has become much easier to navigate.
The plus side of this recession is that while we are adapting our lives to a new normal, we are learning who and what shopping outlets are doing the same.
Many consumers want to give up their credit cards right now, so Aldi’s policy is only helping them break the habit.
My mom loves to shop Aldi. She knows that she can not use her credit card there, and accepts that fact, though she uses it just about everywhere else, for nearly every purchase.
Her nearly 100 percent credit card usage helps me with her finances. But she won’t trade shopping Aldi for anything; she loves the Aldi quality and their great low prices.
So there is a trade-off, lower prices or convenience. I guess Aldi has chosen the correct path. That’s why it has over 1,000 locations in the U.S. and millions of satisfied customers.
There are two ways to maintain lower prices…
1. Cut out input costs.
2. Sell a lot more.
The first option means refusing credit cards, taking staff out of stores, making customers pay a quarter for the cart and bag their own groceries.
I’m not suggesting that there is one right way but we have to admit that the first option isn’t exactly the customer-centric approach. In fact, with option one as your strategy, you may never get a shot at option two.
They can’t do that! This is America! (Kidding.)
If the fast food guys have figured it out, Aldi can figure it out. And, like the fast food industry, they’ll see that giving Visa/MC a piece of the action will be more than made up for by increased sales.
Aldi is being penny wise and pound foolish. We are a society that uses credit cards and is moving further away from cash every day. This translates into extended purchasing (the reason for credit cards) without impacting the cash you have on-hand. Aldi is ignoring the shopping habits of the American consumer. America has not been a “cash only” society for many years and the quicker that Aldi recognizes this, the better their business will become. Aldi is using the cost of credit (and not the value of credit) to reshape their entire business model and this will be their downfall as their competitors take advantage of this.
Credit Cards are not too far behind checks as a way we once paid for things. This current recession has soured many on credit cards. Top credit people being told they will be charged 30% interest on any balance not paid off are not using their cards. Simply put, the Credit Card companies have gotten too greedy for their own good and killed the golden goose. As consumers de-leverage, credit cards are first on the list. This will not hurt Aldi; expect other retailers to follow.
So if Aldi wants cash only, they can also expect lower sales. If I walk into the store with a shopping list and a certain amount of cash that’s all I can buy. However, many times I see and pick up extra things and wouldn’t be able to do that at Aldi. Customers may save money, but the practice also limits what consumers will buy.
I have a different perspective on this matter as both a self-employed person and as a sometime shopper at Aldi in Ohio. On the one hand, Aldi does accept debit cards but it is still a pain because I’m never sure if I’m going to be charged a transaction fee or not. On the other hand, I am a self-employed lawyer who decided to have the ability to take cards on the theory that you’d better strike the iron while it’s hot. Let me tell you it really hurts to run through a $1,500 transaction and get gouged I don’t know how many times. I don’t have the volume to justify a terminal, so I get gouged for running a transaction through my PC even. There is no way it should cost $80 to run a single transaction through. It hurts. Based on this experience, I’m 100% with Aldi. Leave the greedy banks out of the loop.