Is a new store concept the start of something big(ger) for Aldi?

Discussion
Typical Aldi US store interior - Photo: Aldi US
Oct 14, 2020
Matthew Stern

Over the past few years, small format store concepts have allowed some of the nation’s biggest retail chains to successfully establish a footprint in urban environments where a traditional big box would not fit. One of the nation’s fastest-growing discount grocers, however, has recently decided to go bigger.

Aldi plans to open a 25,000-square-foot store in Philadelphia in November, according to BillyPenn. The store, which will take up the ground floor of a 14-story mixed-use tower, will have a fresh food section 40 percent larger than what is found in other Aldi locations.

Aldi stores are typically 16,400 square-feet with 10,000 square feet of selling floor, according to the Aldi corporate website. The chain touts its “modest store size” as one of the reasons it is welcomed by communities.

Aldi has also experimented with smaller concepts similar to those that have brought so much success to other retailers, such as Target.

In March of last year, Aldi began piloting a store concept in London called Aldi Local. The Aldi Local store has no parking lot, is only 6,400-square-feet and stocks roughly 300 products compared to a conventional Aldi unit’s 1,800 SKUs. There have thus far been no announcements about plans for Aldi to expand the smaller store format.

A 1,000-person survey in the U.K. performed by Lumina Intelligence, however, found that 53 percent of shoppers polled would like to see small concept Aldi stores placed in other busy areas and shopping districts.

In addition to the new large concept Philadelphia Aldi store, the multi-use building will feature 475 apartments and a preschool, BillyPenn reports.

The German budget grocer has been a top performer throughout the novel coronavirus pandemic and continued on pace with its planned expansion into the U.S. In mid-July, it announced that it would be opening 70 stores this year and entering the Arizona market for the first time. In 2017 Aldi announced plans to become the third-largest U.S. grocer, behind Walmart and Kroger, by 2022, and recently surpassed a store count of 2,000.

DISCUSSION QUESTIONS: Do you think Aldi will be successful with a bigger box concept that includes 40 percent more space for fresh food? Would you expect the economics around operating larger boxes to have any effect on Aldi’s pricing or other elements of its business at those locations?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Aldi has been brilliant at operating stores on a shoestring budget. I think their strategy will scale well and be successful."
"Where Aldi is expanding, other grocers with larger footprints are simply carving space away from center store categories."
"Investing in fresh food adds even more value to Aldi’s efficiency, affordability and award-winning private labels. "

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23 Comments on "Is a new store concept the start of something big(ger) for Aldi?"


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Art Suriano
Guest

Partly due to the pandemic, partly due to the changes in shopping (meaning more online) and partly due to the retail differences with so many businesses experimenting, I see this as another “let’s try it and see.” It has as much of a chance to be successful as it does to not be. I commend Aldi for taking the risk because, most of the time, until we try, we will never know. Aldi will learn two things: How customers will react and how it will change their operation. If customers are eager and store traffic is good, they’ll be off to a good start. However Aldi must still measure store traffic and purchases against operating costs. Only time will tell, but I am pleased to see that Aldi has introduced the concept, and I wish them well.

Neil Saunders
BrainTrust
Aldi is extremely successful and has disrupted the grocery industry across many countries. However it is not always so good at flexing to local needs and it needs to experiment more. This now seems to be happening with attempts at smaller local stores in the U.K. and slightly larger stores in the U.S. Both are customer and market focused. In the U.K., local convenience stores have been a growth point for many mainstream grocers like Tesco, Sainsbury’s, and the Co-op. Asda is only just moving into this space and Aldi senses an opportunity too. In the U.S., we have studied Aldi across a lot of markets and there is a divergence of customer opinion. A lot of people love the low prices, but there are significant numbers of Americans who dislike the relative lack of choice and the more sparse produce sections. Larger stores should help remedy this. All that said, Aldi’s operating model relies on simplicity and uniformity, it will be interesting to see how they balance that with the need for flexibility and… Read more »
Suresh Chaganti
BrainTrust

Aldi is doing multiple store formats from 6,400 to 25,000 square feet. That shows a company that is willing to be flexible and has the ability to execute. It’s not easy. New site selection and development is based on enormous research of local communities and competitive landscapes. It is anyone’s guess whether it will be as successful as Aldi hopes, but it is good to see the ability to adapt.

Chris Buecker
BrainTrust

Aldi has always been a champion in efficiency along its supply chain. This has been a strong success factor. Consumer habits are changing and shoppers are looking for more variety (healthier food, convenience products, organic, gluten-free etc.). I am sure a bigger store concept will be strictly bound to their commitment to efficiency and therefore be successful.

Brett Busconi
Guest

I do think that adding some larger stores to their footprint is a good test. Where this store is located should allow Aldi to have a good test as there are few large grocers operating nearby. (Fresh Grocer is the only one I believe.)

Can they make up enough on the volume and higher margin options to support the larger boxes? That will be the question to see them answer. I like the plan.

Jeff Sward
BrainTrust

There’s no question that “small” can also mean focused and efficient. And in the couple of Aldi stores I have been in the fresh food section was definitely small. So 40 percent bigger than small could very well be “right-sized” and offer the shopper a less constrained assortment — and still be efficient enough to enable Aldi’s great pricing. Aldi is clearly experimenting with what an optimum footprint looks like.

Gene Detroyer
BrainTrust

Makes sense to me. What can a supermarket offer that Walmart online or Amazon can’t? FRESH FOOD! That is the future of brick-and-mortar grocery. Is there anything in the center store that Walmart online or Amazon can’t provide more conveniently?

Gary Sankary
BrainTrust

Fresh produce, meat and dairy are frequency drivers. The limited assortment of produce particularly has been one of the few complaints I’ve heard about my local Aldi. It makes sense to roll out a bit bigger format in markets where customers are likely to use Aldi for their primary shopping trip. This includes urban neighborhoods that today are often underserved in grocery and where access to fresh food is a problem. It drives traffic and makes Aldi that much more credible as a one-stop grocer. The expectation is that the volume of these larger stores will offset the additional expenses incurred for staffing and inventory. Aldi has been brilliant at operating stores on a shoestring budget. I think their strategy will scale well and be successful.

Richard Hernandez
BrainTrust

I saw the Aldi Local version in London last year. It does make sense, much like the Sainsbury local formats, where the city is dense and a lot of clientele walk to the market from their nearby apartments or tube stops. H-E-B in Houston opened a 100,000 square foot store at the bottom of a luxury apartment complex last year (it’s a very nice store). One thing I do not see is what segment they are expanding in the U.S. store – perishables maybe?

Cathy Hotka
BrainTrust

Aldi just built a new, larger-format store in Osprey, FL, and the produce and gourmet cheese selections are impressive. They built it in an affluent area near waterfront mansions, and traffic is high. “Discount” doesn’t mean “cheap,” and customers are responding.

Andrew Blatherwick
BrainTrust

I recently visited a larger format Aldi store in High Wycombe in the U.K. and it has a significantly larger fresh and short life area. I was very surprised to see how well it was managed and the quality of the produce. It is much harder to manage fresh and short life than ambient dry grocery but they seem to be doing very well. The shop was very busy and certainly the shoppers there while I was seemed to be liking what they saw with a lot of buying going on.

If this is the next generation then look out other grocers. Aldi are on it and looking good. Along with their smaller city center stores that are still on test here in the U.K., they are attacking the major grocers on every front and seem to be successful too.

Georganne Bender
BrainTrust

People who love Aldi, LOVE Aldi. They will be thrilled with the chain’s new larger format. It will attract new shoppers as well. There is a new Aldi being built not too far from my house and I intend to be there when it opens to observe and interview consumers on how they feel about the new store.

Aldi has a good read on the consumer; adding substantial space for fresh foods makes perfect sense, especially now. We are cooking/eating at home more than ever before and consumers want choice. Buying all the groceries they need in one place makes it easier.

Steve Montgomery
BrainTrust

The trend towards fresh continues to grow albeit taking a hit when COVID-19 arrived and people wanted to pantry load. The issue for Aldi will be no different than for any other retailer. Can it increase sales and margin more than enough to cover the increased costs associated with operating the larger store? The focus on the success of fresh foods and its associated margins will be the key.

Lisa Goller
BrainTrust

Investing in fresh food adds even more value to Aldi’s efficiency, affordability and award-winning private labels. This move makes Aldi more competitive against Walmart, Target and dollar stores as more consumers seek value this year. The new big box format will test whether Aldi can boost shopper volume enough to cover higher overhead costs without raising prices.

Shep Hyken
BrainTrust

Deciding to do a store of this magnitude, compared to other Aldi stores, takes more than a hunch. There must be some data behind the decision. However this is just one store. It’s a test. They are smart to do a small rollout of the new concept to see if it works. It’s a little against the simplicity and convenience Aldi has served up in the past, so it will be interesting to see the reaction of both the consumers and the Aldi leadership.

Brandon Rael
BrainTrust

Aldi’s expansionary and store format diversification strategies have been spot on and their fresh and perishable emphasis aligns very well with the changing consumer behaviors. Revitalizing profitable grocery industry growth during these disruptive times includes curating the center store assortments, increasing the far more profitable fresh and perishables in a store format that resonates with today’s consumer.

With this strategy, coupled with new store formats, value pricing, and an increasing private label assortment, Aldi is making the right moves in the increasingly competitive grocery industry. It is also very unique to see a company succeed with multiple store format and store sizes strategies. Aldi is well-positioned to grow and scale with this approach.

Brent Biddulph
BrainTrust

Yes they will be successful. Expanded fresh food offerings is what consumers want, in fact demand, from grocers. Where Aldi is expanding, other grocers with larger footprints are simply carving space away from center store categories. In their typical fashion, Aldi is moving slowly and cautiously but this is simply a no-brainer for any grocer to expand fresh (plus healthy grab and go and hot prepared meal) offerings.

Richard J. George, Ph.D.
BrainTrust

It appears that Aldi is testing different store sizes, product mix, etc. to fit the new environments it is targeting. The availability of more fresh should be a key differentiator for Aldi, an extreme value retailer with the offerings that match larger traditional retailers. The Albrecht brothers are astute marketers, whose success to date confirms that.

storewanderer
Guest
10 days 18 hours ago

Aldi US is really having to up its game to attempt to respond to Lidl. It is very interesting.

With that said, they have the foot traffic to support an additional fresh offering. This should increase baskets from existing customers, potentially increase visit frequency from existing customers who shopped elsewhere for the items Aldi will now be offering, etc. So why not?

Craig Sundstrom
Guest

The obvious question is “how does Aldi currently operate (what are essentially) supermarket operations in small formats?” As with its fellow Teutonic grocer, Trader Joe’s, the keys are limited SKUs and rapid turnover; the former doesn’t work so well for produce, since the issue is product range rather than brand selection, hence the specific mention of “fresh foods.”

What the rest of the extra space will be used for is less clear, other than the obvious implication of simply serving more customers. Most chains have used larger spaces to both expand the type of services offered (coffee shops, florists, pharmacies) and upgrade the shopping experience (wider aisles). I don’t see Aldi moving in this direction — and it would need MUCH larger spaces anyway — so while I think we’ll see more of these somewhat larger stores, I don’t think we’ll see that many more. Nor will we see a paradigm shift in how they operate.

Matt Cebulski
Guest

Success here will depend on other offerings and initiatives. A 25,000 square foot footprint will not move the dial in the competitive grocery retail landscape. In-store technology, delivery options, micro-fulfillment, and e-commerce growth grounded by a new store layout can.

Gail M Hollenbeck
Guest
9 days 18 hours ago

I love Aldi. It not only saves dollars, it saves time from having to find items in big-box stores. In my area it seems that the big-box stores are constantly moving products around. As soon as you think you can make a quick trip to get a few items, things are moved — turning ones quick trip into a scavenger hunt. Also, Aldi has more consistent pricing than the big-box stores.

GwynneG
Guest
5 days 21 hours ago

Although there is an Aldi in my Dallas neighborhood, there is also a Kroger and a Walmart – all within half a mile of each other on the same road! I’m wondering whose customers Aldi is aiming for. I’m assuming they are gunning for Kroger because they don’t really compete with the everything-in-one-visit Walmart experience. At that point it becomes a wooing contest that (in my estimation) is likely won with price/value over customer experience. A larger footprint (provided the occupancy costs are managed) should help them lower prices. As with the other comments below, I commend them for trying something new; time will tell if it’s the right move but it seems smart on the surface.

wpDiscuz
Braintrust
"Aldi has been brilliant at operating stores on a shoestring budget. I think their strategy will scale well and be successful."
"Where Aldi is expanding, other grocers with larger footprints are simply carving space away from center store categories."
"Investing in fresh food adds even more value to Aldi’s efficiency, affordability and award-winning private labels. "

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