Will Aldi upset the grocery home delivery cart?

Discussion
Photo: Aldi
Aug 14, 2017

If you can’t get to Aldi, perhaps Aldi can come to you. The hard discount grocery chain has confirmed that it will begin a test of home delivery with Instacart at the end of the month. Aldi will expand the test, set for parts of Atlanta, Dallas and Los Angeles, if the pilot program goes well.

Aldi, which is known for high quality private labels and low prices, has been on an expansion tear. In June, the chain of roughly 1,700 stores announced a plan to invest $3.4 billion to expand to 2,500 locations across the U.S. by the end of 2022. Aldi expects to be the third largest grocery chain in America by that time.

“We pioneered a grocery model built around value, convenience, quality and selection and now Aldi is one of America’s favorite and fastest growing retailers,” said CEO Jason Hart in June. “We’re growing at a time when other retailers are struggling. We are giving our customers what they want, which is more organic produce, antibiotic-free meats and fresh healthier options across the store, all at unmatched prices up to 50 percent lower than traditional grocery stores.”

The chain follows Costco, Kroger, Publix, Wegmans and others that have dipped their toes into home deliveries of groceries in partnership with third parties. This allows Aldi to test the waters with minimal investment.

“Aldi follows the digital world and e-commerce just like everyone else in the business,” Scott Patton, Aldi’s vice president of corporate buying, told Fortune. “Online grocery retailing will be part of the future.”

Mr. Patton said Aldi’s decision to test home delivery with Instacart predates Amazon.com’s deal to acquire Whole Foods. Reports have suggested that Amazon’s push into grocery, which is expected to accelerate should its bid for Whole Foods be approved by regulators and shareholders, was a motivating factor for Aldi. Speculation is that Amazon will replace Instacart, which has received investments from Whole Foods and currently handles the chain’s home deliveries, once the deal is finalized.

DISCUSSION QUESTIONS: What effect will Aldi’s home delivery option have on its business? Will the addition of delivery fees, for example, offset Aldi’s price advantage? What will Aldi’s move mean for the traditional grocery stores that compete with it?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Shoppers in higher-end areas will pay the delivery charge, knowing that the total for the food will be much less than at other stores. "
"I am not sure I agree with the word “upset.” The only thing that is going to “upset” grocery home delivery is if something stops it."
"Will Aldi lose some of its price advantage when delivery cost is added? Will anyone care?"

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19 Comments on "Will Aldi upset the grocery home delivery cart?"


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Ben Ball
Guest

For some reason, the mention of Aldi and home delivery struck a discordant note with me from the moment I saw the headline. The core positioning of a “hard discounter” and the ultimate service of home delivery seem to be in direct conflict. It strikes me as Sam Walton driving around Bentonville in a luxury Cadillac SUV instead of an old pickup. The problem with my knee jerk reaction, of course, is that it isn’t based on any knowledge of how Aldi shoppers will perceive this offering. Many of the Aldi shoppers in our Chicago suburb neighborhood lived in million dollar homes and did most of their shopping at Mariano’s and Trader Joe’s — but they still loved Aldi and bragged of their bargain finds of high quality foods. Would they welcome Aldi home delivery? Or will it destroy the mystique of the “hard way”?

Richard J. George, Ph.D.
BrainTrust

While I am a proponent of offering a variety of convenience options for customers, I believe it needs to be accomplished within the supermarket’s current umbrella. Aldi is a value retailer and has carved out a profitable niche in the U.S. market. I recognize that the Instacart deal is a test and too much should not be read into it beyond that. Personally, I am not a huge fan of using Instacart as Instacart becomes the owner of the customer, not the retailer. However, in this case, it does allow for a relatively risk- and capital-free test.

Tony Orlando
Guest

Aldi will do pretty well with this, as they already have a huge base of discount shoppers. Shoppers in higher-end areas will pay the delivery charge, knowing that the total for the food will be much less than at other stores. So why shouldn’t Aldi give it a try using Instacart rather than investing millions to do it themselves? If it doesn’t work, Aldi could end it with no out-of-pocket losses.

Bob Amster
BrainTrust

For a discounter to deliver without fees would spell disaster. If consumers find the discounted prices so attractive that the delivery fee is worth the convenience, they’ll do just fine! Wait and see.

Steve Montgomery
BrainTrust

The addition of delivery services will increase the size of the potential customer base for Aldi. However there are many unanswered questions. Will Aldi lose some of its price advantage when delivery cost is added? Will anyone care? Will those customers that shop Aldi increase their purchase frequency and/or total annual purchases? Will delivery attract new customers? There is no question that adding delivery will impact Aldi and its competitors. However, it is far too early to tell how much of a difference it will make for anyone.

Neil Saunders
BrainTrust

Aldi has long resisted developing its own e-commerce operation as it would add complexity to its low-cost business model and would be uneconomic. However, while still small, the number of U.S. consumers using online grocery is growing; and, by our forecasts, online grocery spend will increase by 114 percent over the next five years. Instacart provides a ready made solution which allows Aldi to access this high-growth online market without significant capital expenditure or disruption to its business model. It also potentially exposes Aldi to a slightly different demographic, and new shoppers, thanks to Instacart’s existing user base.

This is also good for Instacart which counts Whole Foods as one of their more significant partners. Obviously, once the existing contract ends, that relationship is potentially in doubt. Adding more retailers, like Aldi, helps Instacart to balance their portfolio of partners.

David Livingston
Guest
5 years 4 days ago

Aldi is so far in left field anything they do will not affect traditional grocery stores much. I’m wondering if delivery will put them in play to compete with institutional wholesalers. I know at my local Aldi, when avocados go on sale, local restaurants come in and clean them out.

Joanna Rutter
Guest
5 years 4 days ago

Are you sure those aren’t roving gangs of renegade Millennials? I hear they love avocados.

In all seriousness, I’m curious what you mean by left field? This is, after all, the age of the left-fielder.

Chris Petersen, PhD.
Guest

If you are not offering home delivery, you will not be in the game.

The interesting question for the future is whether retailers like Aldi will be able to build out their own logistics, or if all but Amazon and Walmart will be dependent upon third-party delivery for the last mile.

With Aldi now entering the home delivery game on the back of Instacart, one has to wonder how long it will be before someone buys Instacart. If Bezos were running Walmart, an Instacart acquisition would probably already be in the works.

Keith Anderson
BrainTrust

Many Aldi shoppers shop there out of choice, not necessarily need. The value equation (quality for the money) makes sense.

If Aldi and Instacart can land on pricing and convenience fees that align with Aldi’s core value proposition, this test may help them reach new shoppers and ultimately sell more. Perhaps Aldi will be among the first to make online grocery economically sensible for the masses. (Though I do wonder if this test isn’t a stepping stone to Aldi developing its own capabilities, which would seem better aligned with their focus on relentlessly excellent and low-cost operations.)

This is also yet another signal that offering convenience as an option is increasingly considered table stakes.

Roy White
Guest

Aldi is doing what others have done — working with Instacart to get into digital selling. They join the likes of Wegmans, Costco, Publix and a myriad of other grocery chains in using the Instacart service. So in a sense Aldi, which bases its go-to-market strategy on being different from everyone else (for now, anyway), appears to be making an initial, and necessary, step into the digital world.

The importance of this development lies more in the future. Aldi is ramping up a massive expansion program with the aim of being the third largest chain, and that makes their entry into digital selling important in and of itself. However, I think the digital programs they put into place after they assess the results with Instacart will more likely be the game changer than what they are doing now.

Joanna Rutter
Guest
5 years 4 days ago

I don’t disagree with Mr. Patton in predicting that online grocery shopping will be the wave of the future. That excites me — I hope that future reduces pollution from bulk/global transportation and eliminates the need for wasteful packaging, too. Aldi is positioning itself well for the years to come. At this point, for a large grocery chain to ignore BOPIS and home delivery would be foolish indeed.

A compelling edge Aldi has against the Whole Foods’ of the world: It’s often the only affordable healthy choice in cities already riddled with food deserts. (I’m speaking from the NC Piedmont, which is consistently in the top five most food-insecure areas of the U.S.) Even with the cost of delivery fees, home delivery service would allow those neighborhood barriers to be crossed affordably, especially for consumers who don’t have access to reliable transportation. That’s an entire market of hungry shoppers Whole Foods can’t serve.

Mohamed Amer, PhD
BrainTrust
Mohamed Amer, PhD
Independent Board Member, Investor and Startup Advisor
5 years 4 days ago

Online grocery will be a significant part of grocery’s future. Let’s not equate being a hard discounter with a lack of innovative delivery options or ignoring major social and retailing trends. The key for Aldi is to test and understand the impact on their supply chain through assortment and packaging, as well as to manage expanded customer communications and new touch points.

Using a third party allows Aldi to learn in a low financial risk model. It’s not a question of if, but when the grocery segment as a whole will be knee deep in online grocery. The early movers will have a longer runway to understand the business impacts and address them accordingly.

Gene Detroyer
BrainTrust

I am not sure I agree with the word “upset.” The only thing that is going to “upset” grocery home delivery is if something stops it. Home delivery of groceries will continue to grow and grow and if a grocer is not seeing it, they will be left holding their grocery sack.

Mel Kleiman
BrainTrust

For starter let me say that I love shopping at Aldi, though I don’t go there often because of some of the limited selection … and now for the “but.” If they had home delivery they would get more of my business.

I would not mind paying the delivery fee because I still think I will save money, but more importantly I would get a quality food product.

Harley Feldman
BrainTrust

Home delivery will expand Aldi’s market share. The cost of delivery will be similar across all grocery chains, and Aldi will still have its price advantage with the reduced price of its groceries. So people willing to pay the fee for home delivery will pay regardless of retailer.

Aldi’s move will put more pressure on traditional grocery stores. Much of Aldi’s growth comes from high quality, yet low cost, groceries. Adding in a competitive fee for delivery will accelerate this trend.

Craig Sundstrom
Guest

What’s next, a dollar store offering home delivery … presumably with a $10 delivery charge on a 50¢ item?

I think anyone familiar with my thoughts on the subject knows I see grocery delivery as a niche business at best, and this seems to challenge every assumption that might make the niche work. I’ll give Aldi some benefit of the doubt, given their general level of expertise, but I don’t have much faith in it lasting.

Ricardo Belmar
BrainTrust
Ricardo Belmar
Retail Transformation Thought Leader, Advisor, & Strategist
5 years 4 days ago

This may turn out to be a better deal for Instacart than for Aldi, but I suspect there are a number of customers, and those hoping to become Aldi customers that will give this a try. I expect the test will go well and it gives Aldi an easy entry into ecommerce. Delivery seems to be the hot trend in grocery right now and I’m sure Aldi doesn’t want to miss out on the potential uplift in sales in what’s becoming a highly competitive grocery retail segment.

Christopher P. Ramey
BrainTrust

After visiting Aldi for the first time, my conclusion is their fastest track for growth is to keep best prospects out of their store. Delivery makes perfect sense; let’s hope the execution is superior to their in-store experience.

wpDiscuz
Braintrust
"Shoppers in higher-end areas will pay the delivery charge, knowing that the total for the food will be much less than at other stores. "
"I am not sure I agree with the word “upset.” The only thing that is going to “upset” grocery home delivery is if something stops it."
"Will Aldi lose some of its price advantage when delivery cost is added? Will anyone care?"

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