Will anything slow Aldi and Dollar General’s roll if COVID-19 didn’t?

Discussion
Photo: Aldi
Aug 11, 2020
Tom Ryan

The pandemic isn’t slowing down Aldi’s or Dollar General’s ambitions in the grocery space.

In mid-July, Aldi announced plans to open 70 stores this year, including an entry into Arizona. In 2017, the German-based limited-assortment grocer set a goal of becoming the third-largest U.S. grocer (behind Walmart and Kroger) by 2022 and recently surpassed its 2,000th U.S. store.

In a statement, Aldi committed to a total capital investment of $5 billion in new and remodeled stores in the U.S. over the next five years.

“We’re growing at a time when other retailers are struggling,” said Jason Hart, CEO, Aldi USA. “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.”

Dollar General, which is planning 1,000 new stores this year, last week described plans to add three more DG Fresh cold storage facilities to support its phased shift to self-distribution of frozen and refrigerated products.

As of May, Dollar General was self-distributing to more than 9,000 of its 16,500 stores from six cold storage facilities. Once fully operational, the three new cold storage units will support 1,500 stores. The company launched its DG Fresh program in March 2019.

Will anything slow Aldi and Dollar General’s roll if COVID-19 didn’t?
Photo: Dollar General

On its first-quarter conference call in May, Todd Vasos, CEO, said Dollar General “is seeing the substantial cost benefit we expected” from the shift to self-distribution of perishables.

The chain is also using its cold storage facilities to support its accelerated rollout of high capacity coolers as well as expanded offerings. In the first quarter, the number of its stores offering fresh produce expanded to approximately 750.

Finally, the facilities are expected to improve in-stocks. Mr. Vasos said the chain saw a “meaningful difference” in stock levels during COVID-19 “as our customers needed us the most.”

Mr. Vasos said the improved in-stock levels during the crisis “gives us even greater confidence that as we continue to move over upcoming quarters and years ahead that this is really going to pay a big dividend for us.”

DISCUSSION QUESTIONS: How would you assess the unique threats from Aldi and Dollar General to traditional grocers and big box stores in the grocery category? Where do you see their respective strengths and weaknesses in grocery?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
" No doubt neither retailer saw the pandemic coming yet both are better poised than most to survive and even thrive during it."
"Overall this year’s economic downturn, job losses and the end of the grace period for consumers’ rent will fuel grocery sales at Aldi and Dollar General."
"Weaknesses or watchouts for either could be too rapid of an expansion that stretches their teams’ ability to deliver."

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17 Comments on "Will anything slow Aldi and Dollar General’s roll if COVID-19 didn’t?"


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Suresh Chaganti
BrainTrust

Aldi and Dollar General’s strategy is complex to execute, but they have been doing exceedingly well and are positioned for success regardless of the state of the economy. The next 18 months or so will also help them furthermore.

They both are executing a combination of a Costco strategy – low number of SKUs, curated assortment – and Walmart’s focus on price/value. This simplifies the supply chain significantly. But this requires a very high degree of clarity and unique positioning in the marketplace, which both Dollar General and Aldi have done well.

Bob Phibbs
BrainTrust

I live in upstate New York where dollar stores are everywhere. They are serving unserved customers in convenience. The problem is, more begets more so developing full-serve grocery stores becomes untenable and we are left with very few options. Which begets more of the same.

Gene Detroyer
BrainTrust

Yes, my first reaction was “is Dollar General forgetting its reason for being?” Maybe they can pull it off, but as they get closer to being full service, the competition and cost structure is going to be more challenging.

Richard Hernandez
BrainTrust

I believe you can also include Lidl in that conversation as well. They have been opening stores in the east at a nice consistent pace. People are staying home, working from home, eating more at home and convenience is certainly a big plus for these stores. As always one of the opportunities is the limited assortment – those wanting more will have to go to a larger chain like Walmart for the all the other missing shops – stock up, full shop, etc.

Carol Spieckerman
BrainTrust

Aldi and Dollar General are operating contrarian models that inspired others to rethink the value and future of brick-and-mortar. Both are killing with convenience through pure physical scale and small format dominance. No doubt neither retailer saw the pandemic coming yet both are better poised than most to survive and even thrive during it. Both retailers’ prescient moves to focus on fresh are serving them well and shoppers’ renewed preference for efficiency and value support Aldi and Dollar General’s operating models. Preparedness meets luck.

Brett Busconi
Guest

It makes sense that these brands remain in growth mode — the markets they serve are growing ones, and fear surrounding the pandemic/future is pushing some customers to the economy level shopping experience before they feel they actually have to be there.

Dollar General would seem to be much closer to a market saturation point than Aldi. This positions Aldi to enter the 10-15 states they are not in here in the U.S. utilizing the approach which is proven. Dollar General, already most everywhere in the U.S., will need to push the envelope with new concepts and that could prove risky.

Brandon Rael
BrainTrust

The hard discounting competitive threats from Aldi, Lidl, and others are real and were gaining momentum before COVID-19. If there are a few grocery categories that are ripe for disruption, they are organic, fresh and perishables, and prepared foods. Whole Foods, Wegmans, Trader Joe’s and several other specialty grocery operations have dominated the organic and prepared foods space, at a price range that is out of reach for large segments of the population, especially during the COVID-19 pandemic.

Dollar General’s strategy of vertically integrating its supply chain is an example of how to de-invest to reinvest, reduce operational costs, and invest in fresh products that the market is asking for. The question that remains is, what impact if any will the hard discounting competitive threats have on Amazon/Whole Foods and the other specialty stores’ pricing, promotion, and distribution strategies? Will they go more promotional and drive value? Or will this remain a blip on their radar, until the hard discounters become a real threat?

Lisa Goller
BrainTrust

These feisty rivals pose a threat to Walmart’s grocery dominance and low-cost leadership.

Aldi’s ultra-efficient processes and affordable products pass savings along to consumers. The chain’s award-winning private labels give Aldi more supply chain control and boost loyalty with exclusive products. Despite the discounter’s aggressive expansion, Aldi has limited national reach compared to rivals (2,000 Aldi stores vs. 15,000 Dollar General stores and more than 4,750 Walmart stores).

Even in last year’s booming economy, Dollar General was highly competitive. Now COVID-19 further ignites the chain’s desire to win. Dollar General has been in expansion mode, especially in lower-income cities and rural towns. It bet big on grocery essentials, including perishables, and invested in innovations like BOPIS to compete with big box rivals. However the chain lacks the variety of a full grocery assortment – for now.

Overall this year’s economic downturn, job losses and the end of the grace period for consumers’ rent will fuel grocery sales at Aldi and Dollar General.

Ben Ball
BrainTrust

Price and proximity are the obvious drivers of both chains, thus the ability/need to have high store saturation rates. They just don’t have (or need) a large shopper count per store. But I think there is another driver to small grocery success and it’s another of those “trends accelerated by COVID-19” that we keep talking about — lower personal contact per shopping trip. Two employees and usually no more than 10 to 20 shoppers per store means a quick in and out with minimal interactions. Just what the (retail) doctor ordered for COVID-19 shopping.

Raj B. Shroff
BrainTrust

Both of these retailers have a clear vision of their value propositions and execute against them extremely well. They can steal some trips from the Walmarts and Krogers of the world but those big competitors will survive. And there will still be a lot of multi-store trips which would include two or three grocers — e.g. Walmart + Dollar General or Aldi + Kroger — to get all you need.

Aldi’s strengths are many; operational efficiency, labor model, private label quality, store size, location. With Dollar General there are many similar strengths, and they find underserved markets where a trip to Walmart might be too far for anything other than a major stock-up. Our experience with Dollar General is that they are sharp and have a great open mindset — it’s really fun to watch their expansion.

Weaknesses or watchouts for either could be too rapid of an expansion that stretches their teams’ ability to deliver.

Neil Saunders
BrainTrust

There is no reason the pandemic should slow the growth of either Dollar General or Aldi. If anything, higher food volumes due to stocking up and people eating out less are a boon to both players. The financial pressures on households, which are now growing, will provide more impetus as consumers seek out lower prices in grocery.

The threat to other players is significant, not necessarily in terms of market share erosion but in terms of what this does to margins as prices are lowered to remain competitive. This is something most mainstream grocers can ill afford at a time when online is eating into profits and other costs are also rising. Taken together, these things will create a real profit squeeze.

Ricardo Belmar
BrainTrust

These retailers were already on a growth path given the value equation they delivered to consumers before the pandemic started. Now the growth will just accelerate as consumers want them even more. Yes they are a real threat to larger grocers, as well as smaller ones. Differentiation will be required, from Walmart’s pickup and delivery options, to the unique curated options of Trader Joe’s, to the high-end organic offering at Whole Foods. Each brand will have to demonstrate to their customers what justifies their value. The price for this will be margin for each brand, even the discounters like Aldi, Lidl, and Dollar General. As each of these retailers feels the pressure to add the same high-cost convenience options the bigger players have, the convenience benefits will level off for consumers. There could be a shakeup coming in the next few years in this segment.

Brian Numainville
BrainTrust

Pre-pandemic these formats were already making significant inroads, really since the last economic downturn. Aldi, for example, at that time made some wise decisions in the direction they took coming through and out of that time period. Our research back in 2019 showed Aldi with a higher NPS and a leading value for money spent score over Walmart and supermarkets. If anything, their momentum will continue to build through and beyond the pandemic.

Craig Sundstrom
Guest

Aldi is full-line grocer, so logically it would be a bigger threat than a limited assortment (dollar) store. That having been said, I was surprised by the poll results: while I agree with them I would have thought DG would have polled better … certainly one sees more of them!

And it seems like a curious time to be talking about “threats” in this sector. It’s one of a limited number that’s doing well … hopefully it’s a sign customers will soon have other places to spend their money!

Mel Kleiman
BrainTrust

Aldi is going to be hard to beat. They have put together a winning model. They are covering all three of the key bases: Price, Quality, and Service. They have a limited selection, but the quality and the price are there, along with an easy shopping experience.

Richard J. George, Ph.D.
BrainTrust

Dollar stores are not a new retail phenomenon. Walmart has referred to dollar stores as “ankle biters.” These extreme value retailers have been able to survive the scorched earth syndrome that often occurs after supercenters and club stores invade a market. Aldi has always looked and acted like a grocery store, quietly moving into markets, earning the monicker “silent killer.”

Dollar General has made significant advances into the consumables space and investments in fresh and cold storage will make them an even stronger competitor to traditional supermarkets.

I would not bet against either Aldi or Dollar General. Both realize that some consumers need to save money, but everyone likes to save money.

Kai Clarke
BrainTrust

Both of these stores will be slowed by more Amazon and Walmart stores, as well as similar category competition like Lidl. There is only so much space for retailers in the grocery category, with other larger, stronger retailers (think Costco, Sam’s) covering their own niche, while becoming even stronger in grocery. Throw in specialty QSR/grocery, which are getting larger and more diverse (7-Eleven, QT, Wawa,) and the “grocery” market space is changing in many ways and diverse directions.

wpDiscuz
Braintrust
" No doubt neither retailer saw the pandemic coming yet both are better poised than most to survive and even thrive during it."
"Overall this year’s economic downturn, job losses and the end of the grace period for consumers’ rent will fuel grocery sales at Aldi and Dollar General."
"Weaknesses or watchouts for either could be too rapid of an expansion that stretches their teams’ ability to deliver."

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