Posted: December 6, 2013 |  AUTHOR: KEN FOX | CONTACT ME

 

The story of the Aldi Discount Food Store chain is intriguing. This privately held company has been historically secretive in how they do business and how profitable their stores are. Additionally, news and profiles of the two brothers who started the company, Karl and Theo Albrecht, were kept out of the press. They took over their mother’s small German grocery store in 1948, and changed the name of the store in 1961 to Albrecht’s Discount or “Aldi” for short. Over the next twenty years their store empire would redefine the way food retailing was implemented in Germany and other global markets.

Little is know about the private lives of the Albrecht family. However, both Theo and his older brother Karl were very wealthy. Due to this wealthy status, Theo was kidnapped at gunpoint and held for ransom for 17 days in 1971. As a result and since then he refrained from giving interviews, being photographed or being seen in public. He and his brother, Karl both led a thrifty and cost pinching lifestyle style, which helped lead to the concept of Aldi’s offering low prices. The story of “super cheap groceries” was invented in Germany with Aldi, and not the United States, as some may think. Most people do not know Aldi owns Trader Joes (more on that later).Theo died in July 2010 at the age of 88.

The Aldi Company (Aldi Einkauf GmbH & Compagnie) now operates over 9,800 stores globally. The company split into two major divisions in 1960, Aldi Nord (North) and Aldo Süd (South). These operational areas cover a large number of stores and geographic diversity, in Europe, Australia and North America as follows:

Aldi Nord (North)
This division, based in Essen, Germany, is responsible for approximately 35 regional companies or about 2,500 stores. Aldi Nord operates in: Germany, Denmark, France, the Benelux countries and the Iberian Peninsula and Poland. Aldi North is also responsible for trader Joes approximately 400 stores in the U.S.

shop

Aldi Süd (South)
Aldi Süd is based in Mülheim an der Ruhr, Germany. This division is responsible for 31 regional companies or about 1,600 stores in: Ireland, the UK, Hungary, Switzerland, Austria, Australia and Slovenia.

Both divisions operate in the U.S. Aldi North owns and operates Trader Joes while Aldi South Operates the Aldi stores. The combined companies own approximately 1,220 stores in over 30 U.S. states. The estimated sales revenue generated from these stores for 2013 is about $7.9 billion. The U.S. headquarters is located in Batavia, Illinois.

The Aldi grocery chain’s quiet penetration in the U.S. is impressive. Its philosophy is to keep costs down and prices low. To help its every day low price strategy, Aldi does not accept credit cards or checks. Additionally, they do not advertise regularly. Until the 1990’s, the Aldi grocery stores had a reputation where one buys ultra cheap groceries. Over 90% of the Aldi products are sold under its store brand name. They also keep expenses down by making shoppers bring or buy their own grocery bags and having them pay a refundable 25 cents to use a shopping cart. Aldi is also union free. However, this ultra cheap image seems to be changing. One example is Aldi’s introduction of an exclusive Premium (private label) brand “Specially Selected.” These items include German coffees, gourmet pastas and premium meats and cheeses. This “exclusive” brand was first launched in Europe and is now available in the U.S.

Aldi’s expansion in the U.S. continues with new stores and warehouses. Some examples:
Aldi operates 12 grocery stores in the Houston area and plans to build a 650,000 square foot warehouse in Rosenberg, Texas to serve this market. Aldi considered 30 sites for this warehouse before deciding on Rosenberg and the incentives offered. The warehouse is estimated to cost $60 million and will employ more than 150 workers
Aldi plans to open a one million square foot distribution center in Moreno Valley, California, USA in mid 2014. This location is approximately 60 miles East of Los Angels.
Aldi opened its first Food Market in Brooklyn, New York in July 2013. At 10,000 square feet it’s another entry into the greater New York City metro area. This follows Aldi’s first Manhattan (NYC) store opening in Harlem at 17,000 square feet. Other stores have opened in the Bronx and Queens (NYC) since the Harlem store.
Aldi opened 75 U.S. stores in 2012 and planned to open 80 stores in the 2013.

One U.S. analyst is quoted as saying Aldi does “get a cult following…”

trader joes

Trader Joes has approximately 400 stores, and operates in about 40 U.S. states. This chain generated approximately $6.5 billion in sales (2007). The chain was stared by Joseph Coulombe in 1967. Joe owned a small chain of convenience stores in Los Angeles, California, U.S. His chain was struggling to make money when a new and growing competitor, Seven Eleven, entered the market. Because Joe read that alcohol consumption increased with educational attainment, he tried stocking his stores with a large selection of inexpensive California wines under his own brand name. Sales were unbelievable, and rest is history.

Joe decided to sell Trader Joe’s to Aldi in 1979 when he was 77 years old and retired. Aldi lets the chain operate as it did before acquiring it. Trader Joe’s doesn’t accept coupons or feature weekly sales. Like the Aldi stores, Trade Joe’s has an everyday low price strategy.

Today, Trader Joes carries about 2,000 products versus a typical supermarket which carries 30,000. Approximately, 80% of Trader Joe’s products are private label or their own store brands. The store personnel are ultra friendly and helpful, wearing Hawaiian shirts. They work in a casual setting which attempts to generate a fun shopping experience. Shoppers seem to enjoy discovering new products under the Trader Joe’s brand name.

Commentary

While other domestic and international food chains face challenges and rejection in U.S. expansion plans (Tesco’s Fresh and Easy and Carrefour’s earlier hypermarket entry) Aldi succeeds. There is also continuing consolidation of U.S. grocery chains that help expanding Aldi stand out. The company has taken a low end targeted chain and quietly upgraded its product lines. It also selectively expands into urban and other areas with its appealing prices and acceptable store brands. Its limited store size and reduced number of items carried, generates a loyal following whose model seems to work in the highly competitive U.S. market. Most shoppers don’t know or do not care Trader Joe’s is owned by a German company. However, Aldi’s ability to benchmark best practices from its European stores along with the ability to source any best selling items from Europe contributes to Aldi’s and Trader Joe’s appeal. These two U.S. chains, Aldi and Trader Joe’s seem to have generated a growing and loyal following.

Resources:
1. What Makes the Aldi Discount Empire Tick, SPEIGELON LINE, August 3, 2010
2. Aldi Introduces Exclusive Premium Brand, SuperMarket News, April 8, 2013
3. Aldi Plans Warehouse near Houston, Super Market News, September 6, 2013
4. Aldi Plans Southern California DC, Super Market News, June 24, 2013
5. Aldi Supermarket Opens its First Brooklyn store in Sheepshead Bay, New York Daily News, August 1, 2013
6. Discount Grocer Aldi Opens First Manhattan Store in East Harlem, dnainfo.com October 1, 2012
7. Trader Joe’s Recipe for Success. Bloomberg Businessweek, February 20, 2008
8. Where Wal-Mart Failed, Aldi Succeeds, New York Times, March 29, 2011

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©2017, The Global Galaxy blog is produced by The Soundings Group, LLC, Charleston, South Carolina, USA, www.thesoundingsgroup.com. The company is an international business consulting firm, specializing in new market assessments, market entry strategies and marketing guidance. The scope of Global Galaxy is to cover timely international trends, issues and business building ideas. Its purpose is to educate, inform and stimulate thinking for business opportunity analyses.

 

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