Aldi Einkauf GmbH & Co. OHG

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Aldi Einkauf GmbH & Co. OHG

Eckenbergstrasse 16
Essen, 45307
Germany
Telephone: (49 201) 85 93 0
Fax: (49 201) 85 93 31 9
Web site: http://www.aldi.com

Private Company
Founded: 1948
Employees: 21,000 (est.)
Sales: $20 billion (2004 est.)
NAIC: 445110 Supermarkets and Other Grocery (Except Convenience) Stores; 445299 All Other Specialty Food Stores

Aldi Einkauf GmbH & Co. OHG (“Aldi Group”) is Germany’s leading grocery store chain and a top competitor in the global retail food industry. One of the world’s largest privately owned supermarket chains, Aldi has found success by going against virtually every standard of supermarketing, garnering attention particularly for its legendary reluctance to communicate with the media and the no-frills atmosphere of its stores. By the early 21st century the company was operating more than 5,000 stores throughout Europe, Australia, and the United States. In the U.S. market, as of 2006, Aldi had opened nearly 800 stores in close to 30 states, primarily in the eastern half of the country.

Established in 1948 in Essen, Germany, Aldi operates what are known in the grocery business as “limited-assortment” stores or “hard discounters,” a term that refers to deeper discounts than those offered at traditional low-cost retailers. Aldi has taken this retail concept, which features low overhead and scanty selection, to its leanest, meanest extreme. Unlike the vast majority of supermarket chains, which are continuously increasing their product offerings and selling space, Aldi holds selection at its stores to a range of about 700 to 1,000 items. In contrast, so-called big-box supermarkets typically carry tens of thousands of products.

THE ALDI PHILOSOPHY

The bulk of Aldi’s items are packaged grocery or dry goods, but Aldi stores also carry frozen foods, meats, dairy products, and fresh produce. In addition, the stores stock household supplies and health and beauty items. Aldi stores also feature weekly specials on disparate goods from household appliances and electronics to clothing and toys. The vast majority of Aldi’s offerings are sold under private or packer labels, and some of these products are made expressly for the chain.

By limiting consumer choice, Aldi saves money in several ways. Aldi stores are correspondingly small— usually 8,000 to 15,000 square feet—compared to the 50,000 to 125,000 square feet typically used by competitors with larger catalogs of items. The company declares that it does not hide the cost of grocery bags in the prices of its products; instead, shoppers may either bring their own bags or are charged a few cents per bag and must bag their own groceries. Customers can “rent” a shopping cart for 25 cents; they get their quarter back when they bring the cart to the front of the store.

Under this system Aldi does not have to pay someone to collect carts in the parking lot or replace stolen ones. Aldi does not cash checks and does not offer frequent-buyer savings cards. Shopping at Aldi is not accompanied by the strains of music piped into the store. Bucking the trend of ever-expanding store hours, Aldi stores typically do not stay open late, and many are closed on Sundays. The company even keeps the telephone numbers of their stores unlisted so that employees do not spend any time answering the phone.

An anecdotal example of the extraordinary volume of goods sold was cited by Suzanne Bidlake in 1989 in Marketing. She quoted an unnamed competitor who claimed that, although Aldi “only sells one flavoured yoghurt, it sells more yoghurt than anyone else in Germany.” Aldi also enjoys tremendous success with a variety of other goods. Aldi’s Tandil laundry detergent led the German market in volume in the early 1990s, and industry observers have asserted that some of Aldi’s canned goods have more than a 50 percent market share. A 1993 Forbes article estimated Aldi’s net U.S. profit margin at 1.5 percent of sales, nearly double the industry average.

Jon Hauptman of Willard Bishop Consulting Ltd. in Barrington, Illinois, reported that Aldi’s many efficiencies gave its customers 24 percent savings over membership in a warehouse club during the early 1990s. Hauptman noted in the Business Journal-Milwaukee that Aldi’s “low prices attract people because it creates a lot of excitement and heavy word-of-mouth advertising,” thereby allowing the chain to eschew traditional—and costly—media promotion. Hauptman also asserted that the Aldi phenomenon was not recession-driven, but that “no matter what happens to our [U.S.] economy, there is going to be 20 percent or more of the population that is going to find Aldi pretty attractive from a price standpoint.”

Maintaining a glamorous facade is not a priority at Aldi stores. Instead, the company often purchases second-rate locations as part of its cost-cutting strategy. Harsh strip lighting emphasizes the “pile it high, sell it cheap” atmosphere of which Aldi is proud. Mark Kass of the Business Journal-Milwaukee quoted from a rare company brochure in July 1994 that summarized Aldi’s philosophy: “When you buy a can of peas at Aldi, you’re paying almost entirely for the can of peas. Aldi doesn’t need to tack on one more penny to pay for an army of stackers or piped-in music or fancy display or check cashing or gimmicks and games. So your food dollar pays for what it’s supposed to pay for … food.”

To some consumers, the low-budget ambiance is a turn-off. Fiona Gilmore, managing director of Great Britain’s largest design consultancy, Michael Peters and Partners, told Suzanne Bidlake of Marketing that Aldi’s stores were so depressing that “people charge around the shelves to get out as soon as possible.” Other analysts, however, count the chain’s counterculture aura as one of its most powerful selling points. Industry observer L. Craig Carver speculated in an interview with Richard Turcsik of Supermarket News that “certain customers are overwhelmed by the large formats and wide selections offered by modern superstores. They are intimidated in large stores and prefer the lack of assortment.” In addition, many cost-conscious shoppers are willing to trade a more luxurious atmosphere for significant savings. As John Reinan wrote in the Minneapolis Star Tribune in 2005, “shoppers don’t go to Aldi for the decor. Instead, they’re flocking there for deep discounts on everyday staples.”

MYSTERIOUS MANAGEMENT

The Aldi Group’s management executives have long been regarded as reticent and secretive, and the chain’s policy of evading the press is widely known. The international chain’s reserved reputation is attributed to its founders and owners, Theo and Karl Albrecht. A June 1992 Supermarket News story reported that the Albrecht brothers had not been seen in public “for many years.” Some of their reclusiveness has been attributed to the 1971 kidnapping of Theo Albrecht. He was held by his abductors for over two weeks, released after the payment of a $4 million ransom. While few details are known about the Albrechts, Deutsche Welle reported in 2005 that Karl Albrecht retired in the 1980s, while Theo was still working at that time.

COMPANY PERSPECTIVES

The ALDI name is synonymous with high quality and great value products. Our goal is simple: to provide customers with the products they buy regularly, to ensure those products are of market leading quality and to offer them at guaranteed low prices. It is a simple model that continues to be embraced by millions of people around the world.

In a characteristically brief 1989 phone interview, Aldi’s U.K. Managing Director Trevor Coats responded to queries about the company’s low profile. He told Suzanne Bidlake of Marketing that “we’re not being mysterious at all. It’s just that we’re one of the largest retailers in Europe and we don’t want to discuss our business with the media.” In fact, the company’s policy of secrecy—which is sometimes broken by “unnamed sources close to the company”—appears to be a key part of its competitive strategy. Jim Baska, the president and CEO of Associated Wholesale Grocers, operators of a U.S. limited-assortment chain, told Richard Turcsik of Supermarket News that “it’s when limited-assortment stores are ignored that they proliferate and become ubiquitous in the market. If they’re taken seriously by the competition, limited-assortment stores won’t grow or be a threat in any given market.” Marcia Berss of Forbes concurred, noting in her 1993 coverage of the chain, “Why let competitors in on a good thing?”

ALDI’S ORIGINS

Aldi’s stealthy and successful international expansion to its present stature was undertaken gradually. The first Aldi store opened in Essen, Germany, in 1948. The Albrecht brothers, who had spent time in an Allied prisoner-of-war camp, understood that their customers in war-ravaged Germany could purchase only the essentials, and at the lowest possible price. The emphasis on reducing costs began as a necessity and developed into a hardcore company philosophy. The company refined its strategy and built up significant reserves in the postwar German grocery market.

By 1958, the Albrechts had opened 300 stores, with revenues exceeding 100 million deutsche marks. Aldi quietly expanded into other areas of Europe, growing steadily throughout the 1960s. In 1962 the brothers opened their first store with the Aldi name, derived from “Albrecht” and “discount.” During the early 1960s the company consisted of two divisions, with Karl operating stores in southern Germany under the ALDISüd name, and Theo managing the northern stores under ALDI-Nord. The divisions were closely linked, however, and for the ensuing decades the brothers cooperated in the operation of what Deutsche Welle described in 2005 as “a complex web of private trusts and holding companies.”

The company made a big impact in Belgium, where analysts estimated the chain had 260 stores and $1 billion sales by 1992. The private company also garnered approximately 5 percent of the grocery business in the Netherlands in the early 1990s. In addition, Aldi set up about 130 outlets in Austria and another 110 in Denmark. While Aldi established its presence in a number of neighboring countries in the latter half of the 20th century, its home country remained its primary market. By the late 1980s Aldi operated about 50 separate companies, which in turn oversaw over 2,000 stores in what was then West Germany. Estimated sales of DM 17 billion to DM 20 billion ($9.3 billion to $10.99 billion) ranked the chain as that country’s top food retailer at that time, with about 13 percent of the grocery market.

BREAKING INTO FOREIGN MARKETS

The 1970s and 1980s were marked by Aldi’s initial attempts to establish itself in three key international markets: the United States, the United Kingdom, and France. Aldi established its U.S. arm in 1976, when limited-assortment stores first gained a foothold. At that time, other national retailers in the country, including the Great Atlantic and Pacific Tea Company (A&P), Kroger Company, Jewel Food Stores, and Dominick’s Finer Foods, experimented with the format. All of those companies eventually abandoned the concept.

Aldi’s first American outlets were launched in rural areas of the Midwest. A warehouse was established in Batavia, Illinois; the company’s U.S. headquarters was still located at the site in the early 2000s. Less than a decade after opening its first store in the United States, Aldi had nearly 150 stores in Illinois, Indiana, Iowa, Kansas, Missouri, and Wisconsin. New distribution hubs were installed in Kansas, Iowa, and Missouri, and warehouses in Indiana and Ohio were completed by the end of the decade. By 1989 U.S. sales estimates ranged from $515 million to $780 million.

KEY DATES

1948:: Theo and Karl Albrecht open their first grocery store in Essen, Germany.
1962:: The Albrecht brothers open their first store bearing the Aldi name.
1971:: Theo Albrecht is kidnapped and held for over two weeks.
1976:: The first Aldi store in the United States opens.
1989:: The Albrecht brothers open their first Aldi store in the United Kingdom.

The company increased the pace of U.S. expansion in the late 1980s and early 1990s, expanding from its base in the Midwest to the East Coast. Analysts estimated that Aldi’s American operations increased from about 200 stores in 1990 to nearly 400 in 1993, a year in which the grocery chain registered sales of approximately $1.2 billion.

CHALLENGES IN THE UNITED KINGDOM AND FRANCE

Aldi made its first foray into the British market in 1989. Some observers surmised that the chain was well-prepared to exploit that country’s high-margin grocery industry, especially in light of the general economic downturn that hit the United Kingdom in the late 1980s. Others noted that Aldi was bigger than any of the country’s indigenous chains, had more buying power, enjoyed lower overhead costs, had “deep pockets,” and was not answerable to shareholders. Nonetheless, some analysts questioned the chain’s prospects for success there. Fiona Gilmore correctly predicted in Suzanne Bidlake’s 1987 Marketing piece that Aldi would have a tough time appealing to British shoppers accustomed to posh supermarkets and national brands. It was rumored that Aldi had hoped to open 200 outlets from 1989 to 1994, but the company fell short of that mark by almost 100 stores.

In order to survive in the United Kingdom, Aldi made a dramatic deviation from its own-label policy. Marketing reported in 1990 that a “source close to the secretive company revealed … that Aldi has ‘come to the conclusion that the UK market, and the discount market in particular, is very brand sensitive.’ Thus ‘they will have to stock predominantly national brands.’” Aldi also found its adaptation to Britain’s harsh market conditions hindered by Kwik Save, a fierce soft-discount competitor. Kwik Save helped head off Aldi’s expansion in the early 1990s by acquiring 100 stores. This maneuver made the efforts of the German firm to secure a healthy base for growth considerably more difficult.

Undaunted, Aldi continued to adapt to market conditions. In 1991 the chain forged an agreement with Britain’s Gateway Foodmarkets Ltd. to establish outlets on the latter’s sites. The partners hoped that their cooperation would be mutually beneficial—Aldi’s exceptionally low prices would attract new customers to Gateway’s stores, which could then fill in the gaps left by the discounter’s scanty selection. Both rivals and analysts claimed that the cooperative venture was just another sign of the chains’ inherent weaknesses in the face of market pressures.

Expansion in France was difficult as well, hampered by heavy price competition from entrenched rivals like Leclerc and Intermarche. David Shriver, an analyst with County NatWest (London) told Mark Tosh of Supermarket News that “to create a real differential in terms of price, Aldi has had to lower gross margins [in France] even more than it has had to in the U.K.” As a result, Aldi only had an estimated 37 stores there by 1992.

Setbacks in Great Britain and France fueled skepticism about Aldi’s invulnerability. Some attributed the chain’s German success to historically restrictive market conditions that did not necessarily exist in other countries. Others surmised that economic recovery would spell the demise of limited assortment chains forced to “cannibalize” each other’s market share. For its part, Aldi turned its attentions to Eastern Europe. In the former East Germany it built distribution centers and stores. In late 2005 Aldi announced an expansion into Poland, with plans to build an Aldi store in every Polish city with a population of at least 20,000.

POISED FOR FUTURE EXPANSION

Aldi entered the 21st century as Germany’s top chain of grocery stores, with 40 percent of the market. The Aldi family of companies had taken its founders to the top of Germany’s list of wealthiest individuals. Deutsche Welle reported that, in 2005, Forbes estimated Karl’s fortune at $18.5 billion and Theo’s at $15.5 billion. A 2004 Business Week article reported an estimated sales growth of 8 percent per year for Aldi beginning in 1998. In that article, Jack Ewing reported Aldi’s plans to open 40 new stores per year in the United States until 2010, when the total number of U.S. stores would reach approximately 1,000.

In the United States and elsewhere, Aldi solidified its reputation as a fearless competitor, building new stores in areas with multiple competing retail outlets. In a 2005 Europe Intelligence Wire article, company officials declared that they actually preferred to enter a market where their competitors had “warmed up” consumers. Even the discount retail giant Wal-Mart did not intimidate Aldi, which had opened new stores in the vicinity of Wal-Mart Supercenters and even, in some cases, in the same complex.

Aldi found it could effectively compete with Wal-Mart by matching their rock-bottom prices and also by offering shoppers a less crowded, more convenient experience. In a 2005 article in the Minneapolis Star Tribune, food-industry analyst Burt Flickinger III pointed out that “A shopper can shop the entire Aldi in 12 to 20 minutes. … Shoppers want the fast, deep-discount shopping experience, as opposed to the long, slow, tough-to-check-out experience at a Wal-Mart.” Aldi also asserts its advantages over the warehouse-style stores such as Costco, where most products are sold in bulk. Aldi spokesman Jon Drummond, in the same article, noted that at Aldi, “You don’t have to buy an 80-ounce package or buy 10 of something to save money.”

In the United States, the no-frills Aldi chain became a distant cousin to a rapidly expanding chain of specialty grocery stores called Trader Joe’s, when that chain was purchased by a family trust established by Theo Albrecht. Trader Joe’s outlets shared with the Aldi stores an emphasis on value, a limited selection, and an abundance of private-label products. While Aldi focuses on staple items, however, Trader Joe’s offered gourmet, organic, and ethnic foods. As of 2006 there were 250 Trader Joe’s stores spread throughout more than 20 U.S. states. Trader Joe’s distinctive approach, from the exotic fare to the staff clothed in bright Hawaiian-style shirts to the selection of inexpensive wines, has made the chain what Jack Ewing of Business Week described as “the hottest thing in U.S. retailing.” Aldi’s own distinctive approach certainly had less flair but was proving successful nonetheless.