Aldi versus Walmart and Traditional Supermarkets

Margins for grocery stores have always been thin. However, lately the landscape for US supermarkets has intensified. Digital ordering and home delivery are changing the way people buy their food. More and more, drugstores offer diverse grocery items. Large companies increasingly control the industry, exerting pressure on smaller regional retailers. Southeastern Grocers, the owner of Winn-Dixie and Bi-Lo, filed for bankruptcy in February. Grocery chain dominator Walmart is struggling with new competitor Amazon, which purchased Whole Foods in 2017.  However, another challenger, Aldi is rapidly arising and completely changing how America shops for groceries.
Aldi was started in Germany by brothers Karl and Theo Albrecht in 1946 when they took over their mother’s small store. In 1960, the company split into two groups which eventually became Aldi Nord, and Aldi Süd. The two companies fully separated in 1966. Aldi Süd is currently rapidly growing in the US, as well as throughout Europe. Aldi Nord owns Trader Joe’s in the US, but its growth is less aggressive than that of its cousin company. Trader Joe’s currently has over 475 stores in America.
The Albrecht brothers quickly realized that if they ran stores frugally, they could pass along savings to customers and undercut the competitors. That’s been a central strategy of Aldi ever since. At stores, shoppers need a quarter to rent a shopping cart. Long before any city created a bagging law, bags at Aldi have been only available for a fee. At checkout, cashiers rush shoppers away, expecting them to bag their own groceries in a separate location away from the cash register.
Other tactics the company uses to maintain low overhead is smaller stores, carrying less items and offering mostly private-label brands. Aldi carries around 1,400 items compared to around 40,000 items at traditional supermarkets and more than 100,000 at Walmart supercenters. To maximize efficiency, on many products barcodes are either supersized or printed on multiple sides to speed up the checkout process. Products are displayed in their original cardboard shipping boxes, rather than stacked individually, to save time on stocking shelves. Aldi employees are cross-trained to perform every function in a store. A single store might have around 5 employees on shift at any given time, and only 15 to 20 on payroll. The company claims to pay its employees above the grocery industry average, but still saves on overall labor costs simply by having fewer people.
Currently, Aldi has over 1,800 stores in 35 states and is focused on growing in the Midwest, Florida and California. The company is on track to open more than 130 new stores in 2019 and is planning to have 2,500 stores by the end of 2025. If Aldi achieves its long term plans, it would become America’s third largest supermarket chain behind Walmart and Kroger.
In recent years, Aldi has ramped up its efforts to appeal to wealthier shoppers by offering more fresh, organic produce as well as imported items like European cheeses and pasta. The stores now offer private-label versions of kombucha, cold-pressed juices, and a wide range of gluten-free and vegetarian products.  The company recently pledged to cut plastic and transition to 100% sustainable packaging by 2025.
Similar low cost business model competitors Grocery outlet and Lidl are also growing in the United States. The rest of the grocery industry is making big changes to hold onto customers. In the last few years, Walmart has not only slashed prices to counter Aldi, but focused on improving its produce section and adding more health conscious and gluten free items.
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