Saturday, September 6, 2008

Fast Growing Aldi USA: The Lure of Plain Vanilla, No Frills Food and Grocery Retailing

From the Fresh & Easy Buzz Editor's Desk: For the last two and one-half years (including a year and a half before the first stores even opened), United Kingdom-based Tesco has been in the news in the U.S., with banner newspaper headlines like "The British are Coming" appearing frequently, touting its small-format, convenience-oriented Fresh & Easy Neighborhood Market chain in the Western United States' of California, Nevada and Arizona.

The publicity blitz started well over a year before the first Tesco Fresh & Easy combination basic grocery and fresh foods market opened in late October, 2007 in the Southern California desert community of Hemet. The grocer continues to get considerable publicity. But much of it now is about whether or not the Fresh & Easy stores are failing.

That attention to Fresh & Easy neighborhood Market is far from a mere accident. Tesco has expended much effort and spent lots of money on public relations people and outside agencies in order to get America's myriad media outlets to write about the so called "British Invasion" in the form of the retailer's 10,000 -to- 13,000 square foot neighborhood grocery stores that sell a limited assortment of basic groceries (about 65% under the fresh & easy store brand) fresh meats, fresh produce, prepared foods, craft beers and wines and a few other category items. This media attention, which has decreased considerably of late though, is by design as Tesco decided to use the "free" media instead of paid advertising to create awareness of and for Fresh & Easy Neighborhood Market.

And, of course, without any of that public relations prompting, Fresh & Easy Buzz has done its fair share of drawing attention to Tesco's Fresh & Easy Neighborhood Market as the publication of record that covers, reports on, writes about and offers analysis of the fast-growing grocery chain with 75 stores in Southern California, Nevada and Arizona.

However, Tesco's Fresh & Easy is far from the pioneer of small-format food and grocery retailing in America. Those pioneers are America's independent grocers who've been operating small-format grocery stores and supermarkets since day one, and continue to do so today in a variety of formats and styles as varied as the U.S. itself is.

As far as chain grocers are concerned, Tesco is far from the first, the biggest or even the fastest-growing small-format grocery chain in the U.S.

There's SuperValu, Inc.'s Sav-A-Lot, which are no frills, small-format, limited assortment grocery stores located throughout America. There currently are more than 1,600 Sav-A-Lot stores in the U.S., and SuperValu is growing the chain fairly aggressively.

In terms of hybrid convenience-oriented combination grocery and fresh foods markets, Wawa, Inc., which is based in Pennsylvania, has been doing this sort of food and grocery retailing for decades in America. With about 500 stores located throughout the eastern U.S., Wawa is a pioneer in merchandising ready-to-eat and ready-to-heat prepared foods, along with a limited assortment of basic and specialty groceries, fresh foods and even traditional convenience store fare tossed into the mix.

Then there's the the U.S. division of German-based small-format, no frills discount supermarket chain Aldi, known in the U.S. as Aldi USA. It's arrived in America long before Tesco even thought about its British Invasion with Fresh & Easy, although the Aldi and Fresh & Easy store formats do have many qualitative differences, along with many similarities.

With about 950 stores located in the Midwest, Mid-Atlantic and eastern regions in the U.S., and with hundreds more to come in the next couple years, Aldi is taking America by storm. It's ranked by the industry trade publication Supermarket News as the 25th-largest supermarket chain in the U.S. by annual sales volume (about $5.8 billion in 2007); and that's with only 950 stores, each averaging only about 12,000 -to- 14,000 square feet in size, which is about a third of the size of an average U.S. supermarket being built today.

Family-owned Aldi also is a growing presence in the United Kingdom (where Tesco is based), where Tesco controls about 31% of that nation's food and grocery sales market share as its number one food retailer.

In the last two years, Aldi UK has been the leading percentage gainer in terms of annual market share growth, even though it remains a small player currently in the country with about 6% of total market share. That's because it has far fewer stores than the major players, Tesco, Wal-Mart-owned Asda (about 17% share), Sainsbury's (15%), Morrisons,(number four chain in the UK) the Co-operative group (number five) and others.

However, when one looks at the number of stores Aldi has in the UK, especially compared to Tesco which has about 1,700 in the small country, its market share is extremely impressive, as is its sales and market share growth rate.

Back in the U.S., 950-store Aldi USA is on a major growth spurt, opening 75 -to- 100 new stores a year for the next five years, according to CEO Jason Hart.

Currently, Aldi is making a push into Florida, where its recently opened its first stores, along with a new distribution center designed to serve the market. Aldi has big plans in the Florida market with its little stores, as well as continuing to open new stores throughout the Midwest, Mid-Atlantic and eastern USA regions.

So far Aldi has remained east of the Rocky Mountains, not yet venturing into the Western U.S. with its powerful no frills, small-format discount grocery stores. However, ther've been numerous rumors the grocery chain could do just that; cross the Rocky's into the Western USA states and food and grocery retailing market where Tesco is focusing its efforts in California, Nevada and Arizona with its Fresh & Easy grocery stores.

We've not been able to get anything definitive yet on this potential development regarding Aldi USA coming west. And we know it's not in the grocery chain's plans for 2009 and 2010.

However, after that, since the grocer wants to be a national presence in the U.S., crossing those Rocky Mountains into the Western U.S. market would only make logical sense. It also would shake up food and grocery retailing in the Western U.S. just like Aldi is in the rest of the country. And for Tesco's Fresh & Easy, it would be a competitive threat the retailer might not be able to combat.

There is a current Western U.S. connection to Aldi USA though.

Aldi is owned by a pair of interesting and reclusive brothers named Theo and Karl Albrecht. In the 1960's the brothers, who are now both in their 80's, divided their ownership of the chain in half because one wanted the Aldi stores throughout the world to sell cigarettes and the other didn't. Additionally, in 1979 Theo Albrecht bought the Southern California-based small-format discount specialty and natural foods grocery chain Trader Joe's from Joe Coloumbe (The Joe in Trader Joe's), the super-successful chain's founder.

With only about 312 stores in the U.S., the small-format (about 10,000 -to- 12,000 square feet) Trader Joe's stores do even more sales per-square-foot than the Aldi stores do, even though they don't offer basic grocery items.

Trader Joe's is ranked 23rd, two places above its cousin Aldi USA, by the supermarket industry trade publication Supermarket News, even though it has one-third the number of stores as its cousin Aldi, and doesn't sell basic grocery items. In fact, most U.S.-based supermarket industry analysts rank Trader Joe's, which had sales of about $6.5 billion in 2007, as having the highest sales-per-square foot of any food and grocery chain in the U.S. You can do the math. A total of about 312 stores, averaging only about 10,00 square feet each, and $6.5 billion in annual sales. That's impressive sales per-square-foot for any format grocery chain, particularly one that focuses on natural and specialty foods.

Although Aldi USA gets lots of attention from industry publications and analysts like Fresh & Easy Buzz and industry trade publications like Supermarket News and a couple others, the mainstream U.S. business press writes very little about the no frills, small-format discount grocery chain. That's changing though.

This is how Aldi basically likes it. The retailer is very private and in a strategy 180 degrees different than Tesco's with Fresh & Easy, it sends out virtually no press releases and devotes little if any energy and money to public and media promotion.

Instead, Aldi USA focuses on merchandising in-store and promotion via a weekly printed and online advertising flyer featuring everything from basic grocery items, non-food items and fresh foods, to in-and-out promotional items like hardware, computers, furniture, clothing items and more.

However, the poor U.S. economy, which among its negative aspects are soaring food and grocery prices, has drawn the attention of not just consumers but of the mainstream media to Aldi USA and its low everyday prices and bare bones stores. Aldi stores have been reporting record customer counts and sales in the U.S. in the down economy as also is the case in the United Kingdom and the rest of Europe.

Despite Aldi USA's lack of media self-promotion, today's New York Times has an article about the fast-growing small-format, no frills discount grocery chain. The piece, titled "The allure of plain vanilla," provides a good overview of Aldi USA, along with some overall information about the company in general and how it's brand of no frills discount food and grocery retailing is fitting well into these bad economic times.

Should Aldi USA decide to come west over those Rocky Mountains in the next two years or so, we guarantee you the media attention level will be at high buzz, despite the grocery chain's low-key PR ways.

In the meantime, we wanted to bring you the piece from the New York Times about Aldi USA. Here it is below:

The Allure of Plain Vanilla

New York Times
September 6, 2008

LIKE its reclusive German founders, the supermarket chain Aldi doesn’t do much to draw attention to itself.

Its stores are small and spartan, with minimal d├ęcor and a limited selection of products. They are often found in nondescript shopping strips and lack the flashy signs and window displays of some competitors. Grocery carts cost a quarter apiece, which is refundable after the cart is returned.

But as the economy sputters and consumers look to save money, the privately held Aldi is suddenly emerging as a major force in the grocery business, one that some predict could one day rival

What makes Aldi so special is that, quite simply, its prices are cheaper than just about anyone else’s, including Wal-Mart’s. Where else can you buy an 18-ounce box of raisin bran cereal for just $1.49? Or a frozen pizza for $3.99? Or how about a DVD/CD player for $24.99?

Click here to read the complete article.


scot t said...

Will be moving to Reno,nv,Aldi has been in the Minneapolis-St.Paul area for about 3 years,used to shop there when i drove truck out east years ago.The company has come a long way since then,still a big bang for the buck

scot t said...

Aldi finally came to the Minneapolis-St.Paul area 3 years ago,man was I happy,used to drive truck and stumbled upon them 15 years ago out east.Aldi has come a long way from those days!I shop there for certain items,rice,german foods,asian,etc. Will be moving to Reno,NV and hope they will be there soon.