The year was 1976. As the United States celebrated its bicentennial, college dropouts Steve Jobs and Steve Wozniak founded Apple Computer; a wealthy peanut farmer named Jimmy Carter defeated Republican incumbent Gerald Ford in the presidential election; and legendary actress Elizabeth Taylor divorced legendary actor Richard Burton for the second time. And it was in that same event-packed year that the German ALDI retail organization quietly opened up its first U.S. ALDI store, in Iowa.
Since the opening of that first location, ALDI's U.S. arm, Batavia, Ill.-based ALDI Inc., has expanded significantly across the United States. The retailer's store count now stands at more than 1,300 – spread across 32 states. The recent Great Recession certainly played a role in that expansion, prompting many cash-strapped consumers to give the limited-assortment, low-price retailer a try for the very first time. Also wielding an influence is ALDI's transformation in recent years from a provider of low-cost basics to a purveyor of value – via increasingly consumer-centric exclusive-brand items offered at a significant savings over comparable name-brand items.
"People are getting a different perception on what ALDI's all about – that ALDI is all about value and is not necessarily about going down-market," says Jim Wisner, president of Wisner Marketing Group, Libertyville, Ill.
Carol Spieckerman, president of retail consultancy newmarketbuilders, agrees.
"ALDI has done a great job of presenting a compelling value proposition, which is something that its competitors in the U.S. and elsewhere are grappling with," she says. "People feel smart for shopping at ALDI, which only increases shopper loyalty."
And those consumers have been communicating with each other. Jim Hertel, managing partner with the Barrington, Ill.-based Willard Bishop retail consultancy, says ALDI has benefitted from strong word-of-mouth references, too – tied to value and the quickness with which shoppers can get in and out of the retailer's stores.
That changing consumer perception is enabling ALDI to accelerate its growth plans. This past December, the retailer announced a five-year strategic plan to open 650 additional stores – stretching its U.S. reach from coast to coast.
"The ALDI approach to grocery retailing – delivering the highest-quality products and the lowest-possible prices in an easy-to-navigate shopping environment – has truly fueled our recent growth," Chuck Youngstrom, ALDI Inc.'s president, explains. "Over the last several years, we've added, on average, 80 new stores each year, expanding our ability to bring grocery savings to more people every day. In fact, ALDI currently serves more than 25 million customers each month, and that number continues to grow."
Exclusive brands rule
To say that ALDI's own-brand products are critical to the retailer's growth would be a significant understatement. The retailer's exclusive brands – brands such as Cattlemen's Ranch, Clancy's, Millville, Priano, Sundae Shoppe and many more – account for more than 90 percent of the products carried in stores, Youngstrom points out, and their high quality is what keeps shoppers coming back for more.
"At ALDI, we believe that great quality shouldn't come at a high price; rather, great quality should come with everyday low prices," he explains. "Working closely with our suppliers, many of whom are the nation's leading food producers, we ensure our products meet or exceed the quality and taste of the national name brands through rigorous quality assessments in our ALDI Test Kitchen."
ALDI samples each product, in fact, a minimum of twice a year. The retailer also relies on independent laboratory analyses to ensure consistent product quality. Youngstrom says ALDI is so confident in the quality of its exclusive products (and the products' suppliers) that it offers a Double Guarantee: "If for any reason a customer is not 100 percent satisfied with any ALDI food product, we will gladly replace the product and refund the purchase price."
Packaging, too, is developed with an eye on quality. According to Joan Kavanaugh, vice president, corporate buying for ALDI Inc., ALDI aims to be consistent with other comparable products on the market, partnering with "leading design agencies to create eye-catching packaging that's in line with what's on the shelves today."
In addition to great quality and packaging, ALDI is committed to innovating within the product development realm to deliver even more value to its shoppers. For 2014, ALDI's focus is on "healthy living," Youngstrom explains, so much of the retailer's innovation focus is tied to consumer trends such as the demand for better-for-you products, gluten-free items, organic products and fresh offerings. In that way, ALDI is able to ensure its customers can find what they need for themselves and their families in its stores.
"Our marketing and advertising efforts, including weekly inserts and in-store signage, will better reflect our dedication to making healthy living simple and affordable for our shoppers," he adds.
ALDI introduced its first health-minded brand, Fit & Active, about a decade ago. And now one of its newest exclusive brands, SimplyNature, is helping the retailer deliver additional innovation within the health and wellness space. The new brand covers "simple foods made with only all-natural or organic ingredients," Kavanaugh explains. Products offered under the brand range from apple juice, cereal, fruit bars and honey to pasta sauce, pizza, salsa and snacks.
Outside the better-for-you arena, ALDI recently debuted another brand called Specially Selected.
"Our Specially Selected brand features a range of specialty products available every day," Kavanaugh says, "as well as ALDI Special Buys throughout the year – from German coffees and gourmet pastas to premium meats and cheeses – and is identified by sophisticated black packaging."
The launch of "lifestyle brands" such as SimplyNature and Specially Selected is very telling in terms of ALDI's desire to up the ante when it comes to delivering value to shoppers, Wisner believes.
"And I do genuinely believe it's beginning to draw new customers into their stores," he says.
As Kavanaugh notes, many products under ALDI's Specially Selected brand are available in store for a limited time as Special Buys. But the retailer's Special Buys are not limited to that brand. Each week, ALDI offers 20 to 30 food and non-food items as Special Buys.
"Products range from small kitchen appliances and toys to gardening items and outdoor furniture," Kavanaugh says. "Weekly Special Buys help drive repeat customer visits. In fact, customers have told us they enjoy the Special Buy 'treasure hunt.'"
These constantly changing items give ALDI stores a "Trader Joe's kind of mystique," Wisner contends, noting that shoppers can find very interesting items that represent an incredible value.
ALDI's ability to offer the highest-quality products at the lowest-possible prices has earned the retailer recognition as "the nation's low-price grocery leader" for three years running – in 2011, 2012 and 2013 – based on consumer surveys conducted by Market Force Information Inc., a Louisville, Colo.-based customer intelligence solutions company. (The retailer also ranked high on the 2013 Market Force "Delight Index," which ALDI says reveals the intersection between overall satisfaction and the likelihood of recommending a grocer to friends/family.)
Helping the retailer keep product prices low is what Youngstrom calls a "no-nonsense approach" to grocery retailing – one that even calls for a quarter deposit on shopping carts, refundable upon cart return.
"We realize tremendous operating cost savings and efficiencies through simplifying the grocery shopping experience," he explains. "Our smaller stores, open-carton display cases and pallets, efficient shelving, in-store signage and our signature cart-rental system all contribute to our ability to deliver everyday low prices to our customers."
Spieckerman notes that ALDI was quietly doing small formats "before small formats were cool," meaning the retailer has had time to perfect the formula while others were only testing the waters. Plus, ALDI's long-standing exclusive-brand approach means it has had more time than other small format operators to cultivate loyalty to its brands.
"As bare bones as its stores are, they are well-tended, clean and easy to shop," she adds, "and ALDI offers more-than-competitive pay and benefits, which ensures higher-caliber help and low turnover."
Volume buying certainly helps, too. Because the company concentrates on offering the 1,300-plus items that are most commonly purchased, and in the most popular size for each item, it is able to buy a larger quantity of what amounts to fewer items, Youngstrom notes.
"Those savings are passed directly on to our customers," he adds.
ALDI's many long-term supplier relationships are vital to the company's no-nonsense approach as well. Youngstrom says it is not uncommon for its supplier partnerships to last "15, 20 or even 30 years" when those suppliers prove not only that they are able to deliver high-quality products and great service, but also that they can be responsive to changing consumer needs.
"We believe that longevity and trust in our business relationships with our suppliers are essential to ensure the high quality and reliability of the products we provide our customers," he says.
ALDI's emphasis on sustainability also plays a crucial role in cost reductions. To start with, the retailer's stores are smaller than traditional grocery stores, allowing it to operate with a smaller carbon footprint, Kavanaugh notes. Moreover, the stores boast environmentally friendly building materials and modern lighting and refrigeration systems that require less energy.
Still, some of the retailer's sustainability efforts are more about doing what's right for the planet than they are about cutting costs.
"Our recycling efforts across our operations have been tremendously successful," Kavanaugh says. "In 2012, we recycled 100 percent of the cardboard, paper and plastic film that we use, up from 97 percent in 2011. That effort alone saved more than 1.7 million trees."
ALDI approaches product sourcing with an eye on sustainability, too, with its buyers looking for opportunities to purchase from sustainable sources, she adds.
"For example, our Willow 3-Ply Facial Tissue with Lotion contains sustainable paper certified by two environmental organizations; our Choceur Wafers are made with sustainable cocoa; and our Bridge Road Vineyards and Burlwood Cellars wines are made using sustainable production methods," Kavanaugh explains.
And working with the Sustainable Fisheries Partnership and the Global Aquaculture Alliance, ALDI is committed to sourcing sustainable seafood. She notes that on Greenpeace's 2013 U.S. Seafood Retailer Scorecard, which ranks retailers on their seafood sustainability efforts, ALDI is listed among the Top 10. And since 2010, the retailer also has been a member of the Roundtable on Sustainable Palm Oil.
As ALDI moves forward on its strategic growth plan, it appears to have the right elements in place – and in the works – to ensure continued success for many years to come. For example, a line of gluten-free exclusive-brand items based on the preferences and priorities of ALDI customers is in the not-too-distant product development pipeline, Youngstrom notes.
"In addition, we will be updating ALDI exclusive-brand packaging to include front-of-pack nutrition information," he says. "And, as always, we will continue to provide our customers with the products they want at the quality they demand, all at a great value."
Marketing efforts also will be a priority going forward – but not at the expense of delivering on the ALDI value promise.
"While we are communicating more today than we ever have, we have not significantly increased our budget," Kavanaugh points out. "We've adjusted our media mix so that we can reach more customers and encourage them to come in and discover ALDI. Today, customers can find ALDI on Facebook, Pinterest and, most recently, Twitter."
And ALDI's continued growth could help drive growth of store brands overall in the years to come. Wisner believes that ALDI's success is increasing – and will continue to increase – consumers' adoption of store brands.
"As ALDI continues to bring more trips to their stores across a broader range of consumers, those consumers, assuming they come back to shop at ALDI, are now starting to more readily adopt a comfort zone with private brand," he says. "So what ALDI is doing is helping to accelerate the transition of private brand … versus where it was 20 years ago."