The Aldi transformation continues: Investments in the shopping experience

Transformation is a big topic in the industry these days, but what does it look like, exactly? I’d argue that Aldi is a great example – and that now is a particularly good time to check on how their business reinvention is coming along. My colleague Bill Bolton and I estimate top line sales will increase from $14.6 billion in 2016t o $24.9 billion by the end of 2021.

Aldi has always been a disruptor in US grocery retailing,and it’s well positioned to grow more rapidly in the next five years for several reasons.

• The company just announced a $1.6 billion investment dedicated to rolling out its “store of the future” to 1,300 current Aldi locations.
• They plan to invest $3 billion in opening 650 new stores.
• And finally, a significant European competitor –Lidl – plans to open its first US stores this summer in the mid-Atlantic.

Topline, Aldi’s transformation is all about what Aldi will do for you –  what guarantees they offer, what products they develop and offer, how they will save you money, etc. – and it’s is dramatically increasing the importance of Aldi’s brand as a retailer.  

This is an authentic expansion of Aldi's retail brand, with stores that turn the traditional supermarket formula inside out by offering mostly own brand products with national brands peppered lightly throughout the store, as opposed to mostly national brandswith a few store brands sprinkled in.  So where and how has Aldi changed?  Let’s rewind the clock a bit to compare and contrast.   ‍

‍THEN: The original Aldi stores were built for efficiency, not shopping experience. They were typically located in “second use” facilities to take advantage of the lower rent and offered only about 700 items, mostly dry groceries moved directly from the truck to the display floor on full pallets.The staff simply pulled off the plastic, and the product was ready to sell.Prices seldom changed. Even regular customers typically shopped there only about twice a month. ‍

This was a pure EDLP operation.  Aldi always installed new tile floors to support heavy material handling equipment and to reduce floor maintenance. Labor costs were exceptionally low (about 3% of sales) because everyone in the store stocked product and checked out customers, even the store manager.  

Although these stores captured only about 15% of their customer’s grocery spending, consumer interest triggered a strong competitive response from supermarkets, which slowed Aldi’s growth significantly for several years.  

‍NOW: Check out Aldi’s store of the future in Palatine, Ill. The glass doors slide open to reveal a bright and contemporary food store that offers between 1,500 and 1,700 items, including approximately 100 fresh produce items, plus fresh beef, pork, and poultry, milk and dairy products, and an extensive frozen food offering.  Store décor from signage to layout has been upgraded, and there have been major improvements in product packaging.  

“Wow! This feels like a modern store! I like it – I like it a lot” said one Aldi regular we know.    

‍The store delivers a much improved shopping experience while staying true to the brand’s promise.  Prices on Aldi’s own label can be almost 50% lower than the comparable national brands, and store appeal is still strongest with shoppers who, out of preference or necessity, want low price groceries and are willing to do some work to get them – like deposit 25 cents to get a shopping cart or bag their own purchases with grocery sacks they brought or bought from the store.However, the new emphasis on the shopping experience is likely to attract value conscious shoppers from a wider economic range.  Investing in a better shopping experience  Aldi’s store of the future is notably different, more welcoming, and pleasant as a result of:  

• Wider aisles and a well-defined cross-store aisle.
• A brighter interior with open ceilings.
• An eye-catching, attractive store décor that includes:
  • Super-sized graphics of food photos on the walls.
  • An abundance of chalkboard-like signs that maintain a dialogue with customers – like “Welcome to a whole new way to grocery shop”and “Aldi is committed to your well being: fresh, simple, honest”

These stores are designed to attract and serve today’s demanding, time-stressed consumers while maintaining a lot of the cost savings. The net result is a smallish store that’s easy to maneuver and that features changes in product offering that deliver the treasure-hunt experience.  

Take a walk through the aisles and think about what the shopping experience is like from behind a cart.  

Wine and beer: A large (more than 30 linear feet)section in the early traffic flow draws immediate attention to an attractively priced and displayed selection of alcoholic beverages. This section of the store benefits from Aldi’s German heritage, and serves as a gateway to an extensive offering of snacks to go with those beverages.  

Specialty Select: Aldi has been expanding this line of premium own-brand products that combine “quality ingredients, passion, and imagination” for the last couple of years, no doubt because of its popularity and ability to deliver surprise and delight.  Customers see a product that offers a gourmet-like option, with prices that are higher than similar items on the Aldi shelf, but a good value compared to the market.

Most Specialty Select items are sold on an in-and-out basis, which also strengthens the store’s reputation for variety and surprise. We saw almond dark chocolate biscotti, apple cranberry fruit filling, butternut squash pasta sauce, and raspberry vinaigrette, red wine vinegar, and wildflower honey when we visited.  

Health and wellness: As this category becomes increasingly popular, shoppers now find exclusive Aldi brands that serve four types of health and wellness needs.  

• “Fit and Active” items are designed as “better for you” and your wallet.
• “Simply Nature” products are made with “honest ingredients” you can feel good serving your family.
• “Live G-free” is a line of gluten free products.
• “Never Any” – these meat products contain no hormones, antibiotics, or animal byproducts.

Need-state focused product platforms: To better serve specific shopper segments, two groups of products are displayed together in a single location,like a store within a store.

• Elevation: This platform includes 19protein bars that offer the same benefits as national brands, but at a much lower cost.
• Little Journey. This platform of baby products includes diapers and wipes, plus organic food and snacks.

More national brands: Aldi has long carried national brands in certain categories like candy and health and beauty care, but there’s a noticeable uptick in branded food and beverage products in the store of the future. Most of these are available only for a limited time. Here’s a sample of the nationa lbrand products found in one Chicago area Aldi during late January 2017:  

• Fronterra salsa – 16 oz.
• Sweet Baby Ray’s BBQ sauce – 28 oz.
• Red Lobster biscuits – 11.36 oz.
• Old El Paso taco kits – 12.5 oz.
• Coca-Cola-2 liter
• Capri Sun juice packets – 60 oz.
• Gatorade – 20 oz. 8 pack

Compared to a nearby supermarket, Aldi’s prices on these items were consistently lower than the supermarket’s regularshelf prices (averaging 26% lower), but when the supermarket put the national brands on promotion, prices at the two stores were very similar.

Aldi’s plans are in place –how about yours?

The news of Aldi’s plan to spend$1.6 billion on store renovations underscores how important this transformation is to how they want to do business in the future.

Bottom line: We are entering a period of accelerated change where many retailers – including Aldi, Amazon, and newcomer Lidl – are all working to transform the grocery shopping experience by addressing the places where the status quo is not delivering optimally. How and where to focus resources when transforming is the big question, and the answer will likely be unique for each retailer. It’s time to put together your plan.

If you haven't been in a new Aldi, check out this video from Shelby Report.

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