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Aldi (Germany)

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German retailer Aldi - an abbreviation of Albrecht Discount - has led the rapid growth of the so-called "hard discount" sector in the European retail industry, stripping out all unnecessary costs in order to sell a carefully controlled selection of high-volume own-label products at rock-bottom prices. Despite its stripped-down offering, Aldi has developed an unlikely position in Germany as one of the country's best-loved institutions, frequented by wealthy bargain-hunters as well as the less well-off. That's largely because of a focus on high quality despite the low pricing. The family-controlled group also has an extensive global profile, with operations as far afield as the US and Australia, as well as other European markets. In several countries, not least the UK and Australia, the relentless expansion of Aldi and also its domestic rival Lidl, has resulted in fierce competition with local chains who have struggled to match the German group's prices.

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Competitors

Aldi's main competitors in Germany are Edeka, Lidl, Metro and REWE. See Retailing Sector for other companies

Brand & Activities

Aldi's strategy is simple in the extreme. The group restricts its range in most stores to around 1,200 items, compared to the 20,000 or more product lines carried by even smaller traditional supermarkets. Each store stocks a range of everyday staples, such as food, beverages, detergents, toilet paper and the like, supplemented by a changing selection of "Special Buy" items. These vary from week to week, and are sold on a strictly limited basis. They range from clothing or toys to garden furniture and consumer electronics items. In 2005, the group even introduced its own pay-as-you-go mobile phone service in Germany, Aldi Talk, in partnership with local network e-Plus.

Almost all goods sold in-store are private label, although the group does also retail a small number of third-party brands, depending on individual markets. By specialising in own-label products the company can negotiate directly with suppliers, and uses its enormous combined buying power to beat down prices well below those of other retailers. Most of those savings are passed on to customers, with prices often as much as 30% below comparable products sold in traditional supermarkets. However, the low prices don't denote low quality, and Aldi has earned a reputation for selling products that are just as good if not better than third-party brands.

Stores are similarly stripped-down to keep costs low. Lighting is functional, carrier bags are charged as extra, trolleys are available only on payment of a deposit, and products are often sold direct from delivery pallets to avoid the cost of unpacking and shelf stacking. The average store has fewer than five staff on duty at any time, even at peak periods, and the company doesn't list phone numbers for its stores to avoid time spent answering calls. Staff even reportedly have fixed routes from checkouts to the lavatory, so they can drop off waste cardboard at recycling bins on the way. Aldi was one of the last chainstores in Germany to introduce barcode scanners, in 1999. Until then staff were required to memorise the stock code of each item. In one of its more controversial recent moves, Aldi introduced automated "baking ovens" in its stores in southern Germany during 2010 in order to offer an equivalent to freshly baked bread without needing to install a bakery and an inhouse baker.

As a result of its cut-price strategy, Aldi has developed a commanding position in Germany, where its network of almost 4,260 stores has almost 15% share of the market. In key segments, its private label products outsell national brands by a considerable margin. Laundry detergent Tandil, for example, is Germany's leading brand by volume by a wide margin, with around 25% market share, well ahead of Henkel's Persil and P&G's Ariel. Some canned food products are thought to have as much as 50% market share. Other significant private label brands include Cucina Italian foods, Amaroy coffeee, Almare seafood, Rio d'Oro fruit juice, Choceur and Moser Roth chocolate, Lacura beauty products, Grandessa ice cream, Kuer haircare, and Mamia babycare products.

Despite its cheap and basic offering, Aldi has become one of Germany's best-loved companies, patronised by all levels of society. In recent research, it was voted the country's third most respected corporate brand (behind Siemens and BMW, but ahead of Daimler), and an incredible 89% of the population shop there at least once a year. One major factor is that quality remains exceptional despite the low prices. In monitored blind testing, most Aldi products easily match the standard of other private label or even national brands. The approach has been widely copied, most effectively by arch-rival Lidl.

Aldi has also extended its operations into around 16 other markets, notably the US, where the group now has around 1,540 Aldi stores in 32 states, as well as 400 Trader Joe's, which offer a wider range of more upscale deli products, but also at "honest everyday low prices". Like the main Aldi brand, costs are kept to the bare minimum, but the range of foods stocked is much higher-priced. As a result, the store has the highest sales per square foot of selling space of any US grocer, averaging $38 psqft in 2012. That's more than three times the US industry average of $12, and well above top-of-the-range Whole Foods ($21).

Aldi is also present in several other European countries. However in most cases stores are slightly less basic than they are in Germany. Other than the US, its biggest market outside Germany is France, with 920 stores. However it ranks third in France's hard discount segment, behind Lidl and Leader Price, with 2.4% overall market share in Dec 2013 (Kantar), just ahead of the former Carrefour subsidiary Dia/Ed. France is followed by the UK (650 stores), the Netherlands (490 stores), Austria (450 stores) and Belgium (440 stores). The first Aldi stores opened in Australia in 2001, and the chain has performed strongly there, amassing just under 8% local share of the groceries sector by mid 2016 to take third place behind local leaders Woolworths and Coles.

Aldi's most impressive performance has arguably come from the UK where it has managed to pull off an impressive turnaround. For many years after its launch in the 1990s, Aldi failed to make a significant impact on local supermarket chains and its stripped-down store format actually put off many British shoppers used to a more luxurious store environment. More recently, however, the UK business has appeared to be one of the biggest beneficiaries of the economic downturn, with sales rising by 86% since 2009. For 2012, the chain reported UK revenues of £3.9bn - up an extraordinary 41% on the year before - and pretax profit which more than doubled to £158m. A key factor was an advertising campaign which highlighted the price comparisons between third-party branded products and Aldi's own equivalents under the tagline "Like Aldi. Like Brands. Only Cheaper."

In 2016, Aldi UK was named as Grocer of the Year for the third time in four years (it had previously won that award in 2009), and also regularly takes the top prize for own-label products. In 2013 it took gold in no less than 16 categories in The Grocer Own Label Awards. It has vowed to increase store numbers from around 500 outlets in 2014 to 1,000 by 2021. Crucially, although the majority of its customers are still lower-income households, the proportion of better off shoppers has also increased significantly. According to retail consultancy Verdict, the percentage of socio-economic AB customers had risen from under 13% in 2012 to 18.6% in 2013. For 2016, local revenues hit £8.7bn - up by £1bn year-on-year. Local share of the grocery market is still small, but reached a new high of 7.3% in 2018 (12 weeks to Aug 2018 Kantar Worldpanel), having more than doubled since 2012.

In other markets, such as France and Switzerland, the group has been faced with strong competition from local co-operative operators such as Leclerc or Migros offering equally low prices in more attractive surroundings. In France, Aldi sits behind German rival Lidl by market share. In 2010, the group withdrew from Greece altogether, putting its 38 stores there up for sale.

Aldi is in fact two separate companies, established by brothers Karl and Theo Albrecht. Karl's Aldi Sud operates around 1,860 stores in southern and western Germany, as well as another 3,560 or so in Austria and Slovenia (under the Hofer brand), Switzerland, Hungary and English-speaking countries including the US, UK, Australia and Ireland. Theo's Aldi Nord manages northern Germany, with 2,400 stores, and 2,440 outlets in other European markets including France, Spain, the Netherlands and Denmark, as well as Trader Joe's in the US. However, most purchasing is managed centrally by an executive board drawn from both companies. As a privately-owned business, the Aldi Group doesn't publish financial information. However combined sales are estimated at around €55bn, of which approximately €23bn is generated in Germany.

Each business is privately owned by family trusts established by brothers Karl and Theo Albrecht. In 2010, they ranked as Europe's wealthiest individuals with a combined fortune estimated by Forbes at more than $40bn. They retired from the business in 2003. Although Theo initially passed management of his side of the business to his sons Theo Jr and Berthold, they too later retired from active involvement in the company, although they remained trustees. Karl's Aldi Sud is also run by professional managers.

Theo Albrecht died in 2010 at the age of 88, passing control of the family foundation to his sons Theo Jr and Berthold. However, three years later, Berthold Albrecht also died at the age of just 58. Theo Jr is currently involved in a legal battle with Berthold's widow and her five children over representation on the foundation which controls Aldi Nord. Karl Albrecht died in July 2014, aged 94, leaving his estate to his son Karl Jr and daughter Beate. Her husband Peter Heister and son Peter Max Heister also sit on the advisisory board of Aldi Sud. In 2015, Germany's Manager Magazin estimated the wealth of Aldi Sud's Albrecht/Heister family at €19bn and the Aldi Nord Albrecht family at just under €17bn.

Background

Karl and Theo Albrecht were brought up in the German town of Essen during the 1920s. Their father had been a miner but lost his job as a result of emphysema. To make ends meet, his wife opened a small grocery shop in 1914, and the brothers grew up in the business over the following two decades. During World War II, much of Essen was destroyed by Allied bombing, but Karl and Theo set about re-establishing the shop in the late 1940s. Essen's poverty-stricken residents were pleased to get hold of whatever groceries they could, provided they were cheap. As a result, the Albrecht brothers decided to limit their range and keep prices as low as possible. The formula worked and by 1955, Karl and Theo had a chain of around 100 stores in Germany, trading under the name Albrecht Discounter, shortened for convenience to Aldi.

In 1960, they split the business in two, reportedly because Theo wanted to start selling cigarettes and Karl didn't. (Aldi Sud only began stocking tobacco for the first time 40 years later after Karl's retirement in 2003). Karl took charge of all stores in the South of Germany, and Theo was responsible for the North, although they continued to work closely with each other, especially when negotiating with suppliers. In 1962, Theo adopted for the modern format then rapidly being adopted by other grocery retailers, opening the brothers' first self-serve supermarket under the name Aldi, an abbreviation of Albrecht Discounter. Karl followed suit in the south later the same year, and acquired Austrian supermarket chain Hofer five years later in 1967.

The business expanded rapidly, and the brothers became extremely wealthy. This resulted in much unwelcome attention. In 1971, Theo Albrecht was kidnapped and held for 17 days until the family paid a $4bn ransom. Supposedly Karl bargained down the price originally demanded, and subsequently tried to claim the ransom against tax as a deductible business expense. (His claim was denied by the government).

After that the family studiously avoided media coverage, earning a reputation for reclusiveness. Instead the brothers devoted their attention to the business, expanding the Aldi strategy into other markets. As with Germany, they agreed to split different international markets between them. Karl opened the first Aldi store in the US in Iowa in 1976; Theo acquired convenience store chain Trader Joe's in 1979. That store had first been opened in Los Angeles in 1967 by Joe Coulombe, inspired by the feel of stores he had seen in the Caribbean. Karl opened the first Aldi in the UK in 1990 and in Australia in 2000. Meanwhile Theo expanded more cautiously into selected other European markets.

Sales grew rapidly, but perhaps the most surprising transformation was the company's growing respectability in Germany. Until the 1990s, Aldi's stripped-down approach had earned it a reputation as a low-class retailer. However it quickly gained acceptance following the reunification of Germany, as an economic downturn persuaded all Germans of the advantages of high quality bargains. The store's popularity was greatly enhanced by a series of best-selling cookbooks which offered recipes using only ingredients sold by Aldi. Shopping at Aldi gradually became a sort of cult among wealthier customers during the decade, and that cult has since turned into a confirmed habit.

In the late 1990s the group teamed up with German manufacturer Medion to offer low-price consumer electronics products. The launch of Aldi home computers caused a sensation in 2002, when all available stock sold out in a few hours. In 2005, the two companies teamed up with mobile service e-plus to launch low-cost mobile service Aldi Talk.

Last full revision 6th October 2016

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