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Don’t Ignore Aldi

Sometimes the best way to understand what a chain is doing nationally is to identify the impact it is having locally.

The Cincinnati Enquirer published an article entitled, Aldi’s Big Move: No-frills, Low-Price Stores Appeal to the Affluent, Too, which details how this deep discount chain is operating in Kroger’s hometown:

In a grocery-store market filled with Marketplaces, Supercenters, full-scale organics stores and boutique specialty grocers, plain little Aldi is emerging as a powerful player.

German-owned Aldi has 12 stores across Greater Cincinnati and Northern Kentucky. The chain has a less-is-more approach to grocery shopping, and its stores don’t even have shelves. Instead, shoppers lift their groceries out of boxes still on the wooden pallets that were pulled straight from delivery trucks.

It carries a limited number of national brands, stocking mostly its own private labels.

But, with its distinctive blue signs and small stores served by only one or two check-out clerks, Aldi’s strategy has created a loyal core of customers, a surge in revenues and plans for even more growth in the region.

“Their prices are better,” said Edgar Russell, 43, a Kennedy Heights resident who recently returned to his hometown of Cincinnati from St. Louis. “I think their food is fresher; and usually, you don’t have to wait in a big, long line to shop.”

While budget-conscious shoppers are Aldi’s bread and butter, two new Aldi stores opened in the region last week in more affluent neighborhoods, in Blue Ash and West Chester — an indication the company sees growth opportunities beyond its sweet-spot demographic of low-income shoppers.

One of the stores opened across from West Chester’s tony gated community Wetherington.

“Early on, even 15 years ago, we were definitely in class B real estate market,” said Dan Gavin, divisional vice president who is based in Springfield. “But in the past year we have moved our real estate to Class A sites. All types of incomes like to save money. And we want to be by our competition.”

Martha Kidd, 69, a Mason resident since 1965, is tickled that she will be able to shop closer to home at Aldi because of convenience and to save gasoline.

“We used to travel all the way to Middletown once a week to go to Aldi, and I’m glad I don’t have to do that anymore,” Kidd said. “Their prices are very, very good. And the quality is decent, too.

“I don’t think there’s anything I’ve bought there that isn’t tasty.”

Last week, she filled up a shopping cart with instant potatoes, cheese, shrimp, bread, Danish rolls for her husband, Mexican-style chili beans, chicken strips, a coffee drink, salad dressing, lettuce, peanut butter, canned pears, cereal, cookies, relish, green beans and canned cream corn.

“I had to rest after all that,” she said.

Aldi is not finished expanding in our region with new stores. Gavin said the company is looking in Lebanon, Covington, Alexandria, Milford, Blue Ash and Anderson Township.

“I’ve been to Beechmont Avenue two or three times myself to look,” Gavin said.

Nationally, Gavin said the company plans to open 65 stores in 2007 — employing eight to 10 people at each — and about 100 more stores in 2008. Each store is 16,000 square feet, so that means the company will build and open 2.6 million square feet of retail space every two years — a pace of 110,000 square feet of retail space every month, which is about the equivalent pace of one new Kroger store each month and a Wal-Mart supercenter every two months.

Few grocery markets are immune from Aldi’s encroachment — not even the hometown of grocery titan Kroger.

Even though Kroger rings up about 59 cents of every food dollar spent in Greater Cincinnati, there is still room for competition. Kroger, which has 78 stores in Greater Cincinnati and Northern Kentucky, competes with discounters like Aldi by offering private-label foods created or processed at one or more of the company’s 42 manufacturing plants.

Aldi, on the other hand, has no food plants, limited hours and stores that look more like a miniature warehouse than a corner grocery.

“I run down here to get things I need for the lady I take care of,” said Oakley resident Shawn Pearson, 42, referring to the Aldi in the Avondale Towne Center. “And it’s nice that it’s right down the street.”

Aldi, whose parent company’s name was derived from Albrecht Discount and also owns Trader Joe’s, is dramatically different than grocers such as Kroger or discounters such as Target or Wal-Mart, which sell food as well as household accessories, furniture and other goods.

Because products are in cardboard boxes on pallets instead of shelves, restocking is easier and easier on payroll. There are no free shopping bags, no clerks to bag groceries and no credit cards or checks accepted.

At Aldi, cash is king.

The company says its newest outlets here are flagship stores that offer a broader selection — wine and some perishables, for instance — than what is found at most Aldi stores.

Volume of goods sold is the key to the Aldi approach, said Stephen Moehrle, associate professor of accounting at the University of Missouri-St. Louis.

“They will cut the price and take the margins down further than a popular grocer,” he said. “They can do that because they pay less for real estate, have limited hours and far fewer staff per customer. It’s an example of a very bright business model.”

Aldi is surfing in the wake of Wal-Mart, said one analyst.

“They are feeding off the Wal-Mart and Sam’s Club shopper,” said Al Ferrara, the New York-based partner and retail expert for BDO Seidman LLP, a leading accounting and professional services firm based in Chicago. “For a no-frills customer and from a merchandising standpoint, finding the right real estate is the most important thing Aldi can do.”

Smaller stores mean less capital is tied up in land, bricks and mortar — and that leads to lower prices.

“Many people will pay more money for convenience, but that may not be the case across middle America, where saving $20 is very important,” Ferrara said.

That $20 in savings means a lot to Russell, a Seven Hills High School graduate and Marine Corps veteran who has returned to town to be close to family and to set down roots.

Until he finds a job, he said, he will keep shopping at Aldi. “Financially challenged” is how he describes his plight.

“You can save money here,” Russell said, as he surveyed the store. “You may not be buying Hershey’s chocolate, but the chocolate you will be buying for a kid will taste great, and they’ll love it. They don’t care if it’s Hershey’s or not. They just want the chocolate.”

Some points to note:

  • The flagship stores are carrying more perishables.
  • Some stores are being located in affluent areas.
  • They now are often going for prime real estate, instead of B sites.

Hmm, deep discounts, small footprint, located in neighborhoods that span the demographic spectrum, increased emphasis on fresh, heavy use of private label.

If you cross a Wal-Mart Supercenter with one of Tesco’s Fresh & Easy Neighborhood Markets, do you get an Aldi?

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