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USA: Aldi is the fastest-growing grocery chain

Discount Retail Chain Aldi USA (German family owned) is scaling up rapidly around the US. The German discount chain, famed for its low prices, is the country's fastest-growing grocer for the third year running, the real-estate-services company Jones Lang Lasalle said. Last year Aldi gained a million new customers and saw sales at its existing stores rise by double digits, the company said in September.

And it's not just low-income customers looking for bargains.

Aldi said at a media event in September that it has seen a rise in middle-income shoppers, which it defines as households earning between $50,000 and $100,000 a year, as well as high-income customers, reported Reuters. "Right now especially, everybody's shopping for value," said Suzy Monford, an exec at the retail-tech company Focal Systems who's held executive and management roles at major grocery chains. US food and drink prices have soared 13.5% this year as of August, data from the Bureau of Labor Statistics shows.

Aldi almost always has the lowest prices for core products like bread, milk, and eggs, Monford said. Scott Patton, Aldi's vice president of national buying, said in September that its fruit and vegetable prices are between 20% and 40% lower than at competitors, Reuters reported.

So how did Aldi get so cheap? It's down to what Patton called "thousands of strategic, intentional decisions" to keep prices low. Analysts, experts, and an Aldi superfan broke down the strategy that helped the store win over middle-income America. Aldi declined to make any employees available to interview for this piece.

Private-label pros

You won't find many of your favorite brands in Aldi. It calls itself a "private-label trailblazer" and its own-brand products make up more than 90% of the items it sells. That's a much bigger proportion than rivals like Costco, Walmart, and Kroger, according to the consumer-data company Numerator.

Aimee Becker, a senior vice president of strategic advisory at Daymon, a company that helps businesses create private brands, told Insider that white-label brands had shaken off their reputation as subpar replacements for well-known ones as customers focus more on value and become increasingly brand agnostic.

Aldi has touted that as a key to its low prices. The company's US website says that its own-label products are cheaper, because they don't have "the hidden costs associated with the national brands, such as marketing and advertising."

Creating its own products also gives the store better control over supply chain and packaging, Shannon Vissers, an analyst at Merchant Maverick, a business-product-review site, told Insider. "For example, Aldi's chips don't have the extra puff of air that fills up name-brand chip bags, so they're able to fit more bags on their shelves."

Monford said that Aldi is able to negotiate deals with "some of the best suppliers" to make its private-label products, because its scale and the fact that it offers a limited number of brands in each product category mean it can order in bulk.

Nils Brandes, the co-author of the book "Bare Essentials: The Aldi Success Story," told Insider that Aldi ensures that the quality of its brand products are "at least as good as the quality of the commercial brands." The company has said that one in three of its nationally distributed Aldi-exclusive branded products, excluding produce, have won awards.

Sarah Campbell, a self-proclaimed Aldi superfan and a teacher from New Jersey who runs the TikTok account @aldiallthetime, has been shopping at the chain for around five years.

Campbell said the vast majority of products she buys from Aldi are from its private label. Her favorite products include its coffee creamer, flavored pretzels, pita chips, and peanut-butter cups. The company's frozen chicken, known by fans as Aldi's "red bag chicken," is a "must-try," she said.

A 'treasure hunt' for shoppers

Aldi sells rotating limited-time items, known as Aldi Finds in the US, which are added each week. They're available for a much shorter time than similar products at other retailers typically just two weeks in US stores and aren't restocked when they sell out. The products can range from food, housewares, clothes, and seasonal items to "unexpected" things like gardening equipment and pet accessories.

On a visit to a UK Aldi store, Insider spotted dog car seats, CBD candles, and $200, or about $231, lawn mowers in the section. "They are using that variety as the hook," Monford said, likening it to a "treasure hunt." Campbell used that term to describe browsing Aldi Finds, too. "When we go shopping, we're foraging, we're hunting and gathering," Monford added. "We want a little surprise and delight, and they do a very good job with that." "And the fact that they are all 'limited-time only' items that won't be restocked makes them more enticing to customers," Vissers said. She added that Aldi gets a "great return" on these products because they're typically suppliers' overstock items that are sold at a discount. "It's a pretty smart business model."

Aldi Finds items now account for around 20% of Aldi's sales globally, Brandes said.

Campbell said she thinks the loyalty of Aldi shoppers is partially driven by the Aldi Finds.

"I love to go there and look for the new stuff that wasn't there last week," she said, adding that it's something she's seen people connect over online. "People share, you know, 'I tried this and this was really great,' or 'I tried this,' or 'I bought this.' People like to show what they found at Aldi that week."

Items she's bought include a mattress, a countertop ice machine, and an espresso machine. An outdoor firepit was her favorite high-end purchase, she said.

Small stores for 'just-in-time' shopping

Aldi is not overwhelmingly large. It typically has compact 22,000-square-feet stores, 12,000 square feet of which are used as the sales floor, according to an Aldi document from 2018. Walmart, in comparison, has four different types of stores, with an average size of 148,000 square feet, although that also includes backroom offices and storage.

Smaller properties are cheaper to buy and maintain, and Aldi has said that its store layout enables "quick and easy shopping." "Their size is one of their core strengths," Monford said, pointing out that the stores are still big enough for a full weekly shop. By offering just a couple of brands for each product type, "they've really curated the assortment for their shoppers, which makes the shopping experience easier if you've chosen to shop there," Becker said. She said that Aldi sells fewer than 2,000 different products in total. Aldi's has said that it only sells around 130 fruit and vegetable products at any given time.

Becker said that over the past decade, more customers had switched from "pantry loading" stocking up with large weekly shops to more frequent "just-in-time" shopping. Smaller stores are much more attractive to shoppers who only want to pick up a few items and don't want to be overwhelmed with choices, she said.

Display-ready packaging saves on wages

Most grocery stores remove their products from the packaging that they're shipped and stored in when they display them on their shelves; Aldi doesn't. The chain largely sells its products in what it calls display-ready cases the outer cardboard sleeves products are shipped in that are stacked straight onto the shelves without being removed. Aldi has said this is to save money on the labor required to restock shelves. Monford said this system of one-touch stocking is "extremely efficient."

"All they have to do is pop out the top of the box and they can slide an entire case of yogurt onto the shelf and it's stocked in seconds," she said. Monford says that this means that the stores can largely have just-in-time inventory and don't need huge backrooms stocked full of inventory, another cost-saving measure.

Monford added that consumers "don't mind" that products aren't taken out of their boxes because they're shopping at Aldi for value. "It doesn't bother me at all," Campbell said. "It's a genius way to save time." She added that she'd spotted customers use the empty crates to take items home rather than pay for plastic bags, which Aldi charges for. Monford said that Aldi's focus on low costs means even the layout of its stores maximize efficiency.

"Every bit of that square footage is engineered based on needing to produce a certain sales per square foot, at a certain gross margin per square foot, with a certain labor efficiency baked into it," she said. Monford said that the way Aldi operated its stores was the "fastest, most efficient" in retail and required fewer staff than other supermarkets. As well as using shipping packaging, everything from "that building itself, the flow of the store, the size of the shelving, the depth of the shelving, the height of the shelving" is also designed to help with fast stocking using fewer workers, she said. Campbell said the Aldi stores near her generally had just four or five aisles. They're easier to navigate than other grocery stores because there's less choice, she said.

DIY carts and no specialized services

Other measures Aldi takes to save on costs include getting customers to pack their own bags, rather than taking up staff time, and charging customers for plastic bags.

It saves money on labor by using a rental-cart system, common in Europe, but unusual in the US to incentivize customers to return their own carts by using a quarter to unlock one and getting it back when they return it.

Aldi doesn't have services seen in some other stores, like delis and fish counters, which can use a lot of floor space and often require specialized staff rather than general workers who can switch between stations, Monford and Gautham Vadakkepatt, a retail professor at the George Mason University School of Business in Virginia, told Insider. It also doesn't provide what it calls "nonessential" services like banking and pharmacies.

Vadakkepatt said Aldi's stores have fewer employees and shorter hours than at other chains. Its nine stores in Detroit, for example, are open from 9 a.m. to 8 p.m. Walmart's stores around the city are open for six hours longer each day.

Aldi has said it also prints multiple barcodes on its products for faster scanning at checkout and doesn't play music so it doesn't have to pay for licensing fees. As Aldi continues to scale up, its strategy looks unlikely to change, meaning more and more Americans will be shopping for value at the rapidly-growing chain.

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