USA: Why Aldi is now expanding in the USA?
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USA: Why Aldi is now expanding in the USA?

Discount Retail Chain Aldi USA is planning 600 new stores in the USA by 2030, despite Donald Trump's trade war. While Aldi in Germany can hardly be distinguished from a classic supermarket in terms of price and appearance, the discounter is celebrating a surprising success in the USA as a low-cost supplier as in its early days. With affordable private labels, lean processes and a minimalist shopping experience, Aldi is apparently hitting the nerve of the times.


In the past, the US branch of Aldi Süd in the USA was ridiculed for its spartan stores and the 25-cent coin for the shopping cart. Today, Aldi is one of the fastest-growing retailers in the country, with around 100 new stores per year, according to the "Grocery Report 2024" by real estate service provider JLL. In March, the discounter announced that it wanted to push ahead with expansion even faster. The goal is to become the third largest supermarket chain in the USA by the end of 2025 with 2600 stores - behind Walmart and Kroger. There are currently 2400 Aldi stores. American boss Jason Hart held out the prospect of another 600 stores for the next five years. In addition, there are even branches of Aldi Nord, which do not operate under the Aldi name in the USA. Aldi Nord has been operating the Trader Joe's chain since 1979.


This raises questions for the German market. In the USA, Aldi relies on virtues that once made the discounter great in Germany: low prices, a clear assortment and efficient processes. Around 90 percent of the products are private labels, which can keep up with branded products in terms of quality, but are significantly cheaper. An example: While a pack of "Fruit Rounds" breakfast cereals costs 1.68 dollars at Aldi, the branded product "Froot Loops" costs 4.48 dollars.


"Can't open the stores fast enough"

The current economic conditions in the USA are benefiting Aldi. Food prices have risen by a good 20 percent in the past four years. Tariffs on imported goods such as fruit, vegetables and rice are driving up costs even more. While traditional supermarkets often pass these costs directly on to consumers, Aldi manages to keep prices stable or even lower them. For example, the discounter reduced prices for a quarter of its range in the summer of 2023. The market power of the food giant vis-à-vis the manufacturers is also likely to play a role.

"After years of inflation, Americans' money is tight," the New York Times quotes the head of Aldi in the USA, Dave Rinaldo. "We are in a time when demand is so high that we literally can't open the stores fast enough." By concentrating on private labels, Aldi is well prepared for this development. Customers have to pack their purchases themselves and the goods are often presented directly in the boxes of the wholesale deliveries. These simple measures save costs.


The stores themselves also contribute to the success. With an average area of 2000 square meters, they are significantly smaller than the often huge US supermarkets. This also saves costs and at the same time makes shopping clearer for customers. Instead of an overwhelming assortment of up to 30,000 items, as can be found in a typical American supermarket, Aldi offers a compact selection of an average of 1600 products, according to the "Economist".


Lidl lags behind Aldi

The fact that the basic idea of the German brothers Theo and Karl Albrecht, who founded Aldi in the 1950s, the world's first ever food discounter, is still a successful model, is also shown by the continuously increasing number of customers in the USA. According to an analysis by PlacerAI, Aldi recorded seven percent more customers in the first half of the year than in the previous year, while classic supermarkets had only 1.8 percent more.

Is the German discounter conquering the American food market landscape with its concept, as the Wall Street Journal recently headlined? "Aldi has been active in the US market since the 1970s and is therefore no longer a 'flash in the pan', but a player to be taken seriously," says food retail expert Carsten Kortum. The special thing is that he "has developed a clearly defined, radically simple discount model at its core – and then adapts it to the conditions in the respective countries with astonishing flexibility depending on market conditions."


While Aldi is taking off in the USA, the second major German discounter is struggling with challenges. "With only a little more than 190 stores, Lidl is significantly smaller than Aldi. Lidl is having a harder time, expansion has been more hesitant and some locations have even been abandoned," says Kortum, Professor of Business Administration and Food Retail at the Baden-Württemberg Cooperative State University.


The message that US consumers want a clear discount alternative to the classic supermarket has been received. In New York, Lidl advertises with the "Lidl-est prices", a play on words with the brand and the English word for the lowest prices. Nevertheless, the company, which positions itself between discounter and supermarket, remains a "big experiment with an unclear outcome" for the expert. If the turnaround does not succeed, he believes that an exit from the US market is even possible.


Discount is not everything "hybrid formats" are the future

The success of Aldi in the USA is also the result of a learning process, as Kortum emphasizes. Both chains had to learn in the USA "that the purely German discount approach does not automatically work there". Aldi has also invested in improving the appearance of its stores and food quality in recent years, with "more freshness, more brands and more convenience", i.e. processed foods that save time in preparation. The design of the stores is also more American today.


Kortum therefore considers a return to the purist discounter of the 1970s to be unlikely for Germany. The wheel cannot be turned back, according to the expert. Over the years, customers in this country have learned to expect quality, organic products, regionality and brand diversity from discounters. The German market is extremely saturated, competition is intense and market shares are relatively fixed. Aldi and Lidl had to react: with more fresh food counters (without service), larger stores, private labels with premium standards, new convenience assortments and more modern store concepts. 


In the expert's view, however, "hybrid formats" are conceivable in Germany in the future: "Aldi and Lidl could run smaller, highly price-oriented formats in parallel to their modernized stores, for example, for very price-sensitive target groups or in economically weaker regions." In a way, this is already visible in the test formats of the discounters: Lidl is testing non-food special formats and Aldi Süd is experimenting with city stores. The development towards "supermarket with discount DNA" is irreversible. "But selective returns to the hard price discount are possible, especially if the economy continues to weaken or certain customer groups pay more attention to the penny again."



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