The Aldi transformation continues: Investments in the shopping experience

Transformation is a big topic inthe industry these days, but what does it look like, exactly? I’d argue thatAldi is a great example – and that now is a particularly good time to check onhow their business reinvention is coming along. My colleague BillBolton and I estimate top line sales will increase from $14.6 billion in 2016to $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 billioninvestment dedicated to rolling out its “store of the future” to 1,300 current Aldilocations.
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 isall about what Aldi will do for you – whatguarantees they offer, what products they develop and offer, how they will saveyou money, etc. – and it’s is dramatically increasing the importance of Aldi’sbrand as a retailer. This is anauthentic expansion of Aldi's retail brand, with stores that turn the traditional supermarketformula inside out by offering mostly own brand products with national brandspeppered 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 tocompare and contrast. THEN: The original Aldi stores were built for efficiency, notshopping experience. They were typically located in “second use” facilities totake advantage of the lower rent and offered only about 700 items, mostly drygroceries 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 onlyabout twice a month. This was a pure EDLP operation. Aldi always installed new tile floors tosupport heavy material handling equipment and to reduce floor maintenance. Laborcosts were exceptionally low (about 3% of sales) because everyone in the storestocked product and checked out customers, even the store manager. Although these stores captured onlyabout 15% of their customer’s grocery spending, consumer interest triggered astrong competitive response from supermarkets, which slowed Aldi’s growth significantlyfor several years. NOW: Check out Aldi’s store of the futurein Palatine, Ill. The glass doors slide open to reveal a bright andcontemporary food store that offers between 1,500 and 1,700 items, includingapproximately 100 fresh produce items, plus fresh beef, pork, and poultry, milkand dairy products, and an extensive frozen food offering. Store décor from signage to layout has beenupgraded, and there have been major improvements in product packaging. “Wow! This feels like a modernstore! I like it – I like it a lot” said one Aldi regular we know. The storedelivers a much improved shopping experience while staying true to the brand’spromise. Prices on Aldi’s own label can be almost 50% lower than the comparablenational brands, and store appeal is still strongest with shoppers who, out ofpreference or necessity, want low price groceries and are willing to do somework to get them – like deposit 25 cents to get a shopping cart or bag theirown purchases with grocery sacks they brought or bought from the store.However, the new emphasis on the shopping experience is likely to attract valueconscious shoppers from a wider economic range. Investing in a better shopping experience Aldi’s store of the future isnotably different, more welcoming, and pleasant as a result of:

Wider aisles and a well-defined cross-storeaisle.
A brighter interior with open ceilings.
An eye-catching, attractive store décor packagethat includes:
- Super-sized graphics of food photos on thewalls.
- An abundance of chalkboard-like signs that maintaina 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 attractand serve today’s demanding, time-stressed consumers while maintaining a lot ofthe 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-huntexperience. Walking the aisles Take a walk through the aisles and thinkabout 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 attractivelypriced and displayed selection of alcoholic beverages. This section of thestore benefits from Aldi’s German heritage, and serves as a gateway to anextensive offering of snacks to go with those beverages. Specialty Select : Aldi has been expanding this lineof premium own-brand products that combine “quality ingredients, passion, andimagination” for the last couple of years, no doubt because of its popularityand ability to deliver surprise and delight. Customers see a product that offers a gourmet-likeoption, with prices that are higher than similar items on the Aldi shelf, but agood value compared to the market. Most Specialty Select items aresold on an in-and-out basis, which also strengthens the store’s reputation forvariety and surprise. We saw almond dark chocolate biscotti, apple cranberryfruit filling, butternut squash pasta sauce, and raspberry vinaigrette, redwine vinegar, and wildflower honey when we visited. Health and wellness : As this category becomesincreasingly popular, shoppers now find exclusive Aldi brands that serve fourtypes of health and wellness needs.

“Fit and Active” items are designed as “betterfor you” and your wallet.
“Simply Nature” products are made with “honestingredients” you can feel good serving your family.
“Live G-free” is a line of gluten free products.
“Never Any” – these meat products contain nohormones, antibiotics, or animal byproducts.

Need-state focused product platforms: To better serve specific shoppersegments, 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 muchlower cost.
Little Journey. This platform of babyproducts includes diapers and wipes, plus organic food and snacks.

More national brands: Aldi has long carried national brandsin certain categories like candy and health and beauty care, but there’s anoticeable uptick in branded food and beverage products in the store of thefuture. Most of these are available only for a limited time. Here’s a sample of the nationalbrand 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’sprices on these items were consistently lower than the supermarket’s regularshelf prices (averaging 26% lower), but when the supermarket put the nationalbrands 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 transformationis to how they want to do business in the future.

Bottom line: We are entering aperiod of accelerated change where many retailers – including Aldi, Amazon, andnewcomer Lidl – are all working to transform the grocery shopping experience byaddressing the places where the status quo is not delivering optimally. How andwhere to focus resources when transforming is the big question, and the answerwill 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.