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HBS Product No. TB0583

Kannan Ramaswamy

Aldi and the Hard-Discounters

March Across America
We have no bags. We have no checks. We have no perishables. We have no fancy shelving. We have
no overtime. We have no fancy floor. We have no prices on product. We have no fancy fixtures. We
have fast checkout. We have little advertising.
Aldi advertisement in the Iowa City Press-Citizen, 1976

Aldi had come a long way since its first U.S. store opened in Iowa. They prided themselves then about what
they were not offering their customers, an approach that might have appeared quite unusual to the U.S. shopper.
However, as 2019 drew to a close, Aldi had perfected its minimalist approach to the grocery business and
appeared set to march farther west to states such as Arizona that had yet to witness the hard-discounter trend
that was slowly transforming grocery shopping across the country. Aldi was targeting a 700-store addition to its
current network of 1,800, and planned to serve 100 million customers, thus laying claim to the 3rd spot in the
league of the biggest U.S. grocery chains, behind Walmart and Kroger. The rise of Aldi did not go unnoticed,
however. Supermarket chains were revamping their own stores to refresh their value propositions, migrating more
to an omnichannel environment to capitalize on the meteoric rise of the internet and online grocery shopping.
Aldi, tellingly, did not have much of an online presence. It had also seen the arrival of its German peer, Lidl, on
American shores. Lidl, too, had a similar approach to Aldi and had chalked up plans for expansion across the
U.S. starting with the East Coast. In the midst of these important changes on the horizon, it was rumored that
Aldi’s expansion into some of the western U.S. states would be delayed.

A McKinsey report released in December 2018 stated that “much of the $5.7 trillion global grocery industry
is in trouble. Although it has grown at about 4.5% annually over the past decade, that growth has been highly
uneven—and has masked deeper problems. For grocers in developed markets, both growth and profitability
have been on a downward trajectory due to higher costs, falling productivity, and race-to-the-bottom pricing.”1
It predicted the demise of half the population of grocery chains as a confluence of three major changes; namely,
significant shifts in customer shopping habits, intensifying competition, and the advent of new technologies.
Viewed against this larger landscape, it remained to be seen whether the hard-discounters would be able to steal
market share from the better-financed supermarket rivals. Would major changes in consumer shopping preferences
demand a significant departure from their minimalist, ascetic models that could compromise on shopping as an
experience? Would the reluctance to jump on the e-tailing bandwagon prove disastrous to hard discounters in
the long run? These were a few questions that analysts pondered as 2019 drew to a close.

The U.S. Grocery Industry

The grocery industry was one of the most fiercely competitive sectors of the retail landscape in the country. The
industry comprised 40,0002 stores and warehouse clubs that sold grocery items. Since the density of grocery
stores typically mirrors the population, the establishments were heavily concentrated in the Mid-Atlantic states,
followed by the Southeast and the West Coast. Exhibit 1 provides data on the largest grocery chains in the U.S.,
and Exhibit 2 illustrates the most widely used formats for grocery stores.

Copyright © 2020 Thunderbird School of Global Management, a unit of the Arizona State University Knowledge Enterprise. This
case was written by Professor Kannan Ramaswamy for the sole purpose of providing material for class discussion. It is not intended
to illustrate either effective or ineffective handling of a managerial situation. Any reproduction, in any form, of the material in
this case is prohibited unless permission is obtained from the copyright holder.

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Exhibit 1. Revenues and Store Counts of the Leading U.S. Grocery Retailers

Source: IbisWorld and Company reports. U.S. revenues only. Source: Company websites, CNN.com, and IbisWorld.

Exhibit 2. The U.S. Grocery Landscape

Source: foodindustry.com based on data from TDLinx, Nielsen, and Progressive Grocer Market Research.

The grocery industry was highly fragmented with a preponderance of stores employing fewer than five
employees. However, the top three players, Walmart, Kroger, and Albertsons, accounted for over 30% of industry
sales. Walmart led the pack of grocery retailers with a market share that was roughly three times greater than
the second largest player, Kroger. It also had the largest footprint among chains that operated physical stores.
Some of the large chains, such as Kroger, had grown through acquisitions, while the leader, Walmart, had relied
on organic growth and the power it exercised in the non-grocery arena to grow its business in fresh food and
groceries. The industry was intensely competitive with hundreds of regional chains and thousands of local stores
fighting for market share. The profit margins were quite narrow, about 1.6% nationally according to one industry
estimate, reflecting the commodity type nature of most of the products that were sold in these stores. This placed
an enormous burden on stores to design their offerings and value propositions to distinguish themselves from
what was essentially a challenging environment for differentiation. Most retailers competed on the basis of price,
along with a host of related variations in the nature of product offerings, services, and locations. They all used a

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variation of the three-tier merchandising strategy that offered a good, better, and best product in most product
categories. The good product was essentially a low-priced value product, while the best was a premium-branded
product. Over the last two decades, the product variety offered by U.S. grocery retailers had exploded from an
average of 7,000 SKUs (Stock Keeping Units) in the late 1990s to over 40,000 SKUs as 2019 drew to a close.

Over the last decade, the traditional grocery business witnessed a host of significant changes, ranging
from the rise of hard-discounters and limited assortment stores, the increasing presence of wholesale outlets and
warehouse clubs, to the meteoric rise of online grocery companies. Coupled with a fairly slow industry growth
rate (~1% per annum), the impact of these changes was amplified significantly.

The limited assortment stores had been around for at least three to four decades. They typically dotted the
rural landscape of the country and did not exercise much power relative to the more established traditional chains
that had superior resources. Most of these players were brand discounters, i.e., companies that sold discounted
branded products. Hard-discounters, companies that sold largely private label products, rose to greater prominence
following the global economic decline that hit in 2008. Discount grocery shopping was in growth mode and,
when the dust settled, smaller assortments, Spartan services, and deeply discounted prices had become de rigeur.
Stores such as Aldi and Lidl had become a lot more popular across the developed world as a consequence of these
changes. Reports suggested that the hard-discounters were poised to grow their market share from roughly 6% of
the U.S. grocery market to 8% in 2020. Their presence exerted a lot of pressure on traditional chains that were
forced to respond to the attractive value propositions that these stores offered, typically a combination of price and
quality that had the allure capable of attracting even the better-heeled shoppers. Bain & Company, a management
consultancy, reported that U.S. customers, like their European counterparts, preferred hard-discounters by a
very wide margin for regular grocery shopping, big stock-up trips, as well as quick shopping trips for just a few
items. The limited-assortment hard-discounters enjoyed the benefits of relatively lower costs of entry, given their
reliance on a much smaller physical footprint as well as more limited inventories that emphasized store brands.
Exhibits 3, 4, and 5 provide some comparisons of operating statistics across store formats.

Exhibit 3. Comparing Revenues per Stock Keeping Unit for Hard-Discounters v. Traditional Retailers
(Revenues/SKU $m)

Source: Author’s estimate based on: Forbes. 2019. https://www.forbes.com/sites/greatspeculations/2019/02/13/walmart-should-benefit-from-higher-

comparable-sales-in-fiscal-2019/#4856c57d6c0c; Morningstar. 2019. Kroger Should Be Able to Use Its Competitive Advantages to Weather
Grocery’s Competitive storm. December 5; Steenkamp, J. and Sloot, L. 2019. Retail Disruptors. KoganPage. *Trader Joe’s revenues are for 2017.

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Exhibit 4. Comparing Proforma Operating Costs and Profits for Hard-Discounters

v. Traditional Retailers

Source: Kalyani, D. 2019. IbisWorld Industry Report Source: Based on Steenkamp, J. and Sloot, L. 2019.
Supermarkets and Grocery stores in the U.S. Ibisworld Inc. Retail Disruptors. KoganPage. (Table 2.5, p. 34)
Other costs largely reflect selling, general and
administrative expenditure.

Exhibit 5. Comparing Revenues per Square Foot ($) for Hard-Discounters v. Traditional Retailers

Sources: Forbes. 2019. https://www.forbes.com/sites/greatspeculations/2019/02/13/walmart-should-benefit-from-higher-comparable-sales-in-fiscal-

2019/#4856c57d6c0c; Morningstar. 2019. Kroger Should Be Able to Use Its Competitive Advantages to Weather Grocery’s Competitive storm.
December 5; Steenkamp, J. and Sloot, L. 2019. Retail Disruptors. KoganPage.

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Online grocery shopping had taken off in a very big way with companies such as Amazon leading the
charge in home delivery after its acquisition of Whole Foods. Walmart had also established a leading position in
the segment and looked to increase its online revenues. Although the numbers were still fairly small compared to
revenues generated in stores, the proportion of online spending was increasing. It was expected to account for close
to 10% of the overall market by 2022.3 Exhibit 6 provides a synopsis of key trends in online grocery shopping.

Exhibit 6: Trends in Online Grocery Shopping

Proportion of U.S. online grocery spending 2010–2022 Top destinations for U.S. online grocery shoppers 2017 v. 2018

Source: GlobalData Consumer Report (2018). Source: Magana, G. 2018. Amazon’s online grocery lead is shrinking.
Business Insider. December 19.

Supply chain management prowess was a crucial ingredient for success across formats. Supplier relationships
were also crucial in helping the chains ensure that they could seamlessly integrate with supplier operations to
move products from farm to table as fast as possible, in the most cost efficient and reliable manner. The suppliers,
especially in segments such as fresh produce, meat, and poultry, as well as dairy products, tended to be more
fragmented and this raised a lot of demands on the procurement operations of the chains. Since purchases
accounted for over 70% of overall grocery chain costs, there was an enormous need to squeeze every ounce of
advantage by improving process efficiencies. Suppliers were generally willing to accommodate the demands of
the chains, both large and small, in producing customized offerings and store-branded products. Kroger had
taken the lead in vertically integrating into manufacturing. It operated 37 manufacturing facilities, processing a
comprehensive range of products accounting for 33% of store brands sold through its stores.

Many of the larger chains typically entered into long-term contracts with suppliers, thus effectively locking
them into a more reliable integrated model. Data analytics techniques that allowed grocers to mine customer data
for valuable insights into customer preferences and shopping behaviors were increasingly becoming common. It
was estimated that the use of superior data mining techniques could drop cost of goods sold by 2%-5%,4 a very
substantial saving given the large-scale operations of most national chains.

After the economic woes that followed the financial crisis in 2008, U.S. shoppers evolved into value shoppers.
They demanded not only lower prices but also uniqueness in product variety and quality. In urban markets, they
seemed more willing to experiment with newer offerings with an emphasis on healthy organic food options.
Convenience was also an increasing factor with grocery chains offering online ordering and customer pickups,
home deliveries, and more robust prepared food offerings. The staples of customer centricity, such as loyalty
programs and couponing, continued to proliferate. The power of customer loyalty was underscored in a study
of net promoter scores (NPS) by Bain & Company. NPS is a metric based on the proportion of customers who
are likely to promote the product or service versus the proportion who are unlikely to do so. The study found
that promoters spent $111 versus detractors who spent a mere $39 on average a month at the store. They also

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purchased more frequently at the store than others and were more loyal. Taken together, these insights explained
the reason behind the industry’s obsession with customer satisfaction and value perception.

Aldi, Lidl, and the Rise of the Hard-Discounters in America

Our country has been invaded by the German retailers, and they have disrupted the ecosystem quite
severely.5
John Ross, President and CEO, Independent Grocers Association Inc.

The global hard-discount movement owed much to the German competitors, Aldi and Lidl. Aldi was born in
1913 in the German city of Essen. Founded by the Albrecht family, it started as a small neighborhood grocery
store that carried essentials at low prices. The store really took off after the Second World War, with Germany in
ruins, when brothers Theo and Karl Albrecht returned after serving in the Nazi army. Given the dire economic
conditions, the brothers were acutely focused on offering the lowest-priced groceries, mostly nonperishables.
They were ruthless in running a tight ship, looking to eliminate every single pfennig of wasteful spending. By
1948, they had grown their operation in Essen to four stores, and by 1955 to more than 100 stores. In 1960, the
brothers had a disagreement over the sales of cigarettes in their stores and decided to split the company into two
parts: Aldi Nord, which covered the northern regions of Germany, and Aldi Süd, which handled the southern
region. The parting was amicable, and the brothers continued to coordinate some of their strategies and even
procurement plans. Aldi Süd began its international expansion by entering neighboring Austria in 1967, with
Aldi Nord following suit with an entry into Belgium in 1973.

Lidl was founded by Josef Schwarz as a wholesaler for grocery products, mostly tropical fruits, in the
1930s. After a brief interruption in his growth plans owing to World War II, Schwarz revived his business and
his son, Dieter Schwarz, went on to launch the modern retail version of the company. Its first store opened in
Ludwigshafen in 1973 and subsequently expanded all across Germany, making its first international foray in 1994
when it entered France and the UK markets. Lidl’s operating model had a lot of similarities with Aldi, focusing
primarily on a limited assortment of low-cost offerings. Together, the two German retailers had unleashed the
low-cost, hard-discount revolution that was changing the global grocery marketplace.

Aldi: The Way It Worked

I never underestimate them. I’ve been competing against Aldi for 20-plus years. They are fierce and
they are good.6
Greg Foran, CEO of Walmart

Aldi Süd and Aldi Nord both entered the U.S. at roughly the same time but adopted different entry strategies.
In 1979, Aldi Nord acquired the U.S. company Trader Joe’s, a California-based organization that found instant
success and developed an almost cult-like following among its customers. It developed a strategy based on limited
product assortments, a distinct focus on healthier, store-branded offerings, and value-based pricing geared mostly
to the adventurous grocery shoppers who desired the thrill of discovering something new each time they went to
the store. Aldi Süd, in the meantime, embarked on a de novo entry with its first store in Iowa in 1976.

New customers were often jolted when they walked into an Aldi store for the first time, mostly because it
stood in drastic contrast to the conventional big-box supermarkets such as Walmart and Kroger. The stores were
fairly small in comparison to their big-box peers, encompassing 12,000 square feet on average, compared to a
Walmart Supercenter that averages 178,000 square feet, or Kroger at 80,000 square feet. The smaller footprint
represented significant savings in terms of real estate costs, energy usage, and local taxes. Although Aldi originally
tended to locate its stores away from densely packed population centers, preferring lower-rent districts, most of
its U.S. stores were within a five-mile radius from the major grocery chain stores such as Walmart, Kroger, and
Albertsons. Aldi-U.S. CEO Jason Hart reasoned, “It is very simple. We are going where competitors are; we like
to be close to the competition for convenience reasons for our customers. We like them to shop exclusively Aldi,
but we recognize that consumers are going to shop at more than one store.”7

Aldi’s business model emphasized three crucial elements; namely, (1) customer experience, (2) product
choices and quality, and (3) efficiency and cost control. These three elements were tightly woven together in almost

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all decisions that the company made regarding its strategy and the manner in which it executed its operations
across the globe.

When Aldi’s customers were recently surveyed about the reasons why they shopped at the chain, they
responded that good/affordable prices and good value (66%), product quality and assortment, innovative new
products (49%), and convenience (25%) ranked among the key drivers.8 Their customers spanned a wide spectrum
of economic levels, ranging from shoppers on a tight budget who were looking for high-quality products at lower
prices, to those who were wealthy who were looking for the thrill of discovering new products at value prices.
The chain was fastidious in determining how it stocked its stores and the product assortment that it delivered to
its shoppers. Aldi also paid enormous attention to the in-store experience of its customers, who were typically
time-strapped shoppers. Since it offered only 1,400 SKUs on average compared to peers such as Walmart that
stocked 100,000 SKUs, its product choices were crucial. The products were displayed right in their packing boxes
as opposed to shelves like they were in a traditional store. Customers were expected to bring their own bags to
carry groceries out of the stores or could buy them at Aldi. The cashiers at the checkout dropped the customers’
purchases back into their carts and hurried them to a special area of the store where they could bag their groceries
on their way out of the store. This saved time and money because checkouts at Aldi were about 40% faster than
checkouts at peer stores.9 Customers had to deposit a quarter to get a shopping cart, and were refunded the
money once the cart was returned to the cart stand, an idea that reduced labor costs that Aldi would have had
to incur to employ cart runners like their competitors did. The company even resisted the use of credit cards
at checkouts because that involved a transaction fee with the card-issuing companies. It was only in 2016 that
customers were first able to use credit cards in the store. Exhibit 7 provides price comparisons between Walmart
and Aldi on select products.

Exhibit 7: Comparing Aldi’s Prices Against Walmart Prices for National and Store Brands
Item WMT national Aldi store WMT store
brand ($) brand ($) brand ($)
100 sandwich bags 2.98 1.99 2.48
14.4 oz graham crackers 2.98 1.39 0.18
12 oz vanilla wafers 3.28 1.49 2.00
26 oz applesauce 2.15 1.39 1.07
9 oz fruit snacks 2.25 1.39 1.48
17 oz sandwich cookies 3.50 1.49 1.95
6 oz raisins 1.12 1.19 1.48
8.4 oz granola bars 2.18 1.79 2.00
30 oz mayonaise 3.98 1.99 2.54
32 oz grape jelly 2.98 1.59 2.92
1 lb ham 4.98 3.29 3.48
12 oz cheese 3.12 1.79 2.88
1 lb turkey 4.48 3.29 3.48
20 oz mustard 2.11 0.69 0.91
Total price 42.09 24.76 30.86
Source: Does Aldi save you as much money as they claim? https://clark.com/shopping-retail/does-aldi-save-you-much-money-they-
claim/.

More than 90% of the products were private labels, a cornerstone of Aldi’s strategy. CEO Jason Hart
observed, “[Our brands] don’t come with the big national-brand advertising budgets and inefficient distribution
system. By having a carefully and purposely selected number of SKUs, this allows us to have much more volume
per product SKU, which makes our suppliers more efficient and makes our cost prices better. Therefore, we can
pass that on in lower retails. Our disciplined approach to simplicity and efficiency drives everything that we do.”10

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The company had an extensive test kitchen and product-testing facilities at its Batavia, Illinois, U.S.
headquarters where it tested over 60,000 products each year. The goal was to make products that were at least as
good as the national brands, if not better. Products often took nine months to go from concept to the grocery
aisles. Product testers sampled 180 meals every week, and each product was tested at least 30 times before it
made it to the stores. When competitors introduced a new product or a similar product to one that Aldi carried,
its own version would go back to the testing laboratories to make sure that its current product was meeting or
beating the new competitor version.11 In 2015, Aldi announced that it was discontinuing the use of artificial
colors, hydrogenated oils, and MSG (monosodium glutamate), all considered to be harmful to human health,
from all its products, underscoring the fact that the company took product quality and consumer health very
seriously. The company also declared that all its packaging would either be reusable, renewable, or recyclable by
2025, a very bold commitment that was industry-leading.

“We’re able to get our selection of products in a store that’s much smaller than our competition’s—with
five aisles instead of dozens of aisles—and there’s an element of choice with our focused range of products. There
really isn’t a customer-driven reason on why you walk to the peanut butter selection in a grocery store and see
dozens of SKUs. We’ve done the selection for the consumer. And it’s the best quality, it’s in the most popular size,
and it’s a great price. That just simplifies the shopping experience for the consumer, and that’s something loyal
Aldi customers really appreciate,” said Hart.12 Product format and shelf appeal were equally vital. For example,
it had taken two years to develop a new milk bottle and crating system that substituted polystyrene for a heavier
metal, allowing it to transport more milk per crate, simultaneously reducing transportation costs. Similarly, it
had pioneered the use of larger barcodes on multiple sides of its retail packages to improve scanning efficiency
at the checkout counters. Time, after all, was an important determinant of the customer experience. A survey
by Kantar Retail, a retail consultancy group, reported that customers found shopping at Aldi was at least 20%
faster than at peer stores and that it also incorporated a sense of adventure. The stores had an aisle dedicated to
Aldi Finds which featured 50 to 60 new products each week.

Aldi maintained very good relationships with its suppliers, a collaborative approach built on values such
as mutual trust, aspiration to very high standards of service, and a fair exchange of value. Price discounts and
sales promotions were not the norm at Aldi, a core principle right from the start. This meant that there were
no periodic pressures on the supplier to offer discounts such as cash payment discounts, quantity discounts,
campaign discounts, promotional bonus, or chip in for product placements in stores. Aldi negotiated its price on
a net/net basis, focusing on customer needs, and the company’s merchandising strategy. While it did drive hard
bargains, this resulted largely because suppliers could generate substantial sales volumes by selling through the
company. All products had to be delivered in pallets of display-ready boxes that could be moved into position
in stores easily. This eliminated the need to arrange the products on shelves, saving time and labor expense. The
packing boxes and crates were reused or recycled through the suppliers at preset cost savings to the company.
Aldi made sure that it had multiple suppliers for each product category and did not offer long-term contracts,
thus allowing it the flexibility to terminate suppliers for poor performance without legal wrangling. However,
Aldi had rarely taken such action against suppliers, preferring to curtail the order quantity to allow the supplier
to demonstrate the unflinching commitment to the high standards that were expected.13

Aldi employed a skeletal workforce at its stores, limited to just four full-time positions; namely, store
associate, shift manager, manager trainee, and store manager. These roles were complemented by part-time staffing
for stockers and cashiers. Employees typically received wages that were slightly above prevailing market rates,
and also got a benefits package that included health coverage, a retirement plan with employer contributions,
as well as paid holidays. The intent was to reduce employee turnover and help store personnel navigate their
careers through in-house training programs. A single Aldi store had only three to five employees, and only 15 to
20 on its payroll per store. Unlike many of the large grocery retailers, Aldi restricted store hours, typically 8:00
a.m.–10:00 p.m. on weekdays, with a much shorter schedule (10:00 a.m.–4:00 p.m.) on Sundays. This not only
saved the company staffing costs but also reduced its energy bills and provided employees with more manageable
work hours that allowed them to spend time with their families. All the employees were cross-trained and could
therefore address any shortages of personnel that occurred at the store level. The company actively cultivated a
culture of frugality. Lean-thinking and cost-efficiency were top of mind for every single employee. Tom Cindel,
the Group Director of Operations and Logistics at Aldi-USA, observed, “Whether it is a landscaping contract
or a product we’re selling, all the employees are wired the same way. If I have a cracked floor tile, and I need to

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get it replaced, I will do my due diligence to get a good price, and everyone has the same mindset here; we save
a little bit on ten thousand things.”14 Company lore had it that Karl Albrecht, the founder, used to take notes on
both sides of a sheet of paper, saved his pencil stubs, turned off the lights in the store during daytime, and did
not hold back from admonishing employees when he felt they were not frugal enough. These founding values
Exhibit 8: Aldi’s Cultural Values
• No staff to relieve management of intellectual work
• No controlling department to provide direction
• No external market research
• No work with management consultants
• No budget forecasts
• No scientifically cleaned statistics that reveal all
• No scientific analysis techniques for all questions related to supplying the market
• No customer surveys
• No sophisticated system of terms and conditions to squeeze supplier prices
• No differentiated price policy by sales area or store area
• No differentiated product mix from store to store
• No complicated calculation methods for setting prices
• No games involving qualities to optimize profits
• No highly complicated engineering for logistics
• No product placement in stores based on psychological analysis of shopper behavior
• No luxury in the offices, no top-of-the-range company cars
• No public appearances
• No publicity
• No acceptance of gifts from suppliers
• No acceptance of invitations to dinner from suppliers
Source: Abstracted from Brandes, D. 2005. Is Aldi really that special? ECR Journal, Vol. 5, No. 1. Summer.

had instilled a very frugal culture at the company. Exhibit 8 provides a summary of the key policies and practices
at Aldi that reflect its culture.
Bain & Company reported that Aldi had the highest Net Promoter Score among all discount retailers in
2018, and the third-best score among all grocery retailers, independent of format. An indicator of customer loyalty,
the score had reportedly inched up by nine points since 2017, underscoring the level of customer satisfaction
that the retailer had been able to generate. Although Aldi did not release sales figures, since it was a privately
owned company, its U.S. CEO, Jason Hart, observed that the company had grown five-fold in revenues over
the past five years and expected to do the same in the next five as well.15 Supermarket News estimated that Aldi
made $16.8 billion in U.S. revenues in 2017 and $18.4 billion in 2018.16

Lidl: Variation on a Theme

Lidl, a part of the German Schwarz Group, arrived on U.S. shores in 2017 just as Aldi was announcing expansion
plans that would take the company farther west. Lidl already had over 10,000 stores across 28 countries with
an estimated $111 billion in revenue when it arrived in the U.S. It located its headquarters in Virginia and set
out to advance both into the northeast as well as the southeast of the country. While its basic business model
was indeed quite similar to Aldi (i.e., limited product assortment, focus on value pricing, use of private labels,
an ascetically frugal culture, and an embrace of Germanic efficiency), the company made some key changes as
it entered the U.S. In contrast to its European stores, which were 10,000 square feet on average, its U.S. stores
were meant to encompass 20,000 square feet. Its product assortment, although reliant on private labels, included
a healthy mix of national brands, especially in beverages and spirits. It was also trying to put down local roots by
promoting local produce. Collectively, these decisions increased the number of SKUs it offered to 4,000, almost
a three-fold increase over its traditional assortment in Europe. Despite its original target of opening 100 stores
by the summer of 2018, it had only managed to open 53 stores and had experienced rare execution challenges.

As 2019 drew to a close, Lidl appeared to have made some important changes in its U.S. leadership team
with a new CEO. The company was more deliberate in its location choices, an area that seemed to have received
less attention at the time of its initial entry. Oliver Wyman, a management consultancy, reported that customers

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of Lidl felt that the company surpassed most of their expectations. The customer retention rates were also on an
upswing. It was widely expected that Lidl was using its U.S. entry as a springboard to enter Canada, where it
hoped to establish its Kaufland hypermarts, a Schwarz Group company.

U.S. Grocers Respond: What the Future Might Hold

The best way to frame Aldi’s disruption is that, more often than not, it forces competitors to do things
that they normally would not do.17
Simon Johnstone, Director, Kantar Consulting

The supermarket industry has always been fiercely competitive, but Aldi is certainly putting pressure
on its competitors, both large and small.18
Laura Strange, National Grocers Association

Aldi’s peers began to execute their own strategies to foil its advance. Kroger remodeled 14 of its Ruler Foods
stores that sold private label products in stores that had a smaller footprint and layout that was very similar to
Aldi stores. It even hired an Aldi veteran to run those stores. All of Aldi’s competitors seemed to have learned
new lessons about the role of private labels. Aldi’s experience showed them that private labels would be embraced
by shoppers if, and only if, the sellers were fastidious about quality levels. Millennials appeared to be brand-
agnostic, offering retailers a valuable opportunity to make inroads into this important segment. IRI, a retailing
consultancy, reported that 69% of customers now believed that private labels were at least as good as national
brands, and 68% believed that they offered better value. The study also found that 73% of millennials said that
they planned to increase their purchase of private labels.19 Another arena of significant change was in-home
delivery. With a significant projected increase in online grocery shopping, Albertsons, Walmart, and others were
building smaller warehouses or fulfillment centers that were in close proximity to customers. Kroger chose to
go the other way and commissioned automated warehouses that varied in size from 20,000 to 300,000 square
feet. Some questioned the wisdom of building such large warehouses because they only allowed for next-day
delivery, but customers were already demanding much shorter delivery times, often within a few hours. Amazon
was leading the pack in fast deliveries after it acquired Whole Foods.

Many retailers had invested heavily in enhancing the in-store customer experience with an emphasis on
prepared foods, in-store cafes, fine wines, and exotic product selections to cater to gourmet tastes, as well. Eating
away from home had become a major trend among time-starved customers, and retailers were hoping to cater
to this trend by including more prepared foods. Healthy options were now de rigeur at most chains with an
extensive selection of fresh produce, and vegetarian and vegan products. Some of these developments seemed
quite removed from what Aldi was focused on as 2019 drew to a close.

Aldi partnered with Instacart in 2017 to provide its customers with a delivery service. It also added a same-
day delivery service for wine and beer. These moves attracted new customers who did not shop at Aldi previously.
Scott Patton, Aldi’s U.S. vice president of corporate buying, said that 20% of its delivery customers had never
been to an Aldi store, underscoring the potential gains that could be made in the delivery segment.20 Its newer
locations tended to lean towards more wealthy neighborhoods and thus attracted a well-heeled clientele. In
keeping with this change, the company introduced some imported products such as Irish cheese, pastas from Italy,
and brioche from France. It also increased its fresh food offerings by 40% and expanded its produce selection,
complemented by an increase in vegetarian and vegan options such as dairy milk alternatives. Customers also
noticed a few national brands such as Old Spice and Coke appearing on the shelves. Customers were worried
that such product assortment changes might end up increasing overall costs resulting in much higher consumer
prices. Patton emphatically ruled out such an eventuality and said that whatever Aldi chose to do, it would always
be the best at it and, therefore, deliver the best value that peers would find very difficult to match. However,
reports emerged that Walmart was already creeping closer to Aldi’s prices in some products and had reduced Aldi’s
advantage. In countering these moves, Aldi launched a national television campaign to reinforce the message that
Aldi shoppers were indeed the smarter shoppers because they were getting higher quality products at much lower
prices compared to the competition. It also emphasized that it was committed to making a transition to 100%
sustainable packaging by 2025, a message that was bound to resonate with millennials and Gen-Xers. It also
announced a deal with Kohl’s, a clothes retailer, to lease space at ten Kohl’s stores that would be remodeled to fit

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 For the exclusive use of T. Wiseman, 2024.

a small Aldi store. The deal was intended to promote cross-shopping, and both companies were hoping to be able
to rival firms such as Target, a clothes and home goods retailer that had expanded into fresh foods and groceries.

Analysts and Aldi loyalists wondered whether the company was veering away from its unflinching focus
on limited product assortments that were targeted to middle-class buyers by moving firmly upmarket. Would
such a change help it compete against the more established peers who had greater access to resources, larger
stores, and a distinct focus on service offerings? Was Aldi straying from its own game in the name of innovation?
Would its penny-pinching, frugal, value shoppers continue to patronize Aldi? Was the delayed rollout in Arizona
an indicator of the challenges that Aldi faced from its peers who had nearly caught up to Aldi in value-based
pricing? Were its sources of competitive advantage beginning to atrophy?

Endnotes
1
Kuijper, D., Simmons, V., and Jasper van Wamelan. (2018). Reviving grocery retail: Six imperatives. McKinsey Quarterly,
December.
2
All of the quantitative data presented in this segment is drawn from Kalyani, D. 2019. IbisWorld Industry Report Supermarkets
and Grocery Stores in the U.S. Ibisworld Inc. unless otherwise attributed.
3
GlobalData Analysis cited in Online Grocery & Food statistics. https://www.onespace.com/blog/2018/08/online-grocery-
food-shopping-statistics/.
4
Anderson, J., Baudry, G., Pelz, R., and Burroughs, K. 2018. How grocers buy better for growth. Bain & Company, June.
5
Kang, J. 2019. Aldi, Lidl cut into U.S. Grocers’ turf; Supermarkets are lowering prices, adding products to compete with
German discounters. The Wall Street Journal, October 15.
6
Lasser, M., Dastugue, M. P., and Foran, G. S. 2019. UBS Global Consumer Retail Conference. Transcript by Factset:
callstreet. March 6.
7
Reagan, C. 2018. Grocer Aldi targets nearby rivals in its bid to boost its US footprint. https://www.cnbc.com/2018/08/08/
grocer-aldi-targets-nearby-rivals-in-bid-to-its-boost-its-us-footprint.html.
8
Dawson, G. 2018. How retailers can prepare for Aldi’s expansion. Supermarket News. February 1.
9
Worstall, T. 2017. Aldi follows Walmart—Barcodes and the productivity of shopping. Forbes.com. https://www.forbes.
com/sites/timworstall/2017/03/21/aldi-follows-walmart-barcodes-and-the-productivity-of-shopping/#7eed67b062f5.
10
Russell, R. 2018. Aldi firing on all cylinders. Supermarket News. September 10.
11
Kelly, D. The untold truth of Aldi. https://www.mashed.com/79564/untold-truth-aldi/.
12
Russell, R. 2018. Aldi firing on all cylinders. Supermarket News. September 10.
13
Brandes, D. 2005. Is Aldi really that special? ECR Journal, Vol. 5, No. 1. Summer.
14
Shoup, M. E. 2019. Survey: Aldi shoppers find the retailer simpler and faster to shop. Foodnavigator.com https://www.
foodnavigator-usa.com/Article/2019/10/11/Survey-ALDI-shoppers-find-the-retailer-simpler-and-faster-to-shop#. October
11.
15
Reagan, C. 2018. Grocer Aldi targets nearby rivals in its bid to boost its US footprint. https://www.cnbc.com/2018/08/08/
grocer-aldi-targets-nearby-rivals-in-bid-to-its-boost-its-us-footprint.html.
16
Elejalde-Ruiz, A. 2019. Budget Shangri-La: How discount chain Aldi is giving those fancy grocery stores a run for their
money. Chicago Tribune. December 6.
17
Raugust, K. 2019. All about Aldi. Blueprints. July/August/September.
18
Ibid.
19
Ibid.
20
Elejalde-Ruiz, A. 2019. Budget Shangri-La: How discount chain Aldi is giving those fancy grocery stores a run for their
money. Chicago Tribune, December 6.
21
Ibid.

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