For years, Amber Walker held a dim view of Aldi, the discount grocer whose U.S. headquarters sit just a mile from her home in Batavia, Ill.
She associated it with dented 10-cent cans and no-name brands.
But Walker’s negative perception swiftly changed after her first visit to Aldi in decades in 2016, when the chain started accepting credit cards, and she found not the dingy floors from her childhood memories but a budget Shangri-La.
She could buy a week’s worth of groceries for her family of four for less than $100, and discover treasures in an aisle dedicated to random rotating items that “I don’t need but can’t live without.” Aldi, to Walker, got even better when it broadened its limited selection to include more fresh, organic and high-end products — still at steep discounts — while undergoing an aggressive national expansion and chainwide remodeling blitz.
As a spruced-up Aldi climbs toward its goal of having 2,500 stores by 2022 — which would make it the third-largest grocer in the nation by store count — converts such as Walker are putting aside old perceptions of the brand and embracing the no-frills ethos that allows Aldi to sell high-quality products for cheap. Though such behemoths as Walmart and Kroger dominate the market, analysts say the companies are watching their backs as the German-born chain reshapes expectations of the shopping experience.
“I’m always shocked at what I can get for the cost,” said Walker, 37, an animal trainer who previously did her regular shopping at Walmart, Meijer, Costco and Super Target. “Aldi gets my business first, and then I will fill in holes elsewhere.”
Known for cost-saving measures such as requiring customers to bag their own groceries and pay a quarter deposit to access a grocery cart, Aldi says its customer base has swelled as it modernizes its digs and broadens its selection to include such items as fresh salmon, organic strawberries and artisan cheeses.
At remodeled stores, which have been expanded to fit a bigger produce and fresh foods section, customer traffic has increased by 30% to 40%, said Scott Patton, vice president of corporate buying.
“The more variety of products we carry, the more customers view Aldi as a place they can do their first shop of the week,” he said.
Although shoppers still have to go elsewhere for fresh ginger or organic tofu — though Aldi is testing the latter — and can’t get a single lime without buying a 1-pound bag, Patton said Aldi should cover 90% to 95% of their grocery list.
Aldi, which had 1,600 stores in 2017 when it announced its $5.3 billion expansion and renovation plan, is ending the year with nearly 2,000 stores in 36 states. That includes 20 stores in the Philadelphia area, from Warrington to Mount Laurel, according to its website. .
It has completed 70% of its $180 million in planned local renovations.
Aldi, with its small-format stores, still has just 6.9% of the Chicago-area grocery market, according to the Shelby Report, a grocery industry publication. The market share leader is Jewel-Osco, with 25.4%, followed by Walmart, Costco and Kroger, which owns Mariano’s. Aldi, which is fifth, has gained a hair of market share since 2017; Super Target and Kroger have seen the largest gains, Shelby data show.
Though the privately held company does not release financials, Supermarket News estimated its revenues last year at $18.4 billion, up from $16.8 billion in 2017, while Kroger’s sales were more than $120 billion. Aldi’s national market share is just 2%.
Karen Short, an analyst at Barclays, called Aldi’s stores “ankle biters with respect to the overarching impact” on the industry, siphoning off just a trip here or there from the competition.
But Aldi is setting a standard for low-priced, high-quality goods.
Walmart benchmarks its prices against Aldi’s, setting them a few percentage points higher because the mass merchandiser has the advantage of more products, Short said. Walmart’s then-U.S. CEO Greg Foran called Aldi a “fierce” competitor that is not to be underestimated.
Grocers are increasing investment in private-label products, which is a key part of Aldi’s playbook and relevant to younger consumers who care less about name brands. Sales of private-label products grew 3.6% over the year that ended in October, while branded products grew 1.7%, according to Nielsen.
At Aldi, 90% of the product selection is private label.
In a report last year, Morgan Stanley said one in five customers who recently switched grocery stores took their business to Aldi, a greater share than opted for Costco, Kroger, Target and Whole Foods. Walmart, the market leader, got 30% of switchers, but that was flat from the prior year while Aldi’s share was up significantly.
Nearly half of Walmart stores, and more than half of Krogers, are within five miles of an Aldi as the discounter elbows into their territory, the report said. Aldi is vying for shoppers online, as well: Last year it rolled out a chainwide grocery delivery partnership with Instacart, and last month added same-day beer and wine delivery. Twenty percent of its delivery customers had never been to one of its physical stores before, suggesting it’s finding new audiences, Patton said.
Simon Johnstone, director of retail insights at Kantar Retail, credits Aldi’s success to its patience in slowly introducing its brand to American consumers over more than 30 years, first building awareness about price, then quality, and more recently the treasure hunt aspect of its rotating bargains. By contrast, Lidl, another German discount chain that’s rolling out stores across the East Coast, jumped in too quickly without educating consumers and has scaled back ambitious expansion plans, he said.
The danger, as Aldi refurbishes and peddles fancier fare, is that some consumers will assume prices are going up as a result and think twice about whether it’s still their best option, Johnstone said.
Patton said the company will never compromise its price advantage.
From use of shelf space to package design, dozens of cost-saving details allow Aldi to keep prices low, Patton said. For example, each product has a bar code on each side of its package so cashiers can scan items quickly. The company recently took two years to develop a new milk bottle and transporting system that swapped out metal for polystyrene crates, allowing it to get more milk on a single truck because it weighs less, which saves on transport costs.
The limited selection — think five types of olive oil rather than the 35 to 50 found at a typical supermarket — is also key to Aldi’s cost structure because it can keep stores small. At 12,000 square feet, the average Aldi is a fraction of the size of supermarkets that tend to run from 40,000 to 150,000 square feet, saving it on rent, taxes and energy costs, Patton said.
Stores need fewer employees, and they are cross-trained so that they are never idle.