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Aldi sets itself apart

When will the German hard discounter set its sights on Canada?

German grocer Aldi is on track to become the third-largest supermarket chain in the United States, trailing only Walmart and Kroger, according to CNN Business. While Aldi has 1,800 stores in 35 states today, it wants to expand to 2,500 stores by the end of 2022. In 2017, it was widely reported that Aldi planned to spend US$3.4 billion to achieve the goal.

This will not be surprising news to those in the Canadian grocery industry who have been following Aldi’s tremendous growth in the United Kingdom (it’s now the fifth-largest grocer in that country) over the past five years and its rapid penetration in every country it has entered to date. Its hard discount format, limited assortment and impressive (in fact, award-winning) private-label offering has certainly found favour with a growing number of consumers.

Several years ago, there was high expectation within Canada that Aldi (or its German no-frills rival, Lidl) would soon be coming to Canada. Lidl even had an office here for a couple of years. However, the speculation faded when neither Aldi nor Lidl appeared to show further interest in Canada.

Canadian grocers, however, should remain vigilant. Aldi’s growth in the United States and Lidl’s determination to follow suit can only boost their interest in Canada. Of course, the Canadian and U.S. marketplaces have differences that probably make the U.S. more appealing than Canada, but both Aldi and Lidl have shown they can successfully set up shop in almost any retail environment.

One difference between Canada’s grocery industry and that of our U.S. neighbours is that our discount chains already keep prices very low. That may give Aldi and Lidl executives some pause before jumping into Canada, but they are also aware Canadians are extremely price sensitive and may see that as an opportunity to establish themselves here.

Another possible barrier for the German hard discounters entering Canada might be the lack of reasonably-priced real estate. That fact, however, has been mitigated by the departure of Sears and the growth in condominium construction, which is providing opportunities for retail on their lower levels.

It is interesting to observe the similarities between shopping at a U.S. Aldi and Canadian discounters such as No Frills, FreshCo and Food Basics. Aldi charges a quarter to rent a shopping cart, charges a fee for paper or plastic bags, displays product in its shipping boxes and forces customers to bag their own grocery order. Canadians would not find those cost-cutting measures particularly onerous or unusual. It’s also interesting to note that in the United States, Aldi has built a cult-like following. When it enters a new town it’s not uncommon for hundreds of people to turn out for the grand opening. The allure is all in the rock-bottom prices. That low-price position would likely grab Canadians’ attention, too.

Another thing that distinguishes Aldi is that it only stocks around 1,400 items, compared to 25,000 at traditional supermarkets and three times that at Walmart supercenters. Aldi stores also have simple layouts and wide aisles, as well as its predominately private-label offer. Aldi is able to save massively on labour costs by having only three to five employees at each store at any one time, and only 15 to 20 on the entire payroll.

Katrijn Gielens, marketing professor at the University of North Carolina’s Kenan-Flagler Business School, estimates Aldi’s operating costs are about half those of mainstream retailers. And in the United States, its profit margin is lower than competitors. According to CNN Business, Aldi is investing $1.9 billion in remodelling its U.S. stores.

Clearly Aldi is enjoying great success in many markets. Although there is no sign Aldi is interested in Canada at the moment, it would be folly for retailers here to ignore it.

This article appeared in Canadian Grocer’August issue.

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