19 Ways Aldi Rocks the Competition

by JT McGee

Prices are everything in a commodity business like retail. The lowest prices ultimately win as customers buy the same goods from different sources and stores.

In all the industries I’ve ever explored, I don’t think I’ve ever found a company as uniquely placed among competitors as Aldi.

How Aldi Works

Aldi does things differently:

  1. It doesn’t hire cart chasers. Aldi’s carts require a $.25 deposit, which gives customers incentive to return the cart after using it.
  2. It doesn’t advertise. Aldi advertises only through a 2 or 4 page advertisement in a Sunday paper. The company does not air TV or radio ads, and it does not sign contracts with suppliers to co-brand their products.
  3. Aldi carries fewer items. A typical Aldi store has 700-1300 products compared to 30,000 or more at a larger Walmart location.
  4. Aldi reduces its labor cost. Aldi pays employees more than any other retailer, but it gets more productivity out of each person and volume reduces the cost relative to sales. New stock is loaded onto “shelves” 16 or 24 units at a time, as its products are shipped to stores in boxes that serve as sales displays.
  5. All aisles lead to the products that spoil the fastest. Milk, meats, and produce are all located at the back of the stores, where each aisle “empties.”
  6. Stores are designed for customer traffic. Follow an Aldi loyalist through any one of their stores; they’ll likely stroll every single aisle before leaving. No other retailer can match this.
  7. 95% of Aldi goods are private label. This reduces the price point, but it also gives Aldi an edge in margins and efficiency. It also yields derivative benefits. If you can control the dimensions of a product, you can minimize shipping costs by moving more product with the same number of trucks, for example.
  8. Aldi bottom-feeds on customer traffic. The company maintains a policy of putting its stores next to Walmart and Target locations, which draw customers for miles and miles.
  9. Aldi carries a single SKU of every product. You won’t find nine different brands or can sizes for peas, you’ll find just one.
  10. Aldi has buying power. As the 8th largest retailer in the world, Aldi has buying power. It also has concentrated buying power, in that it sells more of 1300 goods than most retailers sell of 25000.
  11. Aldi makes the most of its fixed assets. Retail is all about margin and asset turnover. Aldi turns over its stock far faster than larger retailers. I calculate the company’s sales per square foot at just over $500 per year. Walmart does about $422 per square foot with way more operating hours, employees, and variable costs.
  12. It has smaller stores. Aldi’s stores are 1/6th the size of a normal Walmart.
  13. Aldi pays up for talent. Store managers earn 25-75% more than managers at other retailers.
  14. Aldi doesn’t take credit cards. Credit cards add 2-3% in cost to each sale. Aldi does take debit cards, which cost less to process.
  15. Aldi has a positive brand image. Where Walmart spends years bickering with local governments to open new stores, Aldi’s small format and relatively unknown brand fly under the radar.
  16. Aldi sneakily targets two markets. It uses the Aldi brand to hit consumers are who unabashedly frugal. Trader Joe’s, which Aldi acquired, targets the more hip crowd with a similar model at a different price point.
  17. Aldi stores have shorter operating hours. This condenses costs to a period in which most people do their shopping.
  18. Aldi takes advantage of odd-lot pricing. Where a small grocer could not move an odd lot of milk or a cut of meat, and Walmart is too large to bother with smaller odd lots, Aldi can swoop in and steal a bargain for its customers.
  19. It is designed for efficiency. Aldi’s products have barcodes on every side of the packaging, reducing the time it takes to process each customer.

The first time I stepped foot in an Aldi store, it was heaven – a well-lubricated operational machine. Everything works perfectly, seamlessly designed for pure and raw efficiency. I have a particular love for this business; I just wish it were publicly-traded. I’m convinced that it will be the fastest growing retailer in the US for decades to come.

{ 14 comments… read them below or add one }

Leslie October 29, 2012 at 01:20

Fun Fact: Aldi is run so efficiently that when barcode scanners were first being used, the company determined that their cashiers could enter in the price faster than scanning it so all cashiers memorized the price of every item.

Trader Joe’s always gets mentioned next to Aldi but other than having the same parent corporation, they are two completely separate companies. All operations are totally separate – warehouses, offices, etc. Trader Joe’s is US-based but was merely sold to Aldi in the 70’s, while Aldi is completely Germany-based.

I’ll add another Walmart comparison to your list, both try to save money by having the minimum cashiers available causing very long check-out lines. Aldi does this unapologetically.

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JT October 30, 2012 at 15:58

I can’t at all imagine the idea that its faster to memorize product numbers and manually type them in, but Aldi’s checkout people do seem to be the best at what they do. Thanks for the correction and additional anecdote. For what it’s worth, I’ve never had to deal with a long line at any of the stores here. Maybe it’s just that I don’t notice because they seem to go fairly quickly, or because I shop at some of the busiest Walmart/Target stores in the nation and my comparisons are off.

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Money Beagle October 29, 2012 at 09:22

We don’t shop at Aldi nearly often enough, but it’s because there really isn’t one within a really convenient radius of us.

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JT October 30, 2012 at 15:59

Bummer! It’s not really worth going out of the way for, but I’m astonished at how inexpensive their products are relative to competitors.

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Vanessa October 29, 2012 at 20:09

I first heard of Aldo about a year ago and I thought that it sounded fantastic! Can’t wait to get some here

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JT October 30, 2012 at 15:59

Aldo shoes? 😉

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Jonathan October 30, 2012 at 11:48

I just saw my first Piggly Wiggly last week on a trip to South Carolina (actually, saw several while there). I still have never seen an Aldi. They don’t have them where I live (southern California). We do have Trader Joe’s, though there’s not one convenient so most of our grocery shopping is at the local Pavilions (which is Vons).

It’s interesting to read about all the ways they cut costs though! The one that would bother me is the long checkout lines. JT, where do you find all these tidbits about how they model their business?

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JT October 30, 2012 at 16:26

I’ve never seen or been to a Piggly Wiggly, at least so far as I can remember. I assume its a similar format with smaller stores company wide?

Most of these “tidbits” are just things that I’ve picked up from my own observations like store layout, shelving, no credit cards, quarter for the carts, single SKUs, aisles dumping into the most perishable goods, whatever. If it weren’t for finance, I’d love to be a systems engineer, so these things just kind of catch my eye. Finance is easier, though. 😉

Other tidbits are from reports, news articles, and other things I’ve read about retail. If you read a lot of business news you’ll catch a lot of these odds and ends in print, usually toward the end of the article where “unimportant” information is supposed to be. My selective memory loves that stuff, yet hates to remember where I left my car keys.

I think it’s cool. I could rant and rave about competition all day; it’s the most interesting part of business, imo.

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Leslie October 30, 2012 at 20:36

You can read all about them in Wikipedia. Their business model is actually the standard in Germany (where they started). It seems extra cheap/weird here but paying for bags and having cart deposits is standard for most grocery stores there.

Aldi was started by two brothers but then at one point they had different ideas for the direction of the company and split the company into North and South. Aldi South is what we see in the U.S.

I worked for Aldi at a district office headquarters a few years ago so I know that the internal workings of the entire company are run at 100% efficiency (to an extreme level). Full disclosure, I’m not much of an Aldi shopper.

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JT October 30, 2012 at 22:24

I had no idea these practices were standard in Germany. I should probably get out more. 😉

Curious – did you enjoy your time working there? Would you recommend it to someone else? Any particular reason that you’re “not much of an Aldi shopper?”

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Leslie October 31, 2012 at 15:03

It was certainly a quirky company to work for. One of these quirks (and another example of their extreme efficiency practices) is that individual store phone numbers are not publicly available. This means instead of being bothered with calls about store hours and inventory, cashiers & managers can focus on serving the customers in front of them.

For customers looking for store-information, they will find the district headquarter’s phone number available. At the regional HQ office, one of our tasks was to provide customers who called with store hours, weekly special information, and inventory updates.

See a problem with this?

Store hours were easy. But inventory? That involved me putting the customer on hold while I called the store to ask if they had a particular item in stock, then I would be put on hold while the manager finds that information (or the cashier finds the manager), then the manager would relay the inventory information to me, then I switch back to the customer and tell them. In a way, it’s a good plan but there were definitely times where being the mediator between the customers and the store was very frustrating, tedious, and impractical.

Another practice is that there is not an office receptionist. Everyone working there is responsible for answering the main line then directing the person to the appropriate employee.

See the problem with this?

Someone calls saying, “I spoke with the receptionist 15 mins ago and she said blah blah blah and now you’re telling me blub blub blub.”
“Who did you speak with?”
“I don’t know her name, the receptionist.”
And so begins the hunt of asking 15 different employees if they spoke with this customer within the past 30 minutes.

I say customer but I don’t just mean store shopper, I also mean food distributor and truck drivers, as we handled the warehouse as well.

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101 Centavos October 30, 2012 at 19:58

Another small way: plastic or paper? Either way, you have to pay for them.

Second: Instead of bags, you have the empty product boxes, free of charge. A neat way to have your customers dispose of your trash for you.

Wait, I just thought of a third: all stores are have the exact same layout, with product areas in the same exact place. May not seem like much, but customers appreciate predictability. Saves time shopping for favorite/needed items.

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Leslie October 30, 2012 at 20:31

Yes, Aldi was the first store to promote “bring your own grocery bag” but to be cheap not green. And since, for a while at least, they stocked shelves by the box, it’s just easier to take the empty box to fill your groceries in.

The layout thing does vary on whether it’s a new store or old store – although many of the old stores were getting upgrades last I knew.

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101 Centavos October 31, 2012 at 04:36

Ah, that I didn’t know. All the ALDIs in my area are exactly the same.

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