Shopping German Style: Aldi Expands in the U.S.

No free plastic bags, small stores, no Coca-Cola – one would think Americans would avoid shopping at Aldi. But the discounter is greatly expanding its U.S. operation.

Shopping at Aldi is really full-blown torture for the average American. You have to pay extra for plastic shopping bags, you can’t find a Coke anywhere in the store, and many branches won’t even accept credit cards. That, despite the fact that in most cases American customers have a regular potpourri of those colorful plastic cards in their wallets. All these factors would seem to be against Aldi, and yet the German discount chain continues to expand operations in the United States. It’s even so bold as to try expanding into New York City.

Experts see this plan as audacious. It might be more than that – namely a genuine revolution. “Aldi is forcing U.S. consumers to shop under German conditions,” says business expert Matthias Queck of Planet Retail, a firm specializing in global retailing information. The retail chain seems determined to bring everything to the land of unlimited opportunity to ensure their spectacular failure.

The stores are somewhat larger than those back in Germany, but for American conditions they’re still very small. The discounter is trusting in the success of the formula they used to grow large in Germany: an easily understandable palette of merchandise in a functional environment. Aldi avoids brand names almost completely in their American stores, but still offers Haribo Fruit Chews (Translator’s note: this line includes the internationally popular “Gummi Bears.”) Still, 95 percent of Aldi’s merchandise consists of house brands, according to the Nielsen Public Opinon Research Institute. Analyst Queck points out that Americans have a special fixation on trademarks.

Cheaper than Wal-Mart

Not very good conditions for Aldi, then. And, in fact, despite having a market presence there since 1976, Aldi’s performance in the United States has been modest at best. Aldi has built a chain of only about 1000 stores there in 32 years. As Queck says, “Not exactly a raging success story.” In comparison, Aldi has a network of over 4000 stores in Germany alone.

Despite the late start, Aldi could actually find happiness in the U.S. The economic situation is causing consumers to look more closely at price tags and in that atmosphere Aldi can compete with mighty top dog Wal-Mart, no problem. Aldi’s grocery prices are about 15 percent lower than Wal-Mart’s. According to a report in the Wall Street Journal, Aldi is laying out $40 million to build a merchandise distribution center near Dallas that will supply stores in Texas and Oklahoma. For Wal-Mart, that’s a real call to battle because they have an especially strong presence in those states.

Slight modifications to the pattern

Aldi could also be helped by a change of heart amongst American consumers. Up until now, American shoppers placed great store in size and variety, but they’ve recently discovered that a grand shopping excursion in a huge mega-mall can be a lot like competing in a major athletic event. Wal-Mart has already reacted and has opened a number of smaller shops under the name Marketside. The Tesco chain has a similar strategy with its Fresh&Easy stores. Neither, however, can compete effectively with Aldi when it comes to price.

That’s why Germany’s leading discounter currently targets large families and the lower middle class, says analyst Queck. But in the future, they will also appeal to more affluent customers for all their shopping needs. In doing this, the chain is making changes to their European pattern: higher ceilings and wider aisles as well as an expanded merchandise choice in German stores, all of which is expected to help the American operation. Aldi refused to provide any further details of their American plans to us.

Whether the Aldi offensive in the U.S. will succeed is difficult to say, but Aldi thinks long term with such investments, says analyst Queck, and the large American market offers many possibilities. “The full potential is a long way off,” says Queck, and he adds that it’s not a question of whether Aldi’s American expansion will bear fruit. “Much more important is the question of how long Wal-Mart will put up with the competition,” he says.