All posts from Zacks
Zacks in Our Research. Your Success.,

Why Aldi is the Grocery Store of the Future

In a time when the grocery shopping experience is undergoing a change, in audience, service, and merchandising, a name in the food retail industry is making quite the footprint: Aldi.

Known for their limited assortment of products and discounted prices, Aldi opened their first store in 1954 in Essen-Schonnebeck, Germany by brothers Karl and Theo Albrecht. By 1960, the brothers had built the brand into a chain of 300 stores, and decided to split the business into two operations: ALDI Nord and ALDI Süd.

Today, Aldi Nord operates 2,500 stores in Belgium, the Netherlands, Luxembourg, France, Poland, Spain, Denmark, and Portugal, as well as specialty grocery chain Trader Joe’s in the U.S.; ALDI Süd operates 1,600 stores throughout the U.S., Austria, Slovenia, the United Kingdom, Ireland, Australia, and Switzerland.

While the company used to only provide a bare-bones shopping experience for the neediest customers, ALDI has evolved into a grocery store that combines contemporary design with on-trend merchandise, using its carefully crafted discount model to its advantage. Customers can buy almost everything they need at ALDI’s, from fresh produce and meat to wine and beer to even a selection of home goods.

Now, shopping at Aldi is an experience, and its discounted selection is not just for the budget-conscious customer. It’s for anyone who likes paying less for their groceries.

Expansive Selection

The company has smartly expanded its product selection to include more specialty items under their Specialty Select house brand and merchandise catered to the health-conscious shopper, with private brands concentrating around gluten-free, better-for-you, and natural and organic products.

Aldi has reconfigured its checkout selection, replacing sugary snacks with healthier items. For example, chocolates and candy bars will be swapped for single-serve packages of nuts, trail mixes, dried fruits, and granola bars.

“By introducing healthier checklanes and through a number of other initiatives, we are doing our part to remove temptation at checkout and stocking stores with even more nutritious options,” said Jason Hart, CEO of Aldi.

He continues, “At Aldi, we truly care about our customers, and we’re responding with guilt-free checkout zones and increased food options they can feel good about.”

In addition to healthier checkout lanes, Aldi is increasing the amount of fresh food being offered, placing emphasis on produce, meats, and organic fare located on the perimeter inside of its stores over the packaged and processed foods located in their centers.

The company is also ensuring that its dairy products are without artificial growth hormones, and its private-label offerings are free from synthetic colors, added MSG, and partially hydrogenated oils.

This has allowed Aldi to increase its customer base to include those shoppers who would normally go to Whole Foods Market WFM or other specialty retailers.

How Does Aldi Keep Their Prices So Low?

By doing a number of things.

One of the biggest reasons behind the company’s discount business model is that 90% of the products are Aldi-exclusive brands, letting the grocer provide high-quality product without the hidden costs of advertising and marketing usually associated with national name brands.

Staffing levels are much lower than a typical grocery chain. Customers need to bring their own bags or can buy reusable bags at the store, and they must bag their own groceries as well. With the shopper doing tasks normally done by a store employee, Aldi saves a lot of money.

There is a $0.25 deposit to use a shopping cart (you get it back at the end of your shopping trip), which allows the company to not have to hire anyone to police and round-up shopping carts.

In a bold move, Aldi has product arrive at store locations in boxes that have one side missing, so that they can be put onto a shelf without having to be unpacked, thus saving the company the money of having to pay someone to stock shelves.

Future Expansion

Aldi is growing into an increasingly considerable threat to American grocery staples like Walmart WMT, Kroger KR, Whole Foods, and now AMZN, among other national and regional grocery store chains. Walmart even reportedly tested a “price-comparison test” in nearly 1,200 of its U.S. stores in the hopes of closing the pricing gap between itself and its competitors, including Aldi.

Recently, Aldi announced it would invest $3.4 billion to expand its U.S. store count to 2,500 by 2022; the company currently operates about 1,600 stores in the country, and said it will add another 400 by the end of 2018. This will create 25,000 U.S. jobs. Aldi will also spend $1.6 billion to remodel 1,300 of its existing stores.

The grocery chain also has plans to partner with Instacart, the popular online grocery delivery service. With the partnership, customers will be able to purchase their groceries online, including fresh fruit and vegetables, for delivery in as little as an hour. The service will be tested in Dallas, Atlanta, and parts of Los Angeles beginning August 31.

And, the company’s top German competitor, Lidl, has plans to open its first stores in the U.S. this summer. Aldi and Lidl run very similar, no-frills, discount grocery shopping experiences, and together, they pose a serious threat to U.S. grocery stalwarts.

Aldi’s discount model appears to be the way of the future. More and more customers across income levels are looking to pay less for grocery and household items, and with the demand for high quality and freshness on the rise, Aldi is creatively merging the two to create a cheap and unique shopping experience.

5 Trades That Could Profit "Big-League" from Trump Policies

If the stocks above spark your interest, wait until you look into companies primed to make substantial gains from Washington's changing course.

Today, Zacks reveals 5 tickers that could benefit from new trends like streamlined drug approvals, tariffs, lower taxes, higher interest rates, and spending surges in defense and infrastructure. See these buy recommendations now >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report, Inc. (AMZN): Free Stock Analysis Report
Wal-Mart Stores, Inc. (WMT): Free Stock Analysis Report
Kroger Company (The) (KR): Free Stock Analysis Report
Whole Foods Market, Inc. (WFM): Free Stock Analysis Report
To read this article on click here.
Zacks Investment Research