Aldi

Privately held by brothers Theo and Karl Albrecht, Aldi Group is Germany's leading grocery store chain and a top competitor in the global retail food industry. Cited by some as Europe's largest retailer, the chain has found success by going against virtually every standard of supermarketing, from its legendary reticence to the "Spartan atmosphere" of its stores. By the early 1990s the company operated an estimated 3,000 stores under the Aldi, Hofer, and Combi names in Germany, the Netherlands, Belgium, Denmark, Austria, the United States, France, and the United Kingdom. Established in 1913 in Germany, Aldi operates what are known in the grocery business as "limited-assortment" stores or "hard discounters." Aldi has taken this retail concept, which features low overhead and scanty selection, to its leanest, meanest extreme. Unlike the vast majority of supermarket chains, which are continuously increasing their product offerings and selling space, Aldi holds selection at its stores to about 500 items. The bulk of these items are packaged grocery or dry goods. All other grocery formats carry at least ten times Aldi's typical 500-item lineup. Up to 95 percent of Aldi's offerings are sold under private or packer labels, and some of these products are made expressly for the chain. A 1993 examination of the limited-assortment niche noted that successful discounters (like Aldi) work closely with manufacturers to design products that are cheaper to transport, stock, and sell than name-brand goods. National brands are sometimes offered, but many industry observers speculate that Aldi only stocks them to highlight its own discounts. By limiting consumer choice, Aldi saves money in several ways. Aldi stores are correspondingly small--usually 8,000 to 15,000 square feet--compared to the 50,000 to 125,000 square feet typically utilized by competitors with larger catalogs of items. Aldi's outlets also bypass expensive barcode scanners that are used by other stores to inventory and price products. Instead, a stockperson (who may double as the store's manager) simply sets out cases of goods, opens them, and posts a sign with the price nearby. Cashiers memorize price lists, and some sources claim that they're quizzed on their knowledge of the store's prices. Aldi's decision not to sell fresh meat also saves the company money because it is able to avoid steep refrigeration costs as well as the high wages demanded by meat-cutters' unions. Aldi keeps labor costs low in other ways, too. Shoppers are charged four cents per bag and must bag their own groceries. Customers can "rent" a shopping cart for 25 cents; they get their quarter back when they bring the cart to the front of the store. Under this system Aldi doesn't have to pay someone to collect carts in the parking lot or replace stolen ones. The company even keeps the telephone numbers of their stores unlisted so that employees don't "waste" time answering the phone. Aldi-style austerity holds labor costs to an estimated four percent of store sales, compared to ten percent to 12 percent for most supermarkets. Although precise figures on Aldi's financial performance are not available, limited-assortment stores in general are known to garner gross margins of about ten percent, compared to 26 percent for the average supermarket. Limited-assortment stores make up for this low gross margin by stocking only fast-moving products, thereby making more inventory turns than a typical supermarket. In 1989 Carol Fischman estimated in Supermarket News that limited-assortment stores made nearly twice as many annual inventory turns than the average supermarket. An examination of the industry by the Economist in 1993 noted that hard discounters also enjoy a favorable cash flow because they often sell their goods before suppliers' bills come due. An anecdotal example of this extraordinary volume of goods sold was cited by Suzanne Bidlake in 1989 in Marketing. She quoted an unnamed competitor who claimed th