May 18, 2024

Where Wal-Mart Failed, Aldi Succeeds

In February, with virtually no opposition — a Queens politician even showed up at the grand opening in Rego Park, Queens — a discount retailer called Aldi opened its first store in the city, and plans to open a second one, in the Bronx, later this year.

After decades spent fleeing cities for the strip malls and boulevards of the suburbs, grocers and discount retailers are doing an about-face. Target plans to open its first smaller, city-size store in Seattle next year, and Wal-Mart announced recently that it would build “hundreds” of smaller, mostly urban stores in the coming years.

Meanwhile, Aldi has quietly been setting up its shops in cities around the country.

“They’re not only doing the small format more rapidly, but they’re getting into the urban areas more rapidly than either Wal-Mart Express or the city Targets,” said Craig Johnson, president of the consulting firm Customer Growth Partners. “Even though the company’s headquartered in Germany, they’ve opened up a New York store quicker than Wal-Mart has.”

Even though Aldi, like Wal-Mart, is nonunion, it has faced little resistance, compared with the heated opposition often headed by unions and politicians that Wal-Marts have encountered in larger markets.

“There’s no reason to oppose an Aldi — it’s a small format, and they usually get space from an existing landowner or landlord, a small guy who’s plugged into the community, not a big guy like a Forest City Ratner,” Mr. Johnson said. “Wal-Mart has sort of become a bad guy that there’s a concerted effort against. I’m not sure that Aldi has really gotten on anyone’s radar screen.”

Aldi first came to the United States in 1976, but it opened a relatively small number of stores a year — 25 or so on average. Within the last few years, it has accelerated its expansion by adding more than 250 stores, with plans for 80 more both in 2011 and 2012, said Jason Hart, co-president of Aldi’s United States division, in a recent interview.

The company capitalizes on the bargain hunter, who is not embarrassed to choose frugality over name brands. Aldi’s mainly its own private-label items at cheap prices — a five-ounce bacon-wrapped beef filet costs $1.79 at the Queens store.

“It’s the one format that seems to have increased the most, and has sustained a number of new stores,” during and after the recession, said Jonathan P. Feeney, a grocery analyst with Janney Capital Markets. As “prices are going to go up, it’s going to be a growing opportunity.”

Aldi was founded by the Albrecht brothers, who worked in their mother’s German retail business and took it over in the 1940s. In 1961, they introduced the Aldi name, short for Albrecht Discount.

According to Stores magazine, the Aldi group was the eight-largest retailer in the world in 2009 (the most recent figures available), with an estimated $67.7 billion in revenue. According to estimates by Mr. Johnson, about $6.5 billion of Aldi’s revenue stems from sales in the United States.

Aldi’s model is to sell groceries and basics like dishwasher soap and laundry detergent in drugstore-size spaces — its Queens store is 17,500 square feet, about 16 percent the size of an average Wal-Mart — in urban, suburban and rural areas, though the focus lately has been in cities.

About 95 percent of its goods bear an obscure private label. For example, rather than Skippy, Jiffy, natural, and jam-swirled peanut butter, Aldi sells one kind, which it commissions itself. (It’s similar to the higher-end Trader Joe’s, which is owned by an Albrecht family trust.)

“We carry 1,500 of the most popular grocery items out there,” Mr. Hart said. “You won’t find some exotic spice or exotic produce items in our stores; you won’t find every flavor of every items. When you look at the large supermarkets that may have 20- to 30,000 items, or superstores, with over 100,000 items, it’s surprising to the customers how much of the shopping list we’re able to fit into our smaller store.”

Fewer product lines translate into making even a small, high-rent space quite profitable.

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