Dive Brief:

• One of Aldi’s key strategies is to limit its product selection, which allows the chain to keep prices low while also focusing on quality and inciting a sense of urgency in its customers, according to The Wall Street Journal.
• The discounter competes heavily with Walmart on price, and recent studies show the chain is besting the big-box store here. Research from Customer Growth Partners, for instance, found that Aldi is on average 17% cheaper than Walmart.
• Along with its ongoing store remodels, Aldi’s limited assortment approach could draw customers up and down the income ladder. In Germany, 95% of blue-collar workers and 88% of white collar workers shop Aldi.

Dive Insight:

Aldi’s limited assortment and small store size have helped the discounter keep overhead costs down while also allowing the retailer to focus on sourcing high-quality items. As the Journal notes, the chain tests and re-tests its private label products to make sure they’re as good or better than the competition. In Germany, where Aldi is based, Aldi Süd’s headquarters has a test kitchen where staffers taste products every day for six hours.

That quality-meets-affordability focus hasn’t wavered much across the forty years Aldi has operated in the U.S. What’s different is the company’s rapid expansion and focus on store remodels. Kicked off this year, the store updates are playing up Aldi’s fresh selection and adding design elements that bring the shopping experience more in line with traditional supermarkets. The goal is to lure more affluent shoppers away from grocers like Kroger and Whole Foods.

Indeed, although the U.S. grocery market is over-stored, Aldi sees an opportunity to leverage its low price, private-label focused assortment in saturated markets across the country. Its growth plan is one of the most ambitious in the industry, and although the discounter won’t likely become a market share leader in the regions where it operates, it will steadily chip away at competitors’ sales and pressure them to lower prices.

Already, Aldi has ignited a price war with Walmart, which is laboring to keep its costs down and pulling down prices at competitors like Kroger, as well. Although Aldi won’t overtake its much larger competitors anytime soon, if ever, it’s playing the role of disruptor quite well by making others play on its turf.  

It’s important to note that Aldi is a very savvy merchandiser, as well. This summer, for instance, the company offered steep discounts on fresh salmon — a deal aimed at reeling in high-value shoppers, who would very likely buy other items throughout the store. Amazon and Whole Foods may have made a splash with their post-merger price cuts, but Aldi is doing the same thing, and with a much lower average price to lock in curious shoppers.