Sunshine State home to new, unique food retailer

PINELLAS PARK, FLA. —Watch out Walmart, Publix and Kroger; Aldi is joining the battle for market share in two of the nation’s most populous states by bringing in a unique brand of food retailing to Florida and then Texas.

Late last month, Aldi opened its first 10 stores in central Florida, extending from St. Petersburg on the west coast to Daytona Beach on the east coast. An additional 14 units are scheduled to open during October and November in markets along a broad swath through the center of the state. The expansion is supported by the September opening of a 500,000-square-foot distribution center southwest of Orlando capable of serving an estimated 100 stores, which Aldi could arrive at quickly, given the small size of its units—approximately 16,000 square feet—relative to conventional supermarkets.

For 2009, the company says it will open between 10 and 15 additional units in Florida. In 2010, Aldi is prepared to enter the Texas market with a similar strategy of clustering stores around a new DC planned for Denton, which will support the Dallas/Fort Worth area.

Although Aldi has been around since the late 1970s, the company doesn’t garner the attention of larger operators because its small stores are rather basic—95% of the items offered are private brands and as a private company, it doesn’t disclose financial results or talk much about its business. That situation could be changing soon, however, as the Florida openings are among a total of 100 new stores opening in 2008 in what promises to be the most rapid expansion for the company since it first began operations in Iowa. Aldi currently operates approximately 950 stores in 28 states.

As Aldi looks to enter new markets, one of the challenges is educating consumers about its value proposition and unique business model. In Florida, customers were alerted to Aldi’s arrival with a marketing campaign that included a direct-mail piece that pictured a red apple cut in half under the headline, “You just became the sharpest knife in the drawer,” and a Web site, www.ShopSmartFlorida.com , where visitors were greeted with the message, “Hello genius. Congratulations on having the smarts to shop a smarter store.”

In-store, the company uses a large sign with a quarter on it to explain its shopping cart policy, which requires customers to deposit a quarter to receive a cart, which they get back when the cart is returned. “It is a little awkward at first because customers don’t understand it, but almost universally they will come up to us later and say, ‘That is a great system,’” said Aldi divisional vp David Behm.

The shopping cart system is indicative of Aldi’s emphasis on low operating costs, as it costs less than if the retailer hired an employee to perform the task. “Retrieving carts is a significant consumer of labor hours and it doesn’t help you sell more groceries,” Behm said.

Another source of labor savings is achieved at checkout, where Aldi’s system emphasizes cashier comfort and high-velocity price scanners. Aldi check stands are configured so that cashiers are seated behind ergonomically-positioned registers. They are able to rapidly scan items because the company’s emphasis on private brands means it controls packaging decisions and can therefore enlarge bar codes and place them in multiple locations on the package so they are easily detected by the dual position scanners. “We have the fastest cashiers in the industry,” said Scott Huska, divisional vp for Aldi’s Texas operation.

Such efficiencies and the offering of private brands enable the company to claim it has prices 16% to 24% lower than big-box and discount stores.