The Albrecht brothers had a vision to bring affordable food and goods to the people of Germany at the end of World War II. Their unique approach to bring a low-cost, no-frills business model has helped them stand out with their loyal customer base. Important Stats to Know About Aldi:
- Aldi employs 203,600 employees around the world
- Headquartered in Essen and Mülheim, Germany
- The combined brand generates about $80 billion each year
- Operates over 12,000 grocery stores worldwide
- Aldi is family-owned and not publicly traded
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The History of Aldi
In 1913, Anna Albrecht opened a small grocery store in Essen, Germany. The store remained relatively unchanged and even survived the widespread bombings and destruction in Germany during World War II. In 1946, her sons, Karl and Theo Albrecht took over the business with the goal of expanding its operations. By 1950, the brothers had grown the business to 13 locations across the Ruhr Valley.
Aldi’s Early Discount Strategy
The economic conditions in Germany following the war were difficult. The Albrecht brothers were frugal people and believed that consumers should have the opportunity to purchase high-quality food and goods at affordable prices.
At the time, people who wanted to purchase inexpensive goods would normally participate in a discount cooperative. These cooperatives would provide members with rebate stamps with each purchase that could be redeemed at a later date to get a portion of their money back. The challenge was that this process was time-consuming and painful to track. The Albrecht brothers decided on a different approach. Instead of making their customers pay full price and get their money returned later, they decided to offer the discount before the sale. This discount was restricted to 3% which was the maximum legal rebate amount allowed at the time. Thus, making Aldi one of the first discount stores on the planet.
The brothers were diligent to monitor their inventory to identify which products sold quickly and removed those that didn’t sell. Other retailers would often lose money if a product didn’t sell. In order to get the unpopular item off their shelves, they would have to spend money on advertising or discount them. Karl and Theo Albrecht refused to pay for any advertisements at all and removed items from their shelves that didn’t sell easily.
Times after the war were tough in Germany. The brothers chose to carry only non-perishable food items. This benefited the grocery store chain by reducing the risk of losing money from spoilage.
Another strategy was to keep the average store small compared to some of its competitors. With a smaller store, there was no need to spend large amounts of money on inventory to keep the shelves full. The brothers also didn't have the overhead (rent, utilities, etc.) of a larger commercial space. This allowed them to focus on keeping their shelves full of only the most popular items.
Interesting Fact
The Albrecht brothers refused to pay for telephones to be installed in their stores until the 1990s. Until this time, employees were required to use a local payphone to make business calls.
Splitting the Company and Creation of the Aldi Brand
By 1960, the brothers had about 300 locations in operation. As the chain continued to expand, the Albrecht brothers needed to make some decisions to continue growing the company. Theo proposed that the stores start carrying cigarettes and other tobacco products to boost sales. Karl disagreed and felt that carrying these types of products would attract shoplifters.
This dispute led to the brothers making the decision to amicably split the company. While the two brothers would operate their own grocery store chains, they chose to both operate under a unified brand name. In 1962, the name Aldi (often shown in all caps, ALDI) was introduced as a shortened version of Albrecht Diskont. By 1966, the company was officially financially and legally separated.
Key Takeaways
- Karl and Theo Albrecht understood that the people of post-World War II Germany needed access to inexpensive products. They launched the first discount store that was not formed as a cooperative by offering discounts before the sale rather than post-sale rebates.
- The chain of stores focused on a no-frills experience to keep costs down. Strategies included removing unpopular items from shelves, reducing overhead through smaller stores, and spending no money on advertising.
- Despite its popularity, the Albrecht brothers chose to divide the company after a dispute over whether to sell cigarettes. The brothers wisely chose to continue operating the two separate companies under the same brand name — Aldi.
Two Companies, One Brand
When Aldi split into two entities, the companies were officially named Aldi Süd and Aldi Nord. Aldi Süd took the stores that were located in the south of Germany, while Aldi Nord took the northern stores. This dividing line is commonly referred to as the Aldi-Äquator (which literally means Aldi equator).
Both companies took a similar approach in the way they organized their extensive network of grocery stores. Stores are divided into regions. These regions are operated as limited partnerships that are managed by a regional manager. The regional manager then reports directly to the parent company headquarters — Aldi Nord in Essen or Aldi Süd in Mülheim. In Germany, Aldi Nord consists of 35 regional branches that operate approximately 2,500 stores. Aldi Süd comprises 31 regional branches with about 1,900 stores.
Although the two companies operate separately, they do work together in some respects. For example, they share many of the same marketing and store design strategies. The company even has a common company website — www.aldi.com — which redirects users to the appropriate site depending on the country they select. This effort appears seamless and has helped the Aldi brand reach millions of customers in numerous markets.
International Expansion of the Aldi Brand
Aldi began expanding beyond the borders of Germany in 1967 when Aldi Süd purchased the Hofer grocery chain in Austria. Aldi Nord followed suit shortly after and opened its first international location in the Netherlands in 1973.
In its early years, Germany was still separated into East and West Germany. This limited Aldi’s ability to expand internationally, but once the Iron Curtain fell and Germany was reunified in 1990, growth accelerated rapidly.
To avoid competing against one another, Aldi Nord and Aldi Süd avoid operating in the same markets or countries. Today, Aldi Nord operates in Denmark, France, Benelux (Belgium, Netherlands, and Luxembourg), Portugal, Spain, Poland. Aldi Sud operates in Ireland, the UK, Hungary, Switzerland, Australia, China, Italy, Austria, and Slovenia.
The combined Aldi brand currently has over 12,000 locations around the globe. Aldi Nord and Aldi Süd together make up the fourth-largest grocery chain by the number of stores.
Growth in the United States
Outside of Germany, the only shared market is the United States. Aldi Süd opened the first US-based Aldi store in Iowa in 1976. Aldi stores quickly expanded throughout the Midwest and Eastern United States.
Aldi Nord also expanded operations to the United States in the same year but chose a different approach. Instead of using the Aldi name, Theo Albrecht found that the California-based Trader Joe’s had a loyal customer base and was committed to a similar mission to providing its customers with low-priced goods. In 1976, Aldi Nord purchased Trader Joe’s.
Between the Aldi and Trader Joe’s brand, the US operation makes up about 10 percent of Aldi’s global footprint.
Current Ownership of Aldi
The companies continue to be privately owned and are not traded on any public stock exchange. The Albrecht brothers ran their respective companies as CEO until they both retired in 1993. Upon their retirement, the control of the company was transferred to private family foundations. The Siepmann Foundation controls Aldi Süd and the Markus, Jakovus, and Lukas Foundation controls both Aldi Nord and Trader Joe’s.
The significant growth of the Aldi brand has led to Karl and Theo Albrecht being ranked among the wealthiest people on the planet. In 2010, Theo was ranked by Forbes magazine as the 31st richest person with a net worth of over $16 billion. Around the same time, Karl was ranked as the 21st richest person by the Hurun Report. Today, the Albrecht family is estimated to be worth a combined $53.5 billion.
Interesting Fact
Having a lot of money made the Albrecht brothers a target. In 1971, two kidnappers successfully abducted Theo and held him for ransom for 17 days. A ransom of 7 million Deutschmarks (about $3.5 million) was paid for his release. Following the incident, the brothers became very reclusive and would travel in armored cars to and from the office.
Key Takeaways
- With the company split into Aldi Nord and Aldi Süd, the Albrecht brothers agreed to divide the territory and work under a unified brand.
- Both companies focused their growth on international markets and agreed to not operate in the same countries to reduce competition with one another (Germany and the United States are the exceptions).
- In the United States, Aldi Süd opened stores under the Aldi name. Aldi Nord purchased the small grocery chain Trader Joe’s and expanded operations under this brand.
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Trader Joe’s Recipe for Success
Theo Albrecht’s decision to purchase Trader Joe’s was a smashing success. What started as a handful of stores in Southern California has expanded to over 500 locations nationwide. The brand is recognized as having one of the highest sales per square foot of store space compared to its competitors. Despite making up less than 5 percent of the total number of Aldi-owned stores, Trader Joe’s accounts for approximately 16 percent of the total revenue. While Trader Joe’s does follow some of the similar strategies of the Aldi brand, there are a few differences.
Fun Atmosphere
When a customer walks into Trader Joe’s, they will immediately notice the island or tiki-themed decor. The brand works hard to give their customers a feel-good experience when they shop. Employees are referred to as “crew members” and can be seen wearing Hawaiian shirts (managers are called “captains”). They also have nautical bells that they use to communicate instead of the traditional PA system found in most grocery stores.
The original owner, Joe Coulombe, felt that his stores were too similar to boring convenience stores at the time. He set out to create something unique and different that customers would remember. Joe was obsessed with the South Pacific, so he went with that theme. While the island theme is found in all Trader Joe’s stores, most mix in elements from the local community. For example, a Trader Joe’s in Denver might feature artwork that has mountains.
Unique and Specialty Products
Trader Joe’s has a wide range of products that you can't find anywhere else such as their apple chicken sausage links or Indonesian salsa. They are big on having plenty of specialty options that are vegetarian, vegan, gluten-free, and other dietary restrictions. Customers can usually find free samples throughout the store. Employees are encouraged to try as many of the store’s products as possible so they can easily describe or make recommendations to customers.
Low Prices Through Trader Joe’s Branding
In a Trader Joe’s store, customers won’t see a lot of name-brand products. The reason for this is that about 80 percent of products sold in the store carry the Trader Joe’s brand. Many of these products are name-brand goods under the generic label. This helps Trader Joe’s secure lower pricing from its suppliers. Trader Joe’s has strict privacy agreements with its suppliers to not make their relationship known to the public.
Cult Following
While the Aldi and Trader Joe’s brands are known for low prices, they both attract a different type of crowd. Aldi is popular among low-income or blue-collar workers. Trader Joe’s has focused on catering to higher-income families and college students. They do this by constructing stores in more affluent neighborhoods. This has attracted more of a cult following. Trader Joe’s customers are extremely loyal to the brand.
Social Responsibility
Trader Joe’s is known for responding well to feedback and criticism from the local community. For example, it removed some Chinese-based food products due to consumer health concerns.
The chain also eliminated six unsustainable fish species from its shelves to help protect the environment. This helped earn Trader Joe’s the 3rd spot (up from the 15th spot) on Greenpeace’s CATO (Carting Away from Oceans) scale.
Key Takeaways
- Trader Joe’s has become a significant contributor to Aldi’s annual revenue by offering a unique set of products, catering to a specific customer base, and deploying a memorable tiki-theme in their stores.
- Their strategic placement of stores in affluent neighborhoods and near college campuses has allowed them to secure a cult following in many areas around the country.
A Brand Built on Frugality
There isn’t much known about the Albrecht brothers outside of their involvement in building the Aldi brand. However, they are known for being extremely frugal individuals despite being worth billions of dollars at the peak of their lives. This frugality bled over into their business model helping them create a company that was dedicated to keeping prices low while minimizing risk and overhead costs.
No Frills Shopping Experience
Theo and Karl Albrecht understood that every business expense must be charged back to the customer. For this reason, Aldi has focused on creating a shopping environment that provides customers with high quality, low-cost products, and nothing more.
Aldi has historically viewed any form of advertising as a wasted expense. Outside of their sales ad that shows the deals going on that week and social media presence, very little money is spent on marketing or advertising. Aldi has stuck to this stance from the very beginning. When you enter an Aldi store, you will see promotion of the company’s mission and value statement but nothing advertising the actual products.
While the brand has recently started investing money in the look of their stores, many traditional Aldi locations display goods in their original shipping boxes. This reduces the cost of paying store clerks to transfer the goods from boxes to the shelves.
Aldi also encourages its shoppers to bring their own grocery bags. Even in areas where this is now mandated by law, Aldi is historically charged for plastic or paper bags. Customers are also responsible for bagging their own groceries saving the salary of a bagger. Customers will often simply use empty or discarded boxes found throughout the store. This also reduces the cost for the store for garbage disposal.
Most grocery stores are forced to hire staff to go into the parking lot to collect shopping carts and bring them back for the next customers to use. Aldi took a unique approach to this by installing devices on the carts that lock them together. When a customer wants to use the cart, they must insert a coin (like a quarter). The customer then gets this coin back when they return the cart. Example below.
Aldi also carries far fewer products than a traditional grocery store. Many popular competitors can carry tens of thousands of different products. For Aldi, the store size is kept small (about 12,000 square feet) with approximately 1,400 products. Many of these products are displayed with Aldi’s brand name on the packaging. This helps keep the costs of goods low since customers aren’t paying for popular name brands.
Key Takeaways
- The Albrecht brothers were known for being extremely frugal. These practices heavily influenced the way that Aldi is operated and has led to much of its success.
- The interior of Aldi stores provides a no-frills experience with food displayed in shipping boxes and no advertising. This helps to keep the cost low for consumers.
- Aldi relies on the customer to provide their own bags and labor to keep costs low. For example, customers participate in bagging their own groceries, removing empty boxes from the store, and returning shopping carts for the next customer.
The Future and Innovation of the Aldi Brand
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Aldi has an ambitious goal to continue growing in the near future. This is especially true in the United States. Aldi US (Aldi Süd’s United States division) announced that it planned to become the third-largest grocery chain in the United States after Walmart and Kroger by the end of 2022. Aldi currently ranks 9th when compared by revenue to other grocery store chains in the United States. The company hopes to achieve this by focusing on new opportunities to expand services and take advantage of e-commerce. They also plan to rapidly expand the number of operating stores.
Embracing the COVID-19 Pandemic
Aldi has taken advantage of and adapted well to the COVID-19 pandemic. With workers across the globe transitioning to remote work, there has been a higher demand for groceries. While other foodservice businesses struggled, Aldi US seized the opportunity to expand their services to capture new market share including curbside pickup at hundreds of stores, alcohol sales, Instacart deliveries, and other e-commerce initiatives.
Expanding Product Lines
In 2020, Aldi announced that it would break from its approach of stocking many non-perishable food items and expand fresh food options by 40%. Due to consumer demands and changing diets, Aldi has made additional produce, meat, organic items, and prepared foods available to its customers. This is especially critical as Aldi expands into agriculture hubs like California that is known for its readily available fresh fruits and vegetables.
Creating Strategic Partnerships
Aldi is known for coming up with creative solutions to keep costs low and tackle challenges. The labor shortage coming out of the COVID-19 pandemic is no exception. With many companies laying off workers or reducing hours, Aldi partnered with the fast-food giant McDonald’s to share employee resources. This was a win-win for everyone involved — Aldi could get much-needed help with increased demand for groceries, employees would be able to maintain their income, and McDonald’s would be able to retain those employees for when economic conditions improved.
Rumors of a Consolidation
Since Aldi is privately owned, they don’t often share their strategies openly with the public. However, both Aldi Nord and Aldi Süd have made efforts in recent years to better align their product offerings to be more similar. Many speculate that this could be an indicator that the two entities plan to combine once more in the near future.
The company could potentially benefit from being publicly traded. An IPO (Initial Public Offering) could help generate some additional funding to be used toward the expansion and remodeling of existing stores.
Key Takeaways
- Aldi plans to continue to grow its market share by opening a large number of new stores by the end of 2022.
- The brand has worked diligently to adapt and capture new opportunities that came with the COVID-19 pandemic including curbside pickup, e-commerce, and labor sharing partnerships.
- Some rumors exist that Aldi could be making moves to boost its market strength by combining Aldi Nord and Aldi Süd into a single entity.
Final Thoughts and Key Takeaways
The Aldi brand is a true powerhouse in the grocery store industry. While other brands have focused their efforts on traditional approaches such as paying for expensive advertising or trying to stock the largest variety of products, Aldi has taken the opposite approach. From its frugal beginnings, the brand has captured the attention of consumers across the globe. In many cases, Aldi’s strategy has kept pricing so low that competitors have been forced to slash their prices. This has helped Aldi continue to gain a foothold in new markets around the world.
Quick Comparison of Aldi Brands
Key Takeaways
- The Aldi brand started as a small, family-owned grocery store owned by Anna Albrecht. Once her sons took over the business in the 1940s, the business grew rapidly and expanded across Germany.
- The early strategy was to offer discounts to customers before the sale. This was a new approach at the time as most consumers purchased inexpensive food products from cooperatives.
- The Albrecht brothers decided to split the business into two separate companies after a dispute over whether to sell tobacco products. The two companies would continue to operate under the combined brand Aldi (short for Albrecht Diskont).
- The two Aldi companies avoid operating in the same countries to avoid competition. The only exception is Germany and the United States. In the US, Aldi Nord operates under the Trader Joe’s brand while Aldi Süd uses the Aldi name.
- Both Aldi companies are still family-owned and have never been publicly traded.
- The Trader Joe’s brand is extremely popular in the United States and makes up a sizable portion of the brand’s annual revenue.
- Aldi gives its customers a no-frills shopping experience to keep costs low including generic brands, products displayed in original shipping boxes, and making customers bag their own groceries.
- Aldi stores are much smaller than their competitors and carry far fewer products. This allows them to focus their efforts on stocking only products that sell quickly.
- The Aldi brand plans to continue rapid expansion efforts around the globe. In the United States, the brand plans to open hundreds of new locations, securing them the number three spot after Walmart and Kroger.
- Aldi has used the pandemic to launch new initiatives and create special partnerships to strengthen and grow the brand.
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