Aldi, the German based discount grocery chain, recently opened its first eight Southern California stores in Fontana, Lake Elsinore, Moreno Valley, San Bernardino, Yucaipa, Palm Springs and La Quinta, all of which are in the Inland Empire. Plans call for an additional 35+ stores to open throughout SoCal before year end.
The Progressive Real Estate Partners team was successful in procuring Aldi for Highland Avenue Plaza which will be their second San Bernardino location (opening this week) and we hope to bring this exciting new grocer to other projects in our marketplace. I visited the Fontana store earlier this month so I could experience it first-hand and have a better understanding of the concept and I was very impressed. It was a Sunday afternoon and the store was quite busy in spite of SoCal having one of its rare rainy days. So what makes Aldi different and why do I think they will be very successful? Read on . . .
What Makes Aldi Different:
- Aldi Brands: Most items available in the store are Aldi exclusive brand products rather than national brands. They have their own version of many popular items, especially cereals, soups, and other common staples. They carry a limited assortment of products offering only one or two options per product category.
- Very low prices: I took my wife with me so that I had a “price expert” in my presence. She indicated that pretty much everything she saw was substantially discounted. Assuming the branded items are similar in quality and taste to their nationally branded counterparts (ie cereals, oatmeal, ice cream, macaroni & cheese) the savings are substantial.
- Labor Costs Shifted to the Consumer: You insert a quarter to get a shopping cart and get the quarter back when you return it and hook it up to the adjacent cart. If the consumer complies, Aldi will have shifted the cost to collect carts from paid employees to the customer. They follow the same strategy of shifting labor costs by having the shopper bag their own groceries.
- More Savings of Labor Costs: Similar to the Costco format of placing pallets of merchandise throughout the store, most items at Aldi are displayed the way they were originally bulk shipped thus substantially reducing the cost to stock shelves.
- Store are Small & Efficient: At only about 15,000 SF including the storage area, these stores have substantially reduced operating and inventory costs compared to a much larger grocer.
- Charge For Bags: The cost for either paper or plastic is $.10 to $.15 per bag thus shifting the costs to the consumer, reducing the number of bags used AND motivating customers to bring their own reusable grocery bags and be more environmentally conscious.
- No Self-Checkout: As of now, Aldi does not offer self-checkout. I think this will reduce shop lifting as well as expedite consumers exiting the store. Furthermore, I think when you have a lot of items, people prefer the convenience of regular checkout.
Why I Think They Will Succeed:
- Site Selection: Based upon the sites we submitted to them and my conversations with their brokerage team, it was very evident that Aldi knew exactly what they wanted and they were very disciplined in going after those sites that best fit their acquisition criteria.
- Experience: While Aldi is a newcomer to Southern California, they are not a new grocery concept. In fact, Aldi has been operating in the United States since 1976 and has over 1,500 stores in 32 states so they have a strong track record of success. They clearly know what works and what doesn’t and since they are private they are under no obligation to expand just for the sake of expanding. That being said, it will be interesting to see whether a quarter is enough of an incentive to get Californians to return shopping carts.
- Prices: One of the obvious results of the great recession is that consumers became very aware of which stores offer which products and at what prices. Just as 99 Cent Only has experienced significant expansion over the past decade AND appeals to many different demographics, I believe Aldi’s extremely low prices will appeal to many price-conscious shoppers. These customers will add Aldi to their list of places to grocery shop just as they have worked traditional grocers, ethnic grocers, Target, Walmart, Costco and others into their regular shopping habits.
It’s always exciting to see new retailers open in the marketplace and the Progressive team wishes Aldi much success as they continue their expansion throughout SoCal. I encourage you to visit one of the new stores and check out their website to stay up to date on upcoming store openings.