Inside Aldi's $5 Billion Plan To Become The Third-Largest Grocer In The U.S.

Photographer: Michael Nagle/Bloomberg

Yesterday, I was invited to meet with a few of Aldi's top execs and take a tour of the grocer's newly remodeled store in St. Charles, Illinois. This store, according to the company, represents how it is spending $5.3 billion to remodel its existing 1,800-plus stores and open 800 new ones.

The plan is to use this investment to become the third-largest grocer in the U.S. by store count, with over 2,500 stores by 2022, putting Aldi right behind Walmart and Kroger. Its strategy includes expansion in more suburban, middle- and upper-middle-class neighborhoods.

The new 12,000-square-foot format, which is 20% larger than its previous footprint, has just five aisles and expanded produce, refrigerated and freezer sections. In fact, the company has expanded fresh food offerings by 40%. The company, known for its low prices and award-winning private label foods and beverages for the past 40-plus years, seems to have a new focus. It's trying to expand beyond its core price-conscious customer to a much broader, and dare I say, more foodie-oriented shopper by touting its award-winning wines, Specially Selected brand of more upscale foods, “fresh never frozen” seafood, organic meats, a Never Any! brand of chicken (that has no antibiotics, hormones, animal by-products, steroids or salt and are fed a 100% vegetarian diet) and, of course, its Earth Grown kale veggie burgers.

CEO Jason Hart, who led the store tour, said the company wants to serve 100 million people by the end of its 5-year plan. Aldi is a very close-to-the-vest company and is privately held. When asked, he would not share specifics on the number of SKUs in the store, how store sales have increased with the new format or its daily transactions.

Scott Patton and Joan Kavanaugh, both VPs of corporate buying and on the tour, showcased Aldi's innovations in fresh, organic and trendy offerings. Patton used the company's olive oil offerings as an example of just how they satisfy just about every customer. Ten years ago, it didn’t even carry olive oil. Today, it has four: one basic olive oil (its lowest priced), one extra virgin, one organic and its Specially Selected olive oil, which is imported from a specific area in Sicily for the demanding palate.

Aldi's Specially Selected Olive Oil is imported from Sicily and sells for just $7.99 a bottle.

Phil Lempert

Aldi's assortment is made up of approximately 90% of its exclusive brands, including SimplyNature, Earth Grown, Specially Selected, Never Any!, LiveGFree (gluten free) and little Journey (baby products). All, according to Aldi's test kitchen director, undergo over 50,000 well controlled tests to ensure their recipes and ingredients are strictly adhered to by their suppliers.

Aldi also embarked on a program back in 2015 to reformulate and remove more than 125 ingredients in its SimplyNature products to meet the needs of shoppers who want a clean label approach to the foods they consume.

Scott Patton, Aldi's VP of corporate buying, showing the company's new produce offerings.

Phil Lempert

Patton shared that its produce section, which is very impressive both in quality and in price, is growing twice as fast as any other category in the store (although he too would not share any financial metrics). The department also includes a “Produce Picks” section that has a limited number of items. (Yesterday, the display was all about blueberries and strawberries offered at super low prices.) An interesting note is that unlike most grocers, Aldi's produce department is located in the back of the store, rather than up front, a tool most food retailers use to shout “fresh” and set the stage for a more enjoyable shopping trip with a vast array of colors and aromas.

I asked Patton about Aldi's position on what is currently the fastest-growing category in a traditional supermarket: foodservice. He said Aldi currently doesn't have any plans to add prepared foods, meal kits or in-store foodservice. Instead, he said, the company is focused on offering foods that are more convenient for the shopper, which he feels is a much bigger opportunity. Examples include its meats and chickens that are marinated and ready-to-cook, quinoa bowls and salad kits.

The Aldi execs reinforced over and over how they “keep it simple.” Simple for customers by not inundating them with too many choices (after all, Kavanaugh said, does a shopper really need dozens of choices of peanut butter?) and simple for the store and internal operations. When asked why they don’t do in-store sampling, the response was that it just adds cost to the system and they “want to keep it simple.”

Without knowing customer counts or sales, it is hard to say if the strategy is working. But being able to invest $5 billion in expansion does lead to the assumption that Aldi is profitable and growing. As far as the company's expanding reach to other types of customers, the proof is in the aisles: I saw a mom with three kids and a full shopping cart that included many fresh foods, a genuine Louis Vuitton handbag hanging on the cart and three gallons of Friendly Farms milk for $0.95 a gallon.

Phil Lempert
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