(Original Post around late 2015 / early 2016)
Guten Tag/Hello. This post is different from my usual math and stats posts. I would like to discuss about the big German supermarket company Aldi. Aldi is like No Frills in Canada, a big discount supermarket chain.
If Aldi expands its operations to Canada, could they do well (as they have done in the United States)?
Table of Contents
As someone who admired the German soccer team since the FIFA South Africa World Cup in 2010 and also took some German courses, German companies and culture does intrigue me from time to time.
After some “research” over time through browsing on reddit /r/Frugal and such, I hear often about Aldi. This large grocery chain is based in Germany and are well known in Europe, Australia and in the United Kingdom. Aldi in particular have many stores in the United States and have considered Canada in the past.
As of now, there is no known Aldi store in Canada. (We seem to be last when in comes to retail. Nordstrom and Uniqlo will arrive to Toronto in Fall 2016.)
Who Is Aldi? (Source: Wikipedia, aldi.us)
Aldi which is short for Albrecht Diskount is a large discount Supermarket Chain based in Germany. In Germany, there is Aldi Nord (North) and Aldi Süd (South).
Aldi Nord operates in Belgium, the Netherlands, Luxembourg, France, Poland, Spain, Denmark, Portugal and operates in the United States under the name Trader Joe’s.
Aldi Süd operates in the United States (under Aldi name), Austria, Slovenia, United Kingdom, Ireland, Australia and Switzerland.
Aldi Shopping Experience
From a probability perspective, the stores seem to adopt an efficiency approach. They do not stock much but sell the most popular items and staples. The stores also adopt a minimalism mindset of less is more.
- Stores are open during the most popular shopping hours. Open for 24 hours does not apply to Aldi. Staying open later adds labor and operational costs.
- Assortments are smaller than most of the other supermarkets. Aldi sells the most common purchased grocery items.Why buy more items for sale when it does not sell well? This way Aldi has lower (sunk) costs. The customer will also not deal with the Paradox of Choice.
- Carts require a rental fee of a quarter for example.
- Customers bring their own bags. (Otherwise there is a fee for bags.)
- Many of the items they sell are Aldi Exclusive brands.
- The lower operational costs translates into their low grocery prices compared to their competitors.
- Items are cheaper but same or better quality compared to its competitors.
- When possible, many of the packaged products have multiple barcodes to increase checkout speed.
Competition is normal when it comes to retail and with groceries. Walmart is big in the United States and in Canada while Aldi is big in Europe and in Australia. (Walmart was tried in Europe but was not successful.)
Here is a sample of grocers in Canada (Toronto area as far as I know):
- Preisdent’s Choice Supermarkets (Loblaws, Zehrs, Fortinos, No Frills)
- Shoppers Drug Mart
- Whole Foods
- Speciality/Asian Grocery Stores*
The asterisk for specialty and asian grocery stores is my own bias as many of them are smaller businesses and I go to them often (I’m Canadian Chinese).
In my opinion, Aldi’s competition is not just the big box stores such as Walmart, Costco and the President Choice supermarkets. The specialty and Asian grocers are big competitors too as their prices are competitive and their selection is wider and specialized for those who want (Asian) groceries.
Location, Location, Location
For Aldi, entering the Canadian market will not be easy. Placement of the initial stores is crucial. Do people know who is Aldi? Should stores be in big cities in the Montreal, Toronto, Vancouver area(s)? Should Aldi start in more rural areas? How would Aldi connect with distributors and farmers? How would Aldi handle the highly variable Canadian Winter seasons?
It is probably best for Aldi to open a few stores and test the Canadian market. (It is risky to open so many stores like with the case of Target Canada.)
Is is very dangerous to assume that consumers are similar between countries (and even provinces). Culture has to be considered especially with Canada’s diversity.
The Toronto and Vancouver areas can benefit from having more discount grocers as the cost of living (real estate) is high. The tricky part would be trying to attract customers. Effective marketing would be needed.
To be honest, I would not know if Aldi opening stores in the Montreal area would be a success. I do not know enough about Montreal to make an informed opinion.
The Kitchener/Waterloo, Ontario area is of consideration. Kitchener was called the city of Berlin around 100 years ago and currently hosts the largest Oktoberfest outside of Munich, Germany. This area has many people of German descent and thus Aldi should consider this area (and similar areas) for its operations.
Other factors include cost, building size, laws and regulations, and liquor licenses on beer/alcohol (location dependent).
As big as Aldi is in Europe and in the United States, the Canadian market is tricky. It will be hard for Aldi to stand out from Walmart, Costco, Shoppers Drug Mart and specialty stores. Canadian winters will also be a challenge. With good marketing, effective strategies and good (supply chain) management, Aldi can be a viable alternative to Walmart and other big box grocery stores in Canada.
If Aldi were to enter Canada and is near me, I would definitely take a look and see what they have to offer. If Aldi seems convincing, I may be a regular customer.
Wikipedia, Aldi.us, Numerous reddit pages on Aldi on /r/Frugal
The featured image is from https://corporate.aldi.us/.