Wine, Recession and the Aldi Effect

Aldi stores are about to expand in the United States, drawn here by the recession according to an article in today’s Wall Street Journal ( “Aldi Looks to US for Growth” ).  I wonder how this will affect the wine market?

A Tough Nut to Crack

Aldi is a German “hard discount” store chain.  A “hard discounter” sells a limited selection of house-brand goods at very low prices in small, bare-bones outlets.

Hard discounters are a niche, albeit a growing one, in the U.S.  Wal-Mart is a successful discounter, of course, but not a hard discounter because it still features many mainstream branded products, its prices are higher and its stores a bit more plush.  Aldi and other hard discount stores drove Wal-Mart out of Germany, according to the WSJ article, but the U.S. market has been a tough nut for the hard discounters to crack. American consumers are primed to buy brand-named products and they like lots of choice, marketing experts say, and so tend to resist the house brands that hard discounters feature, which has limited their penetration here.

Germans are more willing to sacrifice brand names for low prices, apparently.  Aldi and other hard discounters are dominant powers in German retailing. The WSJ reports that 90% of German households shop at Aldi stores and 40% of all grocery purchases are made in hard discount outlets.

Divide and Conquer

Interestingly, there are actually two Aldi store chains in Germany (with similar but different logos — see illustration above).  Aldi is short for ALbrecht DIscount. The Albrecht brothers  who founded the company after World War II fell out over the issue of tobacco sales in their stores.  They divided the German market between them (Aldi Nord and Aldi Süd) and then, eventually, split up the world market too.  Here are links to Aldi USA and Aldi International websites if you want to learn more about this retailer’s local presence and international reach.

Aldi Süd has been in the United States since the 1970s.  The corporate website tells the story this way.

The ALDI way of shopping has been continuously honed and refined since our first store opened in Southeastern Iowa in 1976. Committed to bringing food to customers at the lowest prices possible, our early stores set up shop in small spaces and introduced shoppers to the limited-assortment concept, carrying only 500 private-label items. Compared with other supermarkets, our stores seemed tiny. But ALDI found a niche with Americans hungry for real value, and the chain grew rapidly.

Over time, more products were added, including more refrigerated and frozen foods. ALDI also began experimenting with Special Purchase items, to great success. More recently, Sunday hours were instituted, and ALDI began accepting debit cards.

Today, there are nearly 1,000 ALDIstores in 29 states, from Kansas to the East Coast. And today’s ALDI store carries about 1,400 regularly-stocked items, including fresh meat, and, in certain locations, beer and wine. Though the original ALDI concept has been modified somewhat to accommodate our ever-changing tastes and preferences, the core concept remains: “Incredible Value Every Day.”

The German origins of the store are apparent in this description, from the traditional Sunday closing to the very limited selection.  Your local upscale supermarket carries at least 10 times as many products as a typical Aldi.

Wine is an important product in Aldi’s German stores, as you can see from the wine selections featured on their website.  I believe that Aldi is the largest single retailer of wine in Germany.

Since Germans are rich and Germany makes great wines, you would think that Aldi must sell mainly fine wines, but you would be wrong.  Aldi’s median  German wine sale is red not white, imported from a low cost producer, sold  under a house-brand name, packaged in a box or TetraPak and priced at around one euro per liter.

You could say that it is Two Buck Chuck (TBC) wine, but in fact TBC is more expensive.  TBC is to Aldi wine as Wal-mart is to Aldi itself. (Note: Wal-Mart now has its own brand of two dollar wine, which makes this comparison even more appropriate. It is called Oak Leaf Vineyards and is made for Wal-Mart by The Wine Group.)

The Aldi Effect

Aldi figures that the recession is its moment to press more vigorously for U.S. market share.  Data indicate that consumers are much more cautious now, so perhaps they won’t be so picky about brand names and will, like their German cousins, be willing to trade down for a lower price. The Financial Times reports that Aldi sales in Great Britain are up 25 percent! Aldi plans to speed up store openings in the U.S. and to expand into New York City. New York!  If you can make it there … well, you know.

This may be Aldi’s opportunity in wine, too. Most but not all Aldi stores in the U.S. (damn U.S. liquor laws!)  sell beer and wine. Aldi’s U.S. website boasts that

ALDI believes that life’s little pleasures should be affordable for everyone. In many of the countries where ALDI calls “home,” we’re known for exceptional values in wine and beer. And now, we’re bringing that tradition to the United States.

Thanks to our global reach, we’re able to partner with winemakers and brewers around the world, to bring you exceptional beers and wines at remarkably modest prices.

Our wines come from all of the world’s best wine producing regions: Germany, France, Spain, California, Argentina, and Australia. Our beers are sourced from Holland, Germany, and Latin America. Some carry our private labels, others carry the labels they wear in their native lands—but all are exclusively ours in the U.S. So now you can raise a glass to “Incredible Value Every Day.”

The good news here is that Aldi’s U.S. push may also help drive wine deeper into the U.S. consumer mainstream.  You can say all you like about the quality of Two Buck Chuck but it sure did help expand the wine culture in the U.S. and some (but not all) my TBC-drinking friends have moved upmarket for at least some of their purchases. The wine may not be very good (a matter of taste), but its market impact has not been all bad.

Will Aldi Succeed?

Will Aldi’s drive be successful?  There is reason to think it will be. They seem committed to tailoring their hard discount operations to local market conditions, which is important because markets have terroir as much as wine.

But there is a more important reason.  Both German Aldi chains are present in the U.S. now, although you are probably not aware of them.  Aldi Süd operates on under the Aldi name, of course, with the same logo as in Germany.  The owners of Aldi Nord invested years ago in a different chain, based in California and intentionally tailored for thrifty but upwardly mobile U.S. consumers. It’s an upscale Aldi Nord and it has been very successful here.

Perhaps you’ve heard of them.  They have limited selection, smaller stores, lots of house brands, and low prices.  They even sell a lot of wine.  The name?

Oh, yes.  Trader Joe’s!

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4 responses

  1. I just posted about Aldi http://www.potterville.wordpress.com and I love it there. I never thought I would be a person to not go for name brands, but after about 6 months of shopping there I can’t bare to part with 10 cents higher than what I pay at Aldi. I will continue to shop at Aldi even if I win the lottery, it just makes sense! I’ve had several people look down their nose at me for going and then I say, you know Trader Joe’s is one of the brothers that own’s Aldi in Germany…works everytime. Great post!

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