Price increases have moderated this year, to a 3.5% increase on an annual basis. That’s good news. But consumers are still glum. They remember the 8%-9% annual increases back in mid-2022 and are still struggling to digest the consequences.
When there was plenty of Covid money around this was not such a big issue. But the pandemic income bonanza is over, and consumers today are trying to dodge higher prices wherever they can. McDonald’s recently noted, “consumers are more discriminating with every dollar that they spend.”
In the grocery aisle, there is a new kid on the block who is painting itself as America’s food inflation answer. Aldi is a big German food discounter that is expanding rapidly in the U.S. (the name Aldi is a combination of Albrecht, the founding family name, and Discount). It is still a private company, with a rather peculiar history. When the two Albrecht brothers inherited the Aldi business from their father 60 years ago, they disagreed on whether to sell cigarettes. One brother wanted to. The other thought it would lead to too much theft.
So they split the company. Aldi Nord took over stores in northern Europe and Aldi Sud got the south. They each have expanded to the U.S. Aldi Nord bought Trader Joe’s but doesn’t operate Aldi stores here. Aldi Sud is the sole operator of Aldi stores in the U.S. Clear, right?
Aldi is razor focused on price. Their stores are small, less than half the size of a standard supermarket, and they sell only about 1,600 unique products compared to over 30,000 for, say, Kroger. Ninety percent of what they sell are no-frill private label items which means lower prices. Like Costco, products are sold in the same cardboard boxes they are shipped in.
And finally, a unique feature is the use of digital price tags throughout the store. Prices shown on the shelves can be changed automatically by computer, cutting down on costs and staff needs. According to the consulting firm Customer Growth Partners, a basket of 50 typical household items is 6% cheaper at Aldi than at Walmart.
Aldi recently purchased the parent of Winn-Dixie supermarkets, and if current plans pan out, they will be second in terms of number of stores in the U.S. in five years. Aldi does little marketing which is one reason you probably haven’t heard much about them, and they are still only about 3% of total U.S. grocery sales. But if inflation continues its relentless march, you may become a lot more familiar with the company in the future.
