I can count on one hand the number of U.K. retailers that can still get away with aggressive physical store expansion while broadly shunning e-commerce – Primark, Aldi and… yep, that’s it.
At a time when most retailers are re-evaluating portfolios and shuttering stores, Aldi has announced plans to open hundreds of new stores, including doubling its presence in London. By 2025, Aldi is expected to trade from 1,200 U.K. shops, up from just 840 today. The space race isn’t over just yet.
So what does this tell us about the current state of retail?
Disruptors come in all shapes and sizes
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We’ve become so obsessed with digital disruption that we tend to forget there are some very nimble bricks & mortar retailers out there that are challenging the status quo and displacing legacy retailers. Now Aldi is no new kid on the block – they’ve been trading in the U.K. for nearly 30 years – but for most of that time they were perceived as the low-quality, budget alternative to the supermarkets. In 2008, they pounced on a once in a lifetime opportunity to cater to recession-hit shoppers, aided by the advent of mobile technology and a newfound notion of ‘smart shopping’. Frugality went from shamed to celebrated and Aldi was right there to welcome shoppers in droves.
Adapt – but know your limits
The discount model is based on simplicity and ruthless efficiency, but in recent years Aldi has had to become more flexible in order to broaden its appeal. Shelves today are stocked with well-known national brands as well as more premium and locally sourced products to cater to middle-class shoppers and to those looking to do a full weekly shop. It’s hard to believe that just a few years ago, Aldi customers couldn’t even pay with a credit card.
On the topic of adapting, Aldi has also recognized the need to move beyond its rigid one-size-fits-all store format strategy. As Aldi embarks on this next stage of growth, its smaller convenience-orientated ‘Local’ stores will play a key role – particularly in London where Aldi currently has less than 4% share of the grocery market (versus 8% nationally).
The one thorn in Aldi’s side is e-commerce. Its discount grocery model is simply not compatible with online shopping – yet 20% of U.K. retail sales now take place online. So what’s a discounter to do? Look externally and forget food. Aldi has quietly run various grocery delivery trials, but the reality is that the economics just don’t stack up – particularly for a budget supermarket. A new three-year partnership with online electricals retailer AO.com should help the retailer to more efficiently deliver “special buy” non-food items, but Aldi is right to leave online grocery to the traditional supermarkets.
Like many disruptors, Aldi plays the long game. As a privately owned company, they’re in the fortuitous position of prioritising growth over profitability – last year, profits tanked by nearly one-fifth as they invested over £500 million in store openings and price reductions. Now we all know most retailers don’t have the luxury of such long-term thinking – though imagine just how different the sector would look if they did.
Be clear on what you stand for
Aldi doesn’t just want to be perceived as the cheapest supermarket, but the one that offers the best value for money. Prices can always be matched (though not easily and certainly not in the long term due to Aldi’s unique operating model) but delivering value is what ultimately drives loyalty among shoppers. Customers understand that there are sacrifices when walking into an Aldi – limited range, lots of private label, merchandise on pallets, absence of loyalty points or promotions, none of the counter services you’d get in a traditional supermarket and a fraught checkout experience that typically requires shoppers to catch their goods as they fly through the till. But you are going to get good quality groceries at consistently low prices every time you walk through the door.
Create a treasure hunt experience that can’t be replicated online
Aldi’s unique business model requires them to squeeze out every ounce of cost and pass that savings on to the customer in the form of lower prices. Hence, shoppers will never find a multi-buy or any grocery related promotion that would only add cost and complexity to Aldi’s business model. So how do you drive shoppers through the door without the lure of a discount? The infamous middle aisle. A revolving and utterly random assortment of general merchandise injects an element of fun into what is otherwise a very functional shopping experience. Only at Aldi would you pop in for milk and walk out with a chainsaw and inflatable cat island. What Aldi perhaps didn’t anticipate when launching the middle aisle decades ago was that it would help to distance themselves from the transactional nature of online shopping. Creating a treasure hunt experience, focusing on the notion of discovery, surprising and delighting your customers – these are just some of the tactics that bricks & mortar retailers can employ to thrive in today’s digital era.
Date: September 19, 2019