German grocer Aldi is trying to win the low-price grocery game in the U.S. Chief Executive Jason Hart announced that Aldi's 1,600 U.S. stores already have prices about 21% lower than its biggest rivals, including Walmart.
The company’s strategy for keeping prices low is to sell primarily private-label goods and offer everyday low prices with no coupons or discounts.
Aldi will spend $1.6 billion to expand and remodel 1,300 U.S. stores and open 400 new locations by the end of 2018.
Currently, Walmart owns about 22% of the U.S. grocery market, much larger than Aldi’s 1.5% stake. However, Aldi is growing by 15% a year, while Walmart is only growing by 2%. Aldi’s prices are cheaper than other retailers' private-label items and even most branded items.
Handshake, a leader in B2B e-commerce technology, is an expert on how to help cut overhead expenses so other brick-and-mortars can become competitive in this space.
Handshake specifically works with various grocery store manufacturers and distributors and has a firsthand look at Aldi’s unique strategy compared to other grocery stores in terms of their supply chain, prices, shipping practices and logistics. Specifically, Aldi’s assortment is said to be limited, having 90% private labels helping to keep their prices low and ensure that most of their supply chain stays internal. They ultimately are able to control their pricing whenever it is needed.
There are a lot of challenges facing today's grocery, and three specifically stand out to Mike Elmgreen, CMO of Handshake. First, constant pricing pressure due to consolidation and large multinational entrants. Second, the desire from consumers for same-day or next-day delivery of a complete grocery list. Third, providing a differentiated and more personalized in-store shopping experience.
"All of this will require further technology investments in AI, predictive ordering and supply chain software that will allow grocers to be more responsive to consumer preferences while reducing inventory management costs," Elmgreen told FierceRetail.
While Elmgreen applauds Aldi's pricing strategy, focus on limited assortment and private label goods, he says they still need to aggressively attack online grocery shopping if they will continue to thrive.
"Convenience with competitive pricing is going to win in the long run in grocery," he said. "The e-commerce investments that Walmart, Amazon, Kroger and even Target are making give these companies a significant advantage in a brick-and-mortar price war as the competitive battle actually moves online. Aldi is behind here and looks to be fighting only one front of a multilayered battle."
The winners in the grocery war are still to be determined. And even if Aldi doesn't "win," the retailer's strategy and approach will impact Walmart's bottom line. At the very least, it's a new and meaningful threat to Walmart's core business.