Aldi, the German founded grocery chain, is a fascinating retail concept. Like the wholesale club stores (e.g., Costcos) they sell a limited number of different items within each category. Unlike the wholesale club store, and like a convenience store, they sell through a small physical layout. Consequently, not only do they have limited variety within each category, they have limited overall variety – a typical grocery store carries 45,000 different items whereas an Aldi carries about 1,300 different items. And unlike grocery stores, Aldi prides itself on its no-frills approach to service – you have to bag your own groceries, you can’t pay with a credit card or check, items are displayed in the boxes they were shipped in, most items are private label and you have to rent a grocery cart. So why are people shopping at Aldi – in a word, “price”. Aldi claims “its private-label products were 16 percent to 24 percent below those at discounters and big-box stores, and 40 percent less than those at traditional supermarkets.” This strategy is very much akin to Southwest’s initial approach in the airline industry – offer a very specific service to customers, with absolutely no additional service, and charge them a noticeably lower price. It can be argued that Southwest has drifted away from that strategy. In the current economic climate, Aldi may have extra reason to stick to its approach.
Wall Street Journal, Sep 7, 2008 – The Allure of Plain Vanilla