Aldi: Flavour of the year

In a taxi heading towards Aldi’s head office in Atherstone, Warwickshire, the driver shows off his new sat-nav. His daughter had seen the gadget advertised at her local Aldi store at the bargain price of£149.99 and snapped one up for her father. And while she was there, she did her weekly grocery shop too.

The taxi driver’s daughter is exactly the shopper that Aldi group managing director Paul Foley is working hard to attract. He is trying to woo those people who may not have considered going to a discount supermarket in the past but, faced with ever increasing household bills and attracted by special offers such as the sat-nav, are deciding to give it a try.

“Special offers [in non-food] add another level of interest,” says Foley. “If customers come in for these different weekly offers, they tend to try a few of our grocery lines too. And when they try the product, they are surprised at the quality.”

It is not just one or two people who are giving Aldi a try, either. According to the latest TNS Worldpanel figures, Aldi’s ABC1 shoppers in March this year were up 21 per cent on March 2007. Foley adds that for July, Aldi’s like-for-like sales rocketed 44 per cent.

He is quick to point out, though, that Aldi’s success is not just down to the credit crunch. “We were growing at nearly the same rate before the credit crunch – we are up around 10 per cent on that growth with the downturn,” says Foley. “What the credit crunch has done is jolted some people into giving us a try. They might have come to the end of their fixed-rate mortgage or received a huge gas bill, but something has made them try Aldi.”

While Aldi’s discount competitors – Lidl and Netto – are also enjoying strong growth in the face of the downturn, Foley insists that Aldi is as different from those retailers as it is from Tesco or Sainsbury’s.

“We get lumped in with the discounters because we are low price, have a limited range and are foreign,” says Foley. “Of course, I understand that but it’s our job to show we are different.”

Quality speaks for itself

Foley believes it is the product that is the key differentiator. Aldi carries 1,000 products alongside the weekly special non-food products and its offer is about 90 per cent own-label.

“Our products are better than [other] supermarket own-labels, as good as the leading brand in the sector and significantly cheaper,” maintains Foley. “10 years ago we would have had a lot more brands in our stores, but we have focused on searching for great suppliers to concentrate on our own-labels. As we have got bigger as a business, we have become more attractive to suppliers so it’s working very well now.”

Foley has such confidence in his products that he will go so far as to say Aldi’s tomato ketchup is “better than Heinz” and its blackcurrant juice is “better than Ribena”. But some of Aldi’s products speak for themselves in terms of quality. Walking around the Atherstone store, Foley points to several items that have won awards. A couple of examples include a Scotch whisky that won silver at the International Wine & Spirit Competition, against products from retailers such as Waitrose, and a gold award at the UK’s Quality Food Awards for its Specially Selected Stone Baked Romagna Pizza.

Foley says the award-winning whisky is a good example of the difference between Aldi and discounters Lidl and Netto. “We have just one bottle of Scotch for£8.99,” he says. “The other discounters will sell branded types of whisky and will have a cheaper own-label version sitting alongside those brands. That own-label may be cheap, but the quality won’t be as high as ours or the branded products. We believe people want cheap prices but they also want quality.”

So, if Foley is right and the quality of Aldi’s own-label products mirrors that of its branded competitors, just how can the grocer make the prices so cheap?

Aldi sells “one of everything that customers want”, says Foley, so if a shopper is looking for sage and onion stuffing, for example, there will be just one choice. “If customers want choice, they have to pay for it,” he says.

He adds that having just one sage and onion stuffing means the quality can be perfected: suppliers are keen to strike deals with the grocer because each product “sells bucketloads”. Other supermarkets might stock several types of sage and onion stuffing, but more stock takes up additional space and, Foley says, “if they tried to compete with our price of 45p they would have to take the quality out”.

The store environment helps Foley keep costs down. “I don’t put a lot of money into display,” he says. “It’s not a department store feel but you’re getting a very good price. The store is just enough in terms of environment but nothing that’s not necessary and needs to be paid for.”

Foley describes the environment as part supermarket, part warehouse and part street market. The majority of products are displayed in their original packing boxes and Foley says the environment makes it more believable that the prices are so low.

“If you get carrier bags, bag packers and in-store music, you’re going to pay for it,” he says. “And, if you get a wide selection, you’re going to pay for that too. We will change products in line with the trends and what our customers want, but we will never suddenly expand the range or change the store environment, because everything is tightly controlled.”

As good as the big four

Such controlled costs means Aldi is about 25 per cent cheaper in terms of like-for-like quality than the big four grocers, according to Foley. With the discounters, he says prices would be very similar if customers bought the cheapest on display, across a whole basket. However, he adds: “If you put the same quality of products in the basket, the discounters would have to put in branded, as that is the only way they can compete on quality, so we would be substantially cheaper.”

Aldi’s proposition means it will not enter into the same price wars as the big four supermarkets. “If our customers saw a product cheaper one week, then they would wonder why we couldn’t sell it that cheap every week. It just wouldn’t work,” he says.

The retailer’s store environment has been adapted since its entry into the UK in 1990. Foley says the first shops the grocer opened were “pitched too utilitarian”. He explains: “We needed to recover from that for the first five years.”

Aside from the store environment, Foley says the model has not changed – rather, the grocer has had to battle with the perception that a discount supermarket must be lower quality.

“Every housewife has a healthy scepticism,” he says. “They think it’s cheap so therefore not as good and believe that they won’t be looking after their family to the best of their ability if they shop at Aldi. “With washing powder, for example, they think that if it’s half the price of Ariel, it will probably ruin their clothes. We have broken down all these perceptions with reality.”

Foley has worked hard to transform opinion. In Manchester, Aldi opened its first city centre store on Market Street in 2006, which had a more upmarket feel. He explains that Greater Manchester was one of the first areas Aldi opened in when it came to the UK and, because the stores were “a far cry from what they look like today”, Mancunians thought of Aldi as “a retailer of cheap packets and tins”.

The Market Street store was therefore a brand-building exercise. As a result of the opening, Foley says Aldi’s business across the entire region has been lifted. He would consider opening more such stores in city centres if opportunities arise, but they are never going to be typical.

With the economic downturn showing no sign of abating, Foley believes Aldi has a real opportunity to hold on to those ABC1 shoppers who have now tried the grocer. “Inflation won’t suddenly go back to the level it was, but we will just get used to the new cost of living,” he says. “And if we’ve done a good job and customers realise that what they have been eating is as good quality as what they ate before, then why would they go back to paying more?”

Foley believes the UK market is likely to get more competitive as grocers compete for market share, but is confident that Aldi will be very much a part of the landscape. “If you’ve got a good idea, it won’t remain a secret for long,” he says.

For taxi drivers in Atherstone and growing numbers of shoppers across the UK, the secret is already out.