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Grocer Aldi targets nearby rivals in bid to its boost its US footprint

Category: Finance,Retail

Grocery retailers better keep an eye on available real estate nearby, because a new competitive neighbor might be moving in soon.

Aldi is a year into its five-year, $5.3 billion U.S. growth plan, which includes building around 800 new stores, remodeling older locations and upgrading and expanding its assortment.

"It's pretty simple," Aldi U.S. CEO Jason Hart told CNBC. "We are going where competitors are, we like to be close to the competition for convenience reasons for our customer. We like them to shop exclusively Aldi, but we recognize that consumers are going to more than one store."

By 2022, Aldi said it will be the third largest U.S. grocer by store count with 2,500 locations, behind Walmart and Kroger. Since announcing its growth plan last June, it's added more than 140 new stores from coast to coast, opening its 1,800th U.S. store Thursday in Texas.

Aldi is opening stores for the first time in Florida, Texas and the East Coast, while at the same time "densifying our existing markets like Chicago, like St. Louis, like Cleveland where we have been for decades and decades," Hart said.

Aldi U.S. is part of a privately held German company, Aldi Nord, which opened its first U.S. stores in 1976. Makeovers of older stores include cosmetic updates and cost-saving measures like new eco-friendly lighting, but most importantly a new merchandise assortment. Today, Aldi said it's halfway through its plan to remodel 1,300 older stores and its goal for 20 percent of the products in every store to be new compared with last year, with a 40 percent increase in fresh food.

Fresh food is a key traffic draw for its shoppers, and organic and gluten-free options are growing in popularity, the grocer said. Aldi's organic produce sales have increased by over 200 percent in the last three years. The grocer continues to add to its private label gluten-free products and says its "liveGfree" brand bread has been one of its best sellers for two straight years.

While Aldi U.S. does not release sales figures since it is part of a private company, its U.S. sales have doubled the last five years and the goal remains to double sales again in the next five years, Hart said.

Adding stores is an easier way for a retailer to grow sales than to increase sales at existing stores, otherwise known as comparable or same-store sales growth. But Hart says "our same-store sales over the past several years has been much more than the industry has realized."

IBISWorld estimates Aldi's U.S. revenue was around $13.5 billion in 2017, compared to Kroger's $97 billion. While analysts and consultants agree Aldi has experienced growth, Randy Burt, a partner in the consumer goods and retail practice at A.T. Kearney, estimates Aldi has just about a 2 percent market share.

Generally, grocery is considered a staple purchase, rather than a discretionary one, which suggests if Aldi is growing sales, some other competitor is losing out. Hart said Aldi is pulling sales away from a number of rivals, typically whichever ones are located closest to its stores.

According to Hart, "we are appealing to a wider range of customers and we are appealing at an accelerating rate to more and more customers as they discover the difference at Aldi, which is saving money on high quality products in a convenient, less frustrating shopping environment."

The company says last year, more than 7 million new households shopped at its stores. Currently, 40 million consumers shop its stores each month, and the grocer hopes to serve 100 million customers monthly by the end of 2022.


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