Aldi and the Big Apple: As Americans Save, German Discount Grocer Moves In

By Thomas Schulz

When the financial crisis struck, the ultra-cheap German supermarket chain Aldi saw an opportunity. In recent years, the company has been expanding rapidly in the US. And it's even sneaking into places that giants like Wal-Mart have been unable to penetrate -- like New York City.

The store is amazingly happy, bright and airy -- and far less depressing than its sister stores in Germany. "Fun," "Cool" and "Smart" proclaim posters over a wide range of canned soup. Even the cashiers smile. But in the end, the customers come for the same reasons as they do in Berlin or Bremen -- because of the lure of the promise hanging near the front door: "Our products are on average 45 percent cheaper than at other supermarkets."

Recently New York got its first Aldi supermarket and with it, the German discounter has achieved a foray into the world's center of consumption. Wal-Mart, the dominant US big-box chain, has been so far kept at bay because it doesn't allow labor unions. But the much smaller Aldi, which is also non-union, has been able to slip into the market without the kind of fuss created by Wal-Mart.

The Aldi store, which opened in February, is somewhat hidden on the outskirts of the metropolis in the newest shopping center in Queens. It's a prestigious shopping site in the borough, right next to the 10-lane Long Island Expressway leading to Manhattan. The German discounter hopes to lure curious walk-in customers. Workers have put the words "Food Market" on the store's signs.

An Ultimate Meat Pizza for $4.99

There are some things here that Germans would know: Haribo gummi bears, the store's own brand of Moser Roth chocolates, and the Oktoberfest Nuremberg bratwurst from the well-known Uli Hoeness meat plant in Germany. But there's also a lot that is pleasing to American consumers: the "ultimate meat pizza" costs $4.99 (€3.46), and the store's non-food products, like a handy deep fat fryer that costs $24.99 (€17.35).

Aldi has been present in the United States since 1976. The American stores are part of Aldi Süd (South), but are largely independent of the German parent company and are run from a small Illinois town. In Germany, operations of the discount grocery empire are divided into two companies run separately and created by its reclusive founders, brothers Karl and Theo Albrecht. In contrast to Karl Albrecht's Aldi Süd, Aldi Nord (north), owned by Theo Albrecht until his death in 2010, has operated in the US under the more upscale Trader Joe's brand name.

In 30 years Aldi has slowly ventured into the land of opportunity. The expansion was quiet, hardly noticed by the competition. Many shops were dingy and primarily targeted at the poorest Americans. But with the financial crisis and subsequent recession, the unemployment rate also rose among the middle class. Those who found new jobs often had to accept lower pay.

Cheaper shopping has become a necessity for many Americans.

"A Major Force"

Aldi obviously sees this development as an opportunity. Since the crisis began in 2008, Aldi has opened about 100 stores throughout the US each year. It will open about the same number in 2011 as well. Altogether, the German discounter operates about 1,000 stores in 31 states from Texas to Connecticut. With annual sales of $8 billion (€5.5 billion), Aldi is still tiny in comparison with the largest US food company, Kroger, which has $77 billion (€53.4 billion) in annual sales. And it's nothing compared to Wal-Mart with $260 billion (€180.5 billion) in annual sales.

But Aldi is growing rapidly: In 2008 and 2009, sales increased at double-digit rates each year. The American media is noticing.

"Aldi: A Grocer for the Recession," ran a 2008 headline in Time. And the New York Times mused: "Aldi is suddenly emerging as a major force in the grocery business, one that some predict could one day rival Wal-Mart."

The New York store in Queens is only a first outpost there. "We're looking for further opportunities in the city," says Bruce Persohn, a regional manager for the company. Two more branches will open later this year, one in the Bronx, and the other on suburban Long Island.

Cheaper than the Competition

Still, Americans have to get used to the German discount mentality. The goods in boxes piled up on each other? Strange. And bagging your own groceries at the checkout? Outrageous. Behind the cash register hangs a sign: You take care of the bags, we lower the prices.

The biggest barrier to Aldi's foray into the New World, however, is the loyalty of Americans to the big brands: The soup should be Campbell's and the ketchup from Heinz. Like in the German Aldi stores, almost 95 percent of products in the US are comprised of its own brands, which are unfamiliar to American consumers.

But with its spartan approach, the company manages to be cheaper than all of its competitors.

In the Midwest Aldi is 15 to 20 percent cheaper than Wal-Mart, and 30 to 40 percent cheaper than local supermarkets, according to studies by industry experts. In America, this, too, could be the decisive factor.

"At the end of the day, mustard is mustard. I don't care what brand is on the package," says customer Christine Diaz. She loads her self-bagged groceries into a big SUV. She's doing well financially, Diaz says, but the times are uncertain. "I want to save more," she says.

Aldi is gambling that this attitude will prevail among many other New Yorkers. American Aldis often only have a few checkout registers. The first store in New York has 14.

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