Aldi Market Entry Economics: Cost of Market Entry

Just to circle back and recap one dimension of this story. It’s come up in a number of ways around private ownership and a business like Aldi and its close peer Lidl being under private ownership, competing with incumbents that are very often in markets like the UK or the U.S. that are listed that have incentive that maybe limit the time horizon by which they’re looking at things. Could you recap for us in its most important forms the advantage that a company like Aldi has had in being privately owned and competing with publicly listed competitors?

First of all, Will, it’s not the only model. There are many models of success. Nevertheless, it works for Aldi and it works extremely well. If you’re privately owned, you can normally afford to be one, very consistent even when times are difficult. Two, you are able to invest to create new markets for the future. Probably for longer and with more patients than with a business that has shareholders who can pick and choose whether or not they invest in company A. Or they leave and invest in company B and are looking for quicker returns on their investment decisions. These facts are clear. You’ve also got to have a good concept because you need to make enough money to be able to stand that.

If I look at Aldi or Lidl’s investment program in big, new countries that they go into. If you add all of the property investments that they make, all the investments in the supply base that they will need to make in the first ten years, and the negative EBITDA they will make to begin with, I’m pretty confident that half a billion U.S. dollars is the war chest you need to go and make it in a new country over the first ten years. If you haven’t got that kind of money, you’re going to have to borrow it and pay that back to someone else. You’ve got to have a pretty successful business behind you and a lot of confidence to go and invest that money before you see the real returns that particular market can deliver. Aldi certainly has that confidence and it has that financial power to be able to do it. That’s a story since back in the 50s that the business has been built on some very clear principles and has been built in a very successful way. Even with a few mistakes along the way, it’s always stuck to its basic principles.