{audio:0:00:07} Mike, could you begin by sharing a little bit of context on your involvement with Aldi and its operations in the United States?

{audio:0:00:21} I started with Aldi in 1986, right out of university. In the Aldi world, in the US, that’s where they find their future leaders and management talent. I started as a district manager trainee, and was in that role for about two and a half years. I was promoted to the position of director of real estate, in 1989. That position involves identifying places to build Aldi stores, markets to go into, involvement with overseeing the construction of all these stores and, basically, getting the store to a point where we could turn it over, successfully, to the operations team.

{audio:0:01:15} From my perspective, I enjoyed real estate, which is a fascinating part of the business. The decisions you make in real estate have impact for, hopefully, 20, 30, 40 years, if you do it right. But when I was asked, in 1990, to take a lateral transfer to being director of store operations, that’s where I felt my skill set was strongest. I enjoyed working intimately with the Aldi employees and customers, so it was a quick decision to get back into the operational day-to-day, out in the store operations.

{audio:0:01:59} I was in that role for about two and a half years and then was promoted to what was called general manager, at the time – the title now is vice president – of the soon to open, Valparaiso, Indiana division; that was in 1992. As the vice president of the division, I had the five different director positions reporting to me, that we involved with all the different aspects of the business. I served in that role from 1992 to 2014. A total career, with Aldi, of 28 terrific years, with 22 years as the vice president of the Valparaiso division, building that market, developing the strategies, basically, for Northern Indiana and the South City and South West suburbs of the Chicago market.

{audio:0:02:51} Upon joining the business, what struck you about the way it was operated?

{audio:0:02:59} As a college student, like many soon to graduate college students, I wasn’t quite sure what direction I would take, upon graduation. But in 1986, I went to a small university; I had heard of this company that I had never heard of before, but I knew Aldi was coming to campus. They were looking for district manager trainees, which appeared to be a more than just an entry-level type role. I investigated the Aldi company and, at that time, I knew that the company had started in 1976 and had about 160 stores throughout four or five states.

{audio:0:03:58} The Aldi company would have a presentation the night before the interview and I signed up for the interview, primarily because I knew it had strong leadership potential included within the role. Through my very limited research, I felt that the concept of Aldi made a lot of sense. To be truthful, it was certainly the highest paying position offered for someone coming out of college. That also caught my attention. At the dinner presentation the night before the interview, the vice president came in and told the Aldi story and talked, specifically, about what a district manager does and I found out more about it.

{audio:0:04:44} The concept itself made perfect sense to me. It is a limited assortment of items; it had an incredibly low cost, but did not sacrifice the quality of the product to achieve those low prices. It cut and peeled away the unnecessary costs to the business and, basically, offered high quality products at prices that were 50% to 60% lower than any other traditional grocery store. It offered young people a great opportunity to develop their leadership skills and be rewarded as a result of it. I had grocery experience from my high school and college summers, so I knew the grocery business but had no idea that would be the path I would take, upon graduation. Primarily, that’s because I didn’t know about this potential leadership opportunity. But I believed in the concept, believed in the personalized approach they took in explaining that model to the potential candidates.

{audio:0:06:05} There were 160 stores in the US and I tried to imagine how many stores there could be, throughout the country. I felt the potential for the company to grow and prosper was unlimited. Also, for a young person, who was really striving for a leadership role, that it would be an opportunity for me to thrive in. I interviewed, on campus, the next day. That went very well and, subsequently, I took my first airplane trip down to one of their divisional offices, near St Louis and found out much more about the company. Although I had never been to an Aldi store, until that visit, I believed in it. I think it was that belief that brought me to Aldi, back in 1986, and what has kept me passionate about the company and what they have done, over the course of time.

{audio:0:07:14} The business is now around the 2,000 store mark, since those early days and your arrival at the business. Could you talk to us about the response and perceptions of Aldi, in the grocery market, and the relationship between Aldi and its competitors, the various incumbents across the United States?

{audio:0:07:43} The growth has certainly been tremendous. They are at the 2,000 store mark today, which is quite a feat. I know, by the end of 2022, based on store count, with the current growth plan, they will be the third largest retailer in the US, behind Walmart, which is number one, and then Kroger, which is number two. That’s a pretty tremendous achievement, to have 2,000 stores in 35 plus states.

{audio:0:08:34} The idea behind growth has always been that Aldi wants to grow, but grow very methodically and very intentionally. There might have been a temptation, in the early days, when we started to see some real success, that Aldi should grow faster and blanket the country with Aldi stores. But in Aldi fashion, it was clear that they wanted to grow as fast as they could. The growth would be somewhat dependent on capital, which was not a problem or difficulty; it was very well capitalized. It was really more of a question as to when the company would be prepared to grow to that level and most of that depended on the people. Did they have the people in place, the leadership in place, that would provide for a controlled growth?

{audio:0:09:29} It has been steady growth from 1976. My involvement was from 1986, when we had 160 stores to today, where we have 2,000. There have been years where there were 30, 40 or 50 stores that were opened. The goal, for quite some time, has been to open a minimum of 100 stores per year and, for the last several years, on average, they have done just that. The demand for Aldi, throughout the country, is phenomenally strong. In markets where we have become established, we have had great success in developing that market share. Chicagoland area would be a good example of that. It has been and continues to be the number one market for the company. Very successfully, we were able to develop a network of stores that, in effect, took a pretty significant part of the market share from many of the other more conventional type supermarkets.

{audio:0:10:31} In the beginning – and it took some time, but I think Aldi is well past that now, for the most part – because of the introduction of Aldi in the US, back in 1976, there was probably uncertainty as to what the success would be, throughout the country. The first store was in Iowa City, Iowa, in 1976 and, in the early days, when we talked about bare bones cost structure, stripping every expense, every penny out of the business, Aldi did that and then some. In the beginning, all the buildings were leased facilities. Often, they were leased in areas where the rent was cheap; where they could get the cheapest rent, that was where we would go. That provided for some sub-par locations, some sub-par landlords, where we were held by the landlords, to a certain degree, in terms of what the facility would look like and how well maintained the property would be.

{audio:0:11:42} So the initial perception for Aldi, I would say, is that some people understood it but they were in the minority. They walked into the store that had a strange name; Aldi was certainly not familiar to anyone in the US. They walked into a store that had private label products and the US, at that time, and still today but not nearly as much, were very committed to the branded product. They would walk into an Aldi store and see such a limited selection of product and they would see these unfamiliar brands. There was no refrigeration at all, in the earliest days, and so people didn’t know quite what to make of Aldi.

{audio:0:12:35} They knew the prices were right so, in the beginning, most of the repeat customers shopped at Aldi because of the extreme value. Many others looked at the Aldi concept and asked, why are they doing what they are doing and others asked, how are they doing what they are doing? But they were very skeptical of the private label brands that we created. They were skeptical of how the product looked. They were skeptical about how the product was merchandised in the stores, typically in the brown corrugated cardboard, hopefully with the top of the case cut, so the customer can access the product. The stores were stark and very nondescript. Signage was very elementary. A lot of people just wondered what that was all about, because it was so unfamiliar.

{audio:0:13:38} I would say that, over time, more and more people started to understand that it wasn’t a store that sold salvaged goods; it wasn’t a store that sold generic product; it wasn’t a store where they needed to be concerned with expiration dates and all those types of things. They started realizing that the quality of the product was good, albeit they were unfamiliar with the brand.

{audio:0:14:04} Aldi, here in the US, started to recognize the importance of not focusing on where the rent was the cheapest, but to find locations and site that were good retail locations, typically, where the traffic was good, and where other commercial retail was developed around it. The first change in perception for Aldi was centered around making sure that the facility looked right and the store was located in a spot that was a strong consumer-driven location.

{audio:0:14:49} That cost more money to buy the property; it cost more money to have purpose-built buildings and to make them look decent but Aldi realized, in order to provide that perception to the customer, to make sure that customers would feel comfortable walking into an Aldi store, telling their neighbors that they shopped at Aldi, we needed to make some improvements. That was easier to do in the 80s than in the very beginning, because we weren’t quite sure what the success would be. But it became clear, in the early 80s, that Aldi was around to stay. Our parent company had nothing but absolute confidence, from day one. As the story goes, our first store that opened in Iowa City, Iowa, was next to a Kmart store. It was a horrible looking Kmart and an Aldi store that looked a little bit better, and it opened in 1976. Everybody in the US was excited about this first store and we were expecting this big rush of people to come in and were prepared for massive amounts of business. That very first day, we were all there anticipating what this would look like, the store opened and nobody showed. Nobody; no customers, nothing.

{audio:0:16:15} As the first customer walked into the store, whilst the team was a bit disappointed, saying it was just one customer and it took them a while to get here, at least we have one customer. They looked at the store and they realized they’d made a mistake; they thought they had walked into the Kmart. So they turned around, literally, and walked out of the store and went to Kmart.

{audio:0:16:45} In the early days, in the Aldi team in the US, many of them were with the company that Aldi bought, in 1976, which was the Benner Tea company. Many of the employees stayed on with Aldi and started to converting these stores to Aldi stores. They were used to business, people, customers. They were all very surprised and probably a bit worried, but never wanted to show it, as to whether or not this Aldi concept would work in the US. As I mentioned, our parent company was steadfast in their support. They knew that it would work; they knew that, as we started in the Midwest, based in Iowa, the company was filled with opportunity, in terms of potential locations, so they continued to support us and help us grow. They helped us to develop into a store that is really open and available for people from all demographics.

{audio:0:17:50} From a perception standpoint, people were very skeptical in the earliest of days. The prices were so low that they questioned the quality of it. They were unfamiliar with the limited service that Aldi offered. We asked you to come into the store and you would have to bag your own groceries, do all the work. In the beginning, the people that realized the purpose of Aldi, learned that they weren’t afraid to walk into an Aldi store and, even though it doesn’t look the greatest and it’s not what we’re familiar with, they were willing to try it. They tried the product; they realized that the quality of the product was good and they weren’t afraid to do a little bit of the work. They were okay with not having the carry-out service and that sort of thing. They would bag their own groceries, they would pay for their bags, which was another unique and strange thing for people in the US. It didn’t take long for more and more people to understand the benefits of Aldi, throughout the years.

{audio:0:19:06} In the 80s, it was the changing of physical locations, buying property and building stores, versus leasing where the rent was cheap. The stores still weren’t colorful; it was white walls and brown and orange colors, which probably weren’t appealing, at that time and certainly wouldn’t be appealing today. It was a no-frills, strong discount business and as time has gone on that perception has changed. In the 80s, into the 90s, we would work, very intentionally, on components of the business that would, more and more, encourage a wider demographic of people to feel comfortable coming into the store, buying the product, ensuring that they come back and feeling comfortable telling their friends that they are shopping at Aldi. They would tell them that they had found this secret little store that nobody knew much about.

{audio:0:20:12} I would say that customers, in the early days, as that perception changed, really did more to drive the business forward than any advertising dollars or promotional marketing dollars ever could have done. We built a strong and very loyal following and that still serves us well today.

{audio:0:20:33} What was the business’s position on advertising spend and marketing?

{audio:0:20:38} In the beginning, it was zero. They were spending, essentially, nothing on advertising. That lasted for many, many years. I would say, in the last 10 to 15 years, Aldi has significantly improved their promotional advertising and marketing, with social media, digital marketing, television and radio commercials and Pandora; they have embraced that and they spend a significant amount of money on promotion and advertising dollars today.

{audio:0:21:16} In the beginning, there was literally no advertising whatsoever, other than customer’s word of mouth. We couldn’t justify the expense of those advertising dollars, which were very expensive. In the early days, it was very difficult to quantify the effect of those advertising dollars so if we couldn’t prove to ourselves that that would produce increased revenue, then we steered clear of it. When I started, in the 80s, we did have an advertising program that, essentially, meant that once a month, we would have a full-page newspaper ad, in the major newspapers throughout the different communities. It was black and white, once a month, generally on the first of the month, because that’s the week that the stores did more of their business, based on funding available for the customers in their government assistance. In the early days, Aldi relied very heavily on that, with food stamps and that sort of thing.

{audio:0:22:40} In terms of creativity, the advertising was pretty limited. We had about 600 different items to choose from, in terms of what you advertise. In the Aldi stores, with the limited assortment that we have, there wasn’t a wide variety of brands. When someone walked into an Aldi store, if they wanted ketchup, they had one choice; it was a 32oz bottle of ketchup, which was the most popular size and there wasn’t anything else to choose from. From an advertising perspective, we didn’t have sales, we didn’t do couponing – and we still don’t do much couponing today – and there really wasn’t much to advertise or to shout about. So Aldi’s perspective was, why spend the money on advertising?

{audio:0:23:40} The monthly ad was generally the same for the three or four months of the summertime and there would be hamburgers, hot dogs, hamburger and hot dog buns, ketchup, mustard and anything that you would use to grill with or have a picnic. That was the summer ad. Then the winter ad was often, soups and turkeys and hams, for Thanksgiving and Christmas. There wasn’t much creativity, at all. As Aldi’s product line grew and as we had more to talk about, in terms of product offering, it developed. We were very proud of the work that had been done on the labels of the products, so it was something that we could photograph and could include in the ads and feel proud of it; it would make a statement to the consumer. We started advertising more and more.

{audio:0:24:43} Then we got adventurous. We went from once a month to twice a month. As it stands today, the advertising program and promotional program is very strong. Once a week, there is a four, six, eight-page flyer, here in the US, that goes out to the customers in all the major newspapers. They are heavily invested in advertising now on radio and also television, at certain times throughout the year. Part of what Aldi’s methodology is if you’re going to do something, do it well, be prepared to handle it in a way that sends a good message to the consumer. If you don’t have anything to shout about and share with the public, why spend the money on advertising?

{audio:0:25:40} That is something that has changed significantly. It went from zero, to a very significant part of their operating budget and it has certainly helped, as Aldi has evolved, for it to be an option for everybody, in terms of the grocery consumer out there.

{audio:0:26:03} How much room was there to adapt the model to the evolving needs of the US consumers? Then secondly, could you describe the relationship between regional management, in the United States and the headquarters in Germany. A bit of color on that dynamic would be pretty interesting.

{audio:0:26:26} I think the business model itself is one of the very interesting parts of the business and also, a very telling part, in terms of how Aldi has continued to be so successful, over the course of 45 years. In the US, we were so different from what everyone else had experienced and, at that time, what they were demanding. Aldi, through its international experience, was very confident in the model and very comfortable with being different from retailers in the US. As I mentioned, the folks that were involved with the Benner Tea Company, that Aldi purchased, were nervous about that, because they were also unfamiliar with it.

{audio:0:27:23} There are roughly 10,000 Aldi stores throughout the world, in 20 different countries and, as you look at them, you can see that the business is, essentially, split between the two founding brothers. If you walk into an Aldi store in the US and an Aldi store in the UK and an Aldi store in Australia and an Aldi store in Germany, you will quickly realize that they are one and the same company. I know, in my visits to Germany, one of the striking takeaways for me was that there was no question that Aldi in Germany was related to Aldi in the US. What they did in Germany, largely, was very similar to what we did in the US. The product offering was different, but the overall model was exactly the same. I think there would have been temptations, over time, for Aldi to expand their product line, open super centers, or maybe convenience stores and work with different sizes of stores. But Aldi, being steadfast in their commitment to the model, being relentless in making sure they wouldn’t make any changes unnecessarily, they were very methodical and intentional about any changes they made.

{audio:0:28:53} As you look at the Aldi model, over time, there have been adaptations and it has changed, in terms of the product offering. When I started, in 1986, we had 600 to 700 different items. Now there are about 2,000 different items. In the beginning, the product offering was very much focused on staple type goods and, in the very beginning, non-refrigerated and non-fresh items. It was canned goods and paper goods. If you walk into an Aldi store today, it’s much more focused on fresh produce, fresh meat. Aldi has adapted their model to what works here in the US. There have been improvements; they have broadened the demographic of people shopping in Aldi stores.

{audio:0:29:55} But if you look at what Aldi did at the beginning, it was incredibly low-priced products, with an absolute guarantee of not sacrificing the quality of the product to achieve that price. They cut all the expenses out of the business – there are graphics on the wall now, and the colors are a little warmer – but you can still tell that it is focused on efficiencies and productivity of employees. There is not an overwhelming number of people walking around the Aldi store, working and looking for something to do. The labor part of the business model is still, very much, focused on driving the cost out of the business; driving the nickels and the pennies out of the business.

{audio:0:30:40} Some parts of the model have changed, since the beginning. But for the steadfast core pillar of Aldi, that started in the US, the company has been unwavering in its commitment to it. Because of that commitment, I think that is why Aldi is in the position it is. It is open-minded to change. When it can be proven that the change is worthwhile or will increase revenue, or will decrease costs, without sacrificing customer service, then it will make that change, but not until then.

{audio:0:31:23} Whereas, in the US, the business is much more focused, in my view, on flavor of the day, whatever is popular at the particular moment and the retailers will go in this and that direction or they will lose their focus. I think that Aldi’s greatest strength, over the course of 45 years in the US, is that at its core, it is the same today as it was in 1976.
{audio:0:31:58} The relationship that Aldi has is especially important as it relates to its employees. Aldi has an Aldi Management System, that it developed to help lead and direct their employees, in terms of how to manage and treat people, how to seek input from people and how to develop leaders, throughout the company. That wasn’t something where Karl Albrecht, one of the original founders, leaned on some other book to provide the direction. It was a commitment that he personally made to say, this is how I want my company to be led; this is how I want my people to be taken care of.

{audio:0:32:51} As we look at the relationship with the people and how they’re managed in the US, we have a corporate office that is located outside of Chicago and we have 25 operating divisions. I was responsible for the Valparaiso division. I went down as the facility was being built and I oversaw the construction of the office and the warehouse; it was a 300,000 square foot warehouse facility. I hired the original people, brought the team together and it operated in a very decentralized manner. In effect, I took ownership of my region and said, I will operate this business as if it was my very own. Granted, there are guidelines and benchmarks that needed to be followed or adhered to, as it relates to the corporate office. But for the most part, the management philosophy was to say, put a vice president in place, let him or her build their team and let them work within the framework of the business, but it was up to them to produce results, with limited interaction with the corporate office. They were always there when needed or if there was something that needed to be discussed or talked about. But for the most part, they would let me, in my position as vice president, run that business.

{audio:0:34:28} That’s an important part of the Aldi Management System where Karl Albrecht had the philosophy that you should surround yourself with good people. His attitude, I believe, was to surround yourself with people who are much smarter than you are, who are experts in their field, subject matter experts that can provide you with the technical skills and abilities that you need. I believe that’s what he did. He stated, very clearly, what the expectations were, for those people. He would do it, in job descriptions, where he would say, here is your job description; this is your role, these are your responsibilities. I’m going to expect and demand that you embrace those responsibilities and operate within those guidelines. I’m going to let you do that and I’m also going to pay you very well. That was one of his commitments to his people. I’m going to get the best of the best, I’m going to treat them right, I’m going to develop them, I’m going to lead and I’m also going to compensate them fairly, because I know that is an important part of getting the right people. Then he would let them flourish. He would stay out of it until it was necessary for a leader to get involved.

{audio:0:35:54} I think it helps people when they embrace the ownership component of their work. No doubt, it also helps facilitate the development of the future leaders of the company. That’s the Aldi Management System, in a nutshell.

{audio:0:36:13} I believe the interaction between Aldi in the US and Aldi Germany was very similar, in the sense that when Aldi Germany came over to the US and they bought the Benner Tea Company, the president of the Benner Tea Company stayed on with Aldi. He was the original CEO for the US, his name was Phil Neally, and he was a Benner Tea Company executive, for an extended period of time. When he came on board with Aldi, he stayed on and led Aldi for the first 20 years of its business, here in the US.

{audio:0:36:56} Aldi, internationally, recognized the fact that business in the US is different from business in Germany. They respected the fact that they needed people, from the US, to operate and develop the business there, because they knew the landscape; they knew the customer; they knew the market. That was another interesting component of Aldi’s approach. I think a lot of international companies might have the temptation to bring their team of people into this new country, to run the business. But Aldi realized that it was best to have people from the US operate the US business. I have a lot of respect for that.

{audio:0:37:40} In terms of that line of communication between Aldi Germany and Aldi in the US, it was also one that was very respectful. They would let Aldi US executives develop the business as they saw fit. As long as we were sticking to the model, as long as we were including them in the discussion, as long as we were listening to the guidance that they provided, from an international basis, they let the company run. Another key factor in Aldi’s success is that Aldi International has always been there to support; they’ve always been there, financially, to support. They had the confidence, in the beginning, when some of our people, from the US, didn’t quite have that confidence. They have been supportive that everything that Aldi US has done. Partially, that’s because they realize that, in the beginning, it was Germany. There was Aldi North and Aldi South and they looked at the geographical limitations of Germany, as a country. They knew that if they wanted to expand the business, they would have to go outside of Germany.

{audio:0:39:02} Karl saw the potential in the US, with this massive geographical area. Certainly, there was nothing in the United States that was even close to the Aldi concept, in terms of business model; it was very, very different. They were willing to make that commitment knowing that, at some point, that Aldi, in terms of its volume and stores, would surpass the business in Germany. It has done that today. There is more stores and more volume being generated out of Aldi US than there is in Aldi South.
{audio:0:39:48} It’s a commitment to respecting people who know the business, who are from the particular country, staying very allegiant to the core principle, by not deviating from it, but having Aldi in the US be its own version of Aldi. There are differences between the countries, but there’s no question that it is the same business model, but just appropriately applied to that particular market.

{audio:0:40:26} Over what time horizons was strategy set? How did you look at growing the business? What sort of impulses or imperatives were encouraged? In terms of that strategy and that strategic relationship with headquarters, how was that set up, in terms of strategies and time horizons?

{audio:0:40:54} An important time in history, I think, was in the mid-80s, into the 90s, when it was clear that Aldi was going to be phenomenally successful in the US. The question would come up, how do we bring this to scale, throughout the country, with so many unlimited opportunities? All this growth started in Burlington, Iowa. We had divisions in, what I would call, the immediate Midwest. We had stores in Iowa, Illinois, Missouri, Kansas and Indiana. We had a very close network of stores and it was an organic growth, a spoke and wheel, sort of approach to opening stores. In the Valparaiso division, for instance, we opened a division and we opened stores in that immediate geographical area. We also started opening stores in the state of Michigan and opened 16 stores in south west Michigan, all in advance of the next division that was going to open, in Lansing, Michigan.

{audio:0:42:21} We would build the stores and once there was a network of stores available to work from, we opened a divisional office or warehouse facilities. It was very methodical. We wanted to make sure that we were close to the business and that whatever the issue might be, whatever the difficulty, that we could wrap our arms around it. We knew, if it was in close proximity to where all of our stores were, we would have a better handle on the management of it.

{audio:0:42:58} That’s how Aldi got started, in those five or six Midwestern states. Then we’d branch into a new state, open a new division. It was a very methodical approach but there was a goal, throughout that time, to say that we were fired up about the growth potential. Our parent company was also very excited about it. As their growth started to slow, in terms of new store openings and so forth, they knew that, in order to continue to advance the business in a significant way, they needed to lean on the US to do that.

{audio:0:43:38} They had been excited about all the growth in the US, for many years. If we could have handled it from a management perspective and a people perspective, for the last 15 years, they would have been very pleased if we could have opened 100 stores per year. They recognized the potential from that. Because we were used to growing from a close proximity, close range, we wanted to know, if we happened to open stores that were further away, would be able to manage it? Would we be able to control it in that same way?

{audio:0:44:23} The first attempt at that was reaching out into a significant market, in the 90s, into Florida. Florida was an opportunity where there were millions and millions of people who were already Aldi shoppers. In the US, people flee from the winter months and many of them go to Florida. We had all of our Florida customers saying, we need Aldi stores in Florida. We had stores as close as Tennessee and maybe in Atlanta, Georgia, but that was as close as we were to Florida. We made a significant jump to start the operation down in Florida.

{audio:0:45:12} We made the leap from Atlanta and started opening stores down in Florida. We built the warehouse and office facility, in advance of stores of opening and then, slowly, we built that business in Florida. That was an important lesson for us because we realized that we could open stores from a little bit further away, a little bit further from the corporate office, a little bit further from the corporate buying team, yet still be successful. Florida was a good learning for us, where we knew that we could do it and it didn’t have to be the next state, city or town over. It didn’t have to be as much of that organic growth that we were accustomed to.

{audio:0:45:57} Shortly after that, we made a similar jump to the state of Texas, which is another state with phenomenal opportunity, in terms of store potential. We did the same thing in Texas and had great success with that, as well. For Florida, in the near term, there was a cost involved in opening stores so far away from your core business. The same thing applied to Texas. We didn’t have as much intimate control over what was happening in Florida, so that was uncomfortable at first. But once we realized that we could be successful in those states, it was natural for us to continue to focus on that growth.

{audio:0:46:45} Historically, somewhere in the middle of Kansas was the furthest store that we had west. We had half the country, really, that was still, in our view, unlimited potential. The difficulty of going west of somewhere in the middle of Kansas, to make it to California, it’s pretty desolate in between. There are not many significant urban settings and not many towns and cities; not much of a market base, until you get to California. For years, the question was, why aren’t you in California; it’s the biggest market in the country. It has the highest population, unbelievable potential. There is not an Aldi-type store out in the state of California, so Aldi, we need you.

{audio:0:47:45} We studied that very carefully, because we recognized and could see the potential. We knew that if we wanted to maximize the opportunity in the US, California had to be a component of it. We rustled that with the realization that to do business in California is not easy. It’s not easy from regulatory, cost or cost of living standpoints. It’s not easy to get product from the East Coast out to the West Coast. It’s more expensive, so the cost structure might have to be slightly different. We studied that for an extended period of time and held off on that temptation to make a quick jump out to California, until we could prove to ourselves, in our mind, that it was the right decision to make and a market that we wanted to enter.

{audio:0:48:38} As it stands today, first we made the leap to Florida, then we made the leap Texas, which gave us confidence. Then we made the big leap to California and the next geographical region that is being focused on, which is separate from an existing division or business, is in Arizona. Phoenix, Arizona will be the next market that Aldi conquers, and they are very excited about that.

{audio:0:49:10} The beauty of it is, when you have a concept like Aldi, that is open to any and all areas, and any and all demographics, anyone could and should be willing and interested in shopping at Aldi, because it makes so much sense. As much as Aldi would talk about having 2,500 stores by the end of 2022, that’s great growth but, in my view, we are still scratching the surface, in terms of potential. Aldi could be everywhere. I believe, at some point, beyond my lifetime, there will, very likely, be 5,000, 7,500 or 10,000 Aldi stores throughout the US.### {audio:0:50:03} It’s interesting that you’ve used the term of almost unlimited growth potential a couple of times during our conversation. What have the incumbents learned about fighting back, over your career? To what extent does that constrain this potential, in your view?

{audio:0:50:21} Over time, there were plenty of competitors that looked at the Aldi success and, in the early days, like many of the potential customers, they looked at it and said, the stores are rough, the locations are rough, the product is unfamiliar to people, in terms of the branding. Certainly, I think they underestimated the success of Aldi, in the early days. Aldi was, very intentionally, in the beginning, as it is in Germany, and it certainly was in the US, extremely private with information and outside of the radar of the news and business periodicals. It wouldn’t give interviews; didn’t talk to people throughout the industry. Basically, they kept themselves to themselves. They would say, we’re going to go in and do our thing. We’re not going to draw a lot of attention to ourselves; we’re not going to advertise; we’re not going to bring other people into the fold, who might also want to do something similar to what we’re doing.

{audio:0:51:37} That approach was phenomenally successful. I think it has been made clear, probably over the last 10 years, if there is not a supermarket retailer that doesn’t feel somewhat threatened by Aldi, or if they feel as if they don’t lose business to Aldi, they’re making a critical mistake. Aldi, as it stands today, is taking market share from any other retailer.

{audio:0:52:08} When competitors started to realize that Aldi was successful, as they saw the stores opening and evolving over time, they saw parking lots full of customers and it caught the attention of many of the major retailers in the US. Many of the conventional supermarket operators saw that success and said, after all these years, there might be something to this edited assortment, select assortment, private label, low-cost operation. Most of the major competitors, at some point, have tried to create or mimic Aldi.

{audio:0:52:56} In the earliest of days – I remember very specifically in the Chicago market – there was a major supermarket company that came in. They thought they could open up a store, have generic product and not spend time focusing on the services and so forth, that most people are accustomed to, and the people will come. Initially, some people thought that a major supermarket type operator was going to go into the Aldi type business and were certainly willing to give it a try.

{audio:0:53:30} The customers would go into this limited assortment, discount store and they understood the concept behind it because they had been to Aldi before, and they would try the product. The prices weren’t as low as Aldi’s, but they were lower than the traditional supermarket. The biggest failing that they had over time, and still today, is that they sacrificed the quality of the product to achieve those lower prices and still get the margin. Customers would walk into the stores, back in the 70s and say, I’m going to try this generic type product and they would say, the quality is so poor that I’m certainly not going to buy it again and I’m not going to go back to this discount store. In terms of separating Aldi from those other companies that wanted to be like Aldi or these other major operators that wanted to have a limited assortment store too, one of the biggest failings they had was their lack of commitment to quality of the product.

{audio:0:54:42} Overall, generic-type items and private brands have expanded pretty significantly, throughout the US. The quality, overall, is better, in most cases; not in all, but in most cases. But in many of those situations, the quality has improved, but it is still not the quality of the Aldi product. Aldi’s philosophy was always, it’s going to be as good, if not better, than the named-brand product, or they won’t sell the product. It’s not as simple as just cutting the costs out of the business and selling cheap product. There is much more to it. We had a situation where we carried the staples in the beginning and didn’t have much in the way of soup, as a category. But one of the soups that we did not carry then was Campbell’s tomato soup. Here in the US, Campbell’s tomato soup is the Mecca of tomato soups. People would say, you carry private label soups, but why do you carry Campbell’s tomato soup? Historically, Aldi has had an aversion to named brands. They don’t want to have named brands in their stores as that is one of the ways that they drive down cost. But in the soup section, there is Campbell’s tomato soup. Very astutely, people realize that is different from the Aldi philosophy. Aldi didn’t really want to carry Campbell’s tomato soup, but did so only because they knew they had to have the most basic soup. In order to have a good quality soup, they had to rely on Campbell’s soup.

{audio:0:56:36} The private label suppliers and the people who would do the select labels throughout the country, the producers, couldn’t match the quality of Campbell’s tomato soup. Aldi had a decision to make. Either carry Campbell’s tomato soup or not carry tomato soup at all. For an extended period of time, Aldi had one of their very few branded products, which was Campbell’s tomato soup and that was only because the quality couldn’t be matched by anyone else out there and they didn’t want to sacrifice their commitment to quality. They now have a private label tomato soup, so Campbell’s is off the shelf.

{audio:0:57:19} As you look at other retailers, they’ve tried to imitate and copy Aldi. Kroger is currently doing it, with a business model they have which is called Ruler. That is their edited assortment, discount operation. At this point, they have 60 or 70 stores. It doesn’t seem as if they are interested in expanding that to any great degree. There are focused on the Kroger enterprise and the opportunities they have. They have accepted, basically, the fact that, in terms of that particular space, that is Aldi’s business to have. There was a company, called the Save-A-Lot company that is still here in the US, that was founded shorted after Aldi. Again, it was an attempt to imitate or mimic exactly what Aldi would do. So any move that Aldi would make, the Save-A-Lot company would follow. Many of the things that Aldi held true to, especially the quality of the product, they also didn’t focus on as much. The Save-A-Lot company has grown over time. It has gone through different edifications, in terms of how their business model will run. The largest portion of their stores are, essentially, licensed or franchise-type stores and they’ve got a lesser number of corporate type stores.

{audio:0:59:01} They have continued to try to compete with Aldi, but I think they have realized, to try to go head to head with the Aldi company, it is too late. Aldi is too powerful, too strong, too established, over the course of 45 years. It is backed by an international giant that has over 10,000 stores, worldwide, who focus solely on the edited assortment business model. I think they are realizing that their ability to compete with Aldi is also very challenged.

{audio:0:59:45} In the US, we have company that is called Lidl, which is a fierce competitor of Aldi, internationally. In Germany, Lidl is a very successful company. There are somewhat similar stories, in terms of history, between Aldi and Lidl and how they got their start. They have very similar business models; not many changes between the two, here in the US. They are fierce competitors in Germany, where the location of stores is a little bit different from here in the US, where the limited assortment discount stores are strong and they have the lion’s share of the business, in Europe. On one corner you will see an Aldi store and, on another corner, at the same intersection, you will see a Penneys store and on another corner, you will see a Lidl. They are all in the same area, fighting for the same business. Typically, at least from Aldi’s perspective, the one that was doing most business, was the Aldi store. That’s because of the brand loyalty that people have for Aldi, in Germany. Of course, they are continuing to evolve brand loyalty that Aldi has in the US. People take a sense of ownership of the company and say, that’s my Aldi store. They are proud of that and they are proud to talk about it.

{audio:1:01:20} Whether or not other supermarket operators will try to get into the discount business, I think Aldi will continue to flourish and continue to expand. Lidl is not going away any time soon. They are also an extremely well-funded and well-run operation and they are currently out on the East Coast of the US. I would suspect that they will continue to grow throughout the country. The others realize that they missed out, perhaps, on this segment of the business. I think a lot of it has to do with the fact that they certainly underestimated the potential impact that Aldi would have. They misjudged what the consumer reaction would be to a model such as Aldi.

{audio:1:02:17} You mentioned this massive runway in the United States, to bring in a metric from the United Kingdom. Over the last 20 years, in the UK, the profit pool for grocery retail is down, around 50% and there has been a material rebasing of prices, across the industry, across the value chain. The price gap, for an average basket, between the likes of Tesco’s, Sainsburys, the mainland retailers in the UK, and Aldi, has reduced quite substantially, as I understand it, from around 25% to 27%, 15 or 20 years ago, to somewhere around 15% today, bearing in mind there is a range and there are different calculations used. In the US, how would you suggest we think about the evolution of this story and the potential for mainstream or incumbent retailers to close that price gap, invest in price and, thus, take some of the oxygen out of the story for Aldi?

{audio:1:03:32} I think that has certainly been the attempt by major supermarket operators in the US. They realized that going head to head with the specific type of store as Aldi is, wasn’t the answer. The growth of private label product or store-branded product, in the US, has grown significantly. In the beginning, it was generic products and it was a black and white label that was extremely nondescript. Part of the attempt from the other operators was to say, well, Aldi has cheap stuff; we’ve got generics. The customers can come into the conventional supermarket and buy the generic product. Again, what the Aldi customer is looking for is not sub-standard, low quality products, so the generic idea is not going to be successful.

{audio:1:04:37} The store-branded product, with the major retailers throughout the US, has improved significantly, over time. I think it is because of that focus that they are trying to come up with alternatives to say, Aldi has a store-branded product; we also have a store-branded product and you can get all of that, whatever you need from us that Aldi doesn’t have, plus you can get these discounted items, at a lower cost, as well. The difficulty with that is, firstly, the quality has to be there; the focus has to be there on the development of the range, for those store-branded products. All the retailers have a label that that they call their own, but either the quality is not right or not up to Aldi’s standards, or the price is better than the conventional branded product, but still very high, as compared to Aldi’s price.

{audio:1:05:58} I certainly think that there has been an attempt to capture some of that market share from the Aldi business. But while that is going on, Aldi continues to flourish, continues to differentiate themselves from the more conventional supermarket operators and they continue to do what they do well. Another important turning point in the lifecycle of Aldi, in my opinion, was the focus and introduction of more fresh product in the US. In the 90s, into the early 2000s, we recognized that, from a fresh standpoint, from a fruit and vegetable standpoint, the offering was very limited. It was limited to the most basic items, which were shelf hardy, where you could leave them out on the sales floor and wouldn’t have to work on the display or work on merchandising throughout the day. There were six to 12 different items that we would carry on an everyday basis, at good prices.

{audio:1:07:20} It was about 10 to 15 years ago that we started listening to the consumer who were saying that they wanted fresh product. For what Aldi does, in terms of canned goods and staple-type products, why can’t Aldi do the same for fruits and vegetables? As Aldi recognized, as a differentiation between the Aldi business and what the other supermarkets were successful at, we saw there was a deficiency. We said, we can do more to satisfy that customer that is looking for that particular commodity of product.

{audio:1:07:58} So Aldi, very intentionally, expanded the line of items. There used to be a dozen or so items and now there are probably 75 different produce items that you would find in an Aldi store. It’s not just the most shelf-hardy type items. It’s a nice selection of a wide variety of different fruits and vegetables. To add punch to that, they use that in their advertising and this has been going on for several years now, because of its success. You will see, in their advertisements, on a weekly basis, there are six to 12 different produce items, typically highlighted on the front page, of some unbelievably low-priced produce items, where the major supermarket operators can’t begin to compete.

{audio:1:08:46} Phenomenally low prices on incredibly fresh, incredibly good quality produce items which, no doubt, week after week, draws that many more people into the stores. Intuitively, most people, from a historical standpoint, would not view Aldi as the place to get your fresh produce; that just wasn’t the thought process. From today’s standards, if you talk to somebody about their appreciation for Aldi, they talk about the cost, the quality of the product and then most people today will talk about the fact that Aldi has unbelievable produce because, very successfully, Aldi has weaved that into the conversation. It’s hard to imagine that Aldi, because it is not a full-service conventional supermarket, their produce is better than the major supermarket operators. It’s fresher. On a day by day basis, the prices are always lower. If you look at those advertised prices, on a weekly basis, they are phenomenally low; nobody can compete, I don’t care how big the operator is.

{audio:1:10:09} That portion of the business has grown so significantly, over time, and there is nothing, in my view, that the competition can do to react to that. They don’t want to sell produce as inexpensively as Aldi. Aldi said, we’re going to have the product, we’re going to merchandise it right, we’re going to invest the time and effort to make sure that we manage it properly. We’re going to accept a lower gross profit, on those items, especially the ones that we advertise, because we know the effect that has on bringing people into the business. The people have been raving about it, in an increasing way, for the last 10, 12, 15 years.

{audio:1:10:57} My point would be, no matter what the more conventional supermarket operator might try to do, Aldi has, and will continue, to find a way to get that oxygen back and to make sure that they do what they can to satisfy the customer.

{audio:1:11:15} The prices are still significantly lower and, I would say, the variance between the Aldi price and the competition, in the US, is still pretty terrific. Not as much of a variance as there once was, but it’s still significant, in terms of the savings. Aldi just continues to focus on the product offering. The service levels in the stores was an advantage that the major competitors had in the beginning, where they had more than enough employees, so it was over the top in terms of a focus on service. In the beginning, Aldi was not that way. In fact, in the Aldi world, the focus was on productivity, efficiency, get people through just as fast as you possibly can. We don’t need to pay as much attention to customer service, because those folks are going to come back, because they have to shop at Aldi.

{audio:1:12:20} In the 90s, we looked at that and said, for as much as we appreciate those folks that have to shop at Aldi for the value, we want to operate a business where people have a choice as to where they shop and they choose to shop at Aldi. An important component of that is, no matter how low the prices are and no matter how good the quality is, if there is not a feeling or a sense or a focus on customer service, customers in the US are not going to accept it. Aldi recognized that in the 90s and put a significant amount of time and effort in and they were very intentional about redirecting the employees, redirecting the interaction between the employees and the customers, to make sure that the customers did feel appreciated. They were paying for their bags, they were putting a quarter in to use the cart and to bring it back, they had to accept the fact that they couldn’t find everything that they would want in their shopping trip, at an Aldi store, typically, although the percentage is much greater today, based on the variety of items. But they were willing to forego all of that, that they were used to in a conventional store, but the customer service component has to be there.

{audio:1:13:45} That was a very specific change, in the 90s. The discussion started when we introduced scanners into the stores. Prior to that, we didn’t have scanners. We had about 600 different items and they were all priced with retails that were easy to remember. For example, the canned goods were 25c, the potato chips were 49c. I remembered them, as a trainee, and I still remember those prices. My guess is that those prices have gone up since 1986, but it was all done with price memorization, with a 10-key touch system. I don’t know if you ever experienced that in the early Aldi days, but it was a sight to see, how fast a cashier could load up a trolley of product. It was faster than any scanner could ever even imagine. That was a key competitive advantage that Aldi had.

{audio:1:14:43} To that point, a lot of people would say, why don’t you go to scanners? Everybody else in the world has scanners. How do you control your inventory? How do you change prices? We were limited in how we could change prices, because of the price memorization. Aldi, of course, always understood the benefit of having scanners, in terms of inventory control and management and the ability to change retails and to have retails that didn’t have to always end in nine. But they didn’t want to, and wouldn’t, sacrifice the most important piece of efficiency or productivity that they had in their stores and that was at the cash register.

{audio:1:15:31} It took Aldi themselves to find a checkout operating system and a scanner system that would work, that would be as fast, if not faster, than what we had done previously. We worked with that for several years and perfected that model. Part of it dealt with the labelling and the UPC codes on our product and that sort of thing. We could do things that other retailers couldn’t do, to make that scanning function work successfully, even in an Aldi store.

{audio:1:16:07} We tested it in the 90s and once we found a system that would work, it was a matter of months for us to have scanners implemented, enterprise wide. Once we could prove to ourselves that it wouldn’t hinder the efficiency or the productivity of the front end and labor, which was so important, then we spread it throughout the company. But we were very disciplined and very methodical before a decision like that would be made.

{audio:1:16:41} Whatever issue might change, whatever demand might be out there, whatever competitor might come out to offer up something similar or might be able to come up with something that could detract people from shopping at Aldi, in my experience, I am convinced that Aldi will come up with something even better. Whatever oxygen they try to suck out of the room and take away from Aldi, they’re going to be hard pressed to do that, because Aldi, very methodically, very intentionally, in a disciplined way, will continue to move forward and, when necessary, will react to competition and will react to the consumer’s needs.

The Evolution of Aldi's Operations in The U.S.

How Aldi’s proposition in North America has evolved since the 1980s

The pillars of Aldi’s customer value proposition in the US market and how this has evolved

How Aldi’s approach to site selection and marketing has evolved over the history of its presence in the US

The Evolution of Aldi's Operations in The U.S.

Former Division EVP at Aldi SUD

inpractise.com/articles/aldi-north-america

Why is this interview interesting?

Executive Bio

Mike Jessen

Former Division EVP at Aldi SUD

Interview Transcript

Related Content

Aldi's Approach To Managing Costs

Former CEO, Aldi UK

Aldi Market Entry Economics: Cost of Market Entry

Former CEO, Aldi UK

How to Stop A Hard Discounter In Its Tracks?

Former CEO, Aldi UK

Aldi: Culture & Operations of a Hard Discounter

Former CEO, Aldi UK

Audio

The Evolution of Aldi's Operations in The U.S.(October 1, 2020)

PARTNER

Speak to Executive