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

Mike, could you begin by sharing a little bit of context on your involvement with Aldi and its operations in the United States?

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.

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.

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.

Upon joining the business, what struck you about the way it was operated?

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.

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.

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.

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.

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?

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.

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?

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.

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.

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.

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.

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.

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.

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.

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.