Sometimes the unthinkable happens. Unexpectedly, Germany’s most profitable and thorough hard discounter
has announced its intention to exit the troubled Balkan country only two years after entry.
This represents the first time in Aldi‘s long history of international expansion that it has ever quit a foreign market.
The wording of the low-profile, privately-run company’s press release this week was characteristically terse:
“The Aldi Süd group is ending the business operations of its 38 stores in Greece. Talks regarding the sale and future operation of these outlets are being conducted with several interested parties.”
Aldi will now “devote itself increasingly to expansion in all the other nine countries, where the company successfully runs more than 4,200 outlets”.
As LZ‘s Hans-Jürgen Schulz points out, the clear implication here is that Aldi Greece had not been running successfully. This contradicts our impression that the stores always seemed busy although outsiders often speculated that the start-up was in the red.
Also, the decision to pull out was apparently not dictated by the country’s current macroeconomic woes or by any fear that consumer spending power would be radically reduced in the foreseeable future.
Furthermore, sources close to the taciturn and secretive company confirm that Aldi still regards hard discount as a viable proposition in Greece. Archrival Lidl, which runs around 200 stores in the country and which continues to expand aggressively, clearly proves the point.
The plot begins to thicken when one remembers that Aldi Süd has invested an estimated €800m ($1bn; £670m) in Greece since entering the market in November 2008. Normally well-informed sources also confirm that Aldi was very gung-ho about the business potential in the country at the time of entry.
At all events, Aldi is also generally regarded as the most methodical and rationally-minded retailer in Germany and the one least likely not to have done its homework in advance.
So why the surprise exit announced this week? Given the company’s secrecy, one can only speculate. However, there would seem to be a number of reasons leading to the strategic decision made by its owners.
Firstly, there has been an executive shuffle recently at both Aldi Süd’s Austrian subsidiary, Hofer, which is responsible for operations in Greece, as well as at Aldi Süd’s head office in Mülheim.
Hofer CEO Johann Mörwald, who is said to have always opposed expansion in Greece, has not only assume direct responsibility for the country. Mörwald has also been promoted to Aldi Süd’s so-called “Koordinierungsrat”, the most influential board of management within the company.
But even before any pressure Mörwald may or may not have exercised on the decision-making process, local observers had already noticed some dark signs on the horizon.
For instance, after acquiring more than 80 potential sites soon after entry, Aldi Greece seemed to put the break on local expansion at a very early stage despite an evident need to gain economies of scale rapidly.
As early as the beginning of 2009, it became evident that Aldi was unlikely to attain its original, ambitious target of opening 30 to 40 outlets per year. This was not because Aldi couldn’t obtain the necessary sites, but because the company often sold the real estate soon after purchase.
Informed local market observers point to another, perhaps more fundamental reason. Aldi seemed to be increasingly unhappy with the informal business practices which are sometimes found in Greece.
Admittedly, conscientious and thorough Aldi would have researched these in advance of entry.
However, in the wake of a series of scandals and legal difficulties which have affected some German retailers over the last few years, Aldi has revised its already stringent Corporate Social Responsibility guidelines this year and is known to enforce these ruthlessly.
One may sneer at this whiter-than-white approach until one remembers the food quality and personal data protection issues which have plagued some of German retailing over the last two decades. At least this blogger cannot recall these ever having arisen in connection with the Aldi name.
Obviously, such a positive reputation makes for a tremendous degree of trust among consumers. Surely, also, it represents a major reason why Aldi is one of the few German retailers meriting the name of a retail brand.
So, to conclude for the detail-minded reader: Aldi’s Greek stores will stay open until December this year. Parts of its head office in Thessaloniki will remain in operation until around spring 2011 in order to affect a smooth wind-down.
In a past interview with Lebensmittel Zeitung, Delhaize CEO Pierre-Olivier Beckers pointed to the strategic importance the Belgian company attaches to expansion in small countries, particularly in the Balkans.
And, only two years ago, Alfa-Beta Vassilopoulus purchased 33 “Plus Hellas” soft discount stores from Tengelmann for €69.5m ($90m; £58m). So Delhaize Group is obviously prepared to grow via acquisitions.
Any such move would enable the company to reach estimated annual revenues of around €1.5bn ($1.9bn; £1.3bn) in Greece.
This would put the Belgians just behind Lidl, which is ranked no. 2 in Greek retailing after French group Carrefour. Lidl is also said to be interested in purchasing Aldi’s warehouses and logistics infrastructure.
Whatever may have been the ultimate reason for Aldi’s surprise move in Greece this week, it would also seem to be part of a trend among German discounters to reduce the complexity of their foreign engagements.
Lidl is now in 23 foreign markets after having withdrawn from Norway and the Baltic countries. The company also recently put its plans to enter the USA on ice for the second time.
Both Lidl and Aldi seem to want to concentrate on expanding in their largest foreign markets. For Lidl this means France, while Aldi is particularly interested in growing its successful operations in Australia, the United Kingdom and the US.