March 19, 2015

Aldi tests e-commerce

Screenshot of ALDI Liquor, Aldi's online delivery site in eastern Australia
ALDI Liquor: Online delivery site for wine, beer, and spirits in eastern Australia
This could be the game changer the market has long been waiting for. In a significant break with tradition, Aldi Süd (Aldi South) is taking a big step towards becoming an internet retailer. According to our sources, the German discount giant plans to trial an online shop in the United Kingdom and is looking to develop similar activities in a number of other countries, including Germany.

Sister company Aldi Nord (Aldi North) is also believed to be considering a launch into Spanish and Portuguese cyberspace.

Germany's most profitable discounter has been scrutinising the virtual world for more than a decade, but persons familiar with the group state that its interest has now entered a new and decisive phase.

Apparently Aldi managers once shelved detailed plans to go online because they were worried about the size of the investment and cannibalisation of store sales. They were also concerned that external service providers would not be able to guarantee consistent product quality.

As recently as October 2013, Aldi bigwigs Roman Heini and Matthew Barnes dismissed the idea in an interview with The Grocer:

"It's a fast-growing part of the market, but the fastest-growing part of the market is us the discounter. So why divert our efforts to a sector which, in terms of profitability hasn't really proved itself yet?...No plans....We see our price gap widening as time goes on, unquestionably. So we don't want to bolt something on which might jeopardise that. Bricks and mortar is where the potential lies for Aldi."

Other Aldi officials, even when talking off the record, have been studiously vague about any progress they might have made towards an online shop. "We don't see how this could be done in a profitable way at the moment," was more or less their tenor.

Aldi Süd (photo: Hans-Jürgen Schulz)
Ubiquitous: In Germany the discounter has a store on virtually every street corner
Meanwhile, received wisdom has always been that Aldi would probably only consider e-commerce if store sales flattened for a longer period. This is hardly the case in the UK where Aldi is on a roll and plans to open 70 more branches and recruit 5,000 extra staff this year.

But, in many respects, the choice of the UK is also an obvious one. Nearly 80 per cent of Brits do at least some of their shopping online, and local retailers are generally way ahead of their German counterparts in e-commerce.

Research by Scandinavian logistics service provider Postnord ranks food as the sixth-most popular item for local internet customers. If there was any doubt as to the potential of this relatively new sales channel, one only has to look at leading retailer Tesco, where 8 per cent of Christmas revenues were online.

By starting in England, Aldi will be obliged to compete with some excellent companies, which will hone its offer in advance of entry on other, less competitive European markets.

Clearly, also, any such move by the international retailer would come at a pivotal moment for British e-commerce. CEO Dave Lewis is said to be reviewing investment in Tesco.com. And pure player Ocado, who recently posted the first annual net profit in its 15-year history, is targeting a first international deal in 2015.

US online behemoth Amazon surely wants to prove with "Amazon Fresh" that it can replicate in fresh produce past success in general merchandise. And, according to "The Grocer", even Google Express could enter the fray.

The question remains, however, why Aldi should bother with clicks when it is so eminently successful in traditional retailing? On the other hand, the discount giant has frequently used its foreign operations as a test bed for new ideas that are later introduced to the German homeland.
 
Therefore, the no-frills retailer could extend the online delivery service it has been running in Australia since August 2013. Currently, ALDI Liquor offers a range of more than 200 beers, wines and spirits to the "non-dry", eastern areas of the Lucky Country.

Ever more hitch-hikers

Obviously, the sale of Aldi products by online delivery service providers in a number of countries, including Germany, will not have escaped corporate notice. In the UK, mySupermarket offers a "shop in Aldi" via its new app. And, if you want to buy Aldi groceries online and have them delivered to your door Down Under, Grocery Butler claims it has "the answer":

"Your friendly personal shopper will do all of the hard work for you, filling your order with quality, low-cost grocery items from Aldi, and delivering them promptly to your home (or office) as you wish...Please note, Grocery Butler is an independent business and is not affiliated with, or endorsed or sponsored by Aldi or any other retailers mentioned on this website."

Presumably, Aldi has been content to gain the extra volume as no legal action is known to have been taken against such sites by head office in Mülheim.

Aldi UK top management (photo: The Grocer)
Working on a cyber coup: Top brass Matthew Barnes, Tony Baines and Roman Heini receive an accolade for Aldi's success in bricks & mortar. How long before they get one for clicks?
So should British online competitors be worried about such a late entrant to their market? Most definitely, yes! Like Tesco.com, Aldi can draw on a strong retail brand and a vast group cash flow. But, as a privately-owned company, it is not constrained by short-term reporting commitments. Also, Germany's no. 5 retailer by sales has not allowed itself to be distracted by costly corporate diversification.

Unlike Ocado in the UK, Aldi stores are virtually on every street corner in its home market. Its branch network is also steadily growing in Western Europe, the US, and Australia. Therefore, should Aldi initially decide on an in-store picking model, it already has the infrastructure to effect local distribution.

Unlike Amazon, Aldi is not a tech giant, but it is a food specialist and has honed its cost base, including logistics, for generations. So, if Aldi can offer the lowest-prices in bricks & mortar and still make big money, it can do the same in clicks. 


Related article in German: By Hans-Jürgen Schulz, Christiane Ronke & Jan Mende in
Lebensmittel Zeitung, no. 12, 20.03.2015


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Comments for this article are closed.

  1. Catherine Rochereul-Portier
    Created 26 March, 2015 02:19 | Permanent link

    Why Not Lidl in the US?

    That could be an idea for Lidl in the United States. Or how to be different in order to make a difference...

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