May 22, 2013

Aldi Nord gets a refit

photo: Hans-Jürgen Schulz
Aldi Nord: Larger, more modern stores
In our internet-obsessed times, dominated by Amazons, Yahoos, Apples and Samsungs, it is a sign of Aldi's continued significance that any change to its physical store base still hits the headlines.

Germany's leading retail brand remains a potent social force and is almost a cult in Europe's most prosperous country.

After years of stagnation, revenues at Aldi Nord, the northern branch of Aldi's vast empire, are growing again "at more than 5 per cent".

The Essen-based company sees this success as confirmation of its decision to begin a huge modernisation programme. This has included the upgrading of 4,300 of Aldi Nord’s 5,000 European stores over the last 18 months as well as a quiet revolution in traditional merchandising strategy.
 
But why is , revamping its store network in an increasingly online world?

Double digit growth 
 
Apparently, more than ten of the 35 Aldi Nord regions have been achieving double-digit revenues growth over the last year. Average customer spend and footfall in its outlets have increased, even though this year’s exceptionally bad weather has hurt non-food sales.

“We are really winning new customers,” was a further voice heard in Aldi circles. Germany’s largest hard discounter by revenues had previously lagged competitors in attracting young families, but seems to be gaining even in this segment.

Hello brands


Brands have been listed, beyond their former token presence, in order to make the assortment more attractive. But own label retailer Aldi is believed to view brands as an extra customer service and still keeps them in the background.

Yet the strategic fine-tuning has already had consequences for Aldi’s purchasing structures. Its central buying organisation used only to employ company staff, but has now also begun to recruit outsiders.

Nowhere is this more evident than in non-food where high returns caused major headaches two years ago. However, Aldi also wants to reduce its non-food business to “a healthy level”.

Meanwhile, the German store base has been pruned by nearly 70 outlets to around 2,440 over the last year. Closures include small stores and sites, mainly in eastern Germany, where future demographics do not promise sufficient growth.

The cull has reduced Aldi Nord’s store count to around 2004 levels and annual revenues by an estimated €250m. Despite this, management at Aldi Nord headquarters in Essen is confident that it can beat the preceding year’s top line.


Small no longer beautiful


The next phase of the modernisation programme will be to replace well over 500 older stores with new ones. The company refuses to give a timeframe on this, but the motto seems to be: “The sooner, the better”.

The ultimate goal is to create a uniform European store standard. Ideally, sales surfaces will be around 1,200m², and existing stores are being extended wherever possible.

Aldi believes that the revamp will also facilitate local planning permission. “Building approval remains a limiting factor (for growth),” company sources say. Here, larger and more attractive stores could well prove helpful.

Given the logic of the above moves, it could be asked why Aldi Nord was so conservative in retaining old-fashioned stores with less than 600m² (there are just under 50 of these today)? Apparently, lower personnel and store operating costs often kept these outlets viable despite lower sales.

Competition from Lidl seems, however, to have forced Aldi’s hand. The arch-rival had opened a number of larger modern outlets in Aldi catchment areas and hasn't stinted on costs.

But there were also rumblings within Aldi itself. Some are said to have worried that older stores were “hurting our image” and serving as a brake to developing the format. Without extra shelf room, for instance, it is hard to expand assortments on a national basis.


Aldi relentlessly physical?


Finally, the whole exercise is perhaps significant from another point of view. Despite its recent rejuvenation, Aldi management, like most German mass consumer retailers, is deeply conservative. Obviously, it has decided to invest heavily in tweaking the existing physical store base rather than move online.

Doubtless the company has thoroughly studied the viability of creating an online delivery service and/or click & delivery points in the stores. But it has clearly run its slide rule over any such project and decided in favour of bricks & mortar.

Yet this powerful, cash-rich giant has less to fear from our brave, new online world than many other retailers. The Aldi North & South store base is blessed with propinquity. With an Aldi on virtually every German street corner, delivery costs would be relatively low and/or click & collection customer convenience high.

Then it is a mean and lean machine with little or no fat. The discounter's low-price model is often used as a reason for excluding it as a potential online retailer. Pundits argue that Aldi wouldn't have the margin to engage in internet shopping.

But wouldn't its mastery of cost work both ways, and who could compete with it?

Last but not least, Aldi is Germany's most trusted retail brand. It was this very same national brand strength which gave Tesco.com a head start in the UK.

"Aldi Starts Home Delivery Online Service"? Now that would be a headline...
 
  
Related article in German: Lebensmittel Zeitung, no. 20, 17.05.2013, by Hans-Jürgen Schulz, Christiane Ronke & Angela Wisken
 
 

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