Twenty years ago, on January 25, 2001, a virtually unknown German supermarket chain quietly opened its first stores in Australia.
The two stores, one in Sydney’s inner-west suburb of Marrickville, the other in the outer southwest near Bankstown Airport, were small, about a quarter the size of a conventional supermarket.
Each stocked just 900 products, 90 percent of which were from unknown brands.
Buyers had to bring and pack themselves. A “gold coin” is required to use a cart. They did not seek to attract customers with “loyalty” rewards or other gimmicks.
Few Australian supermarket executives at the time would have considered them successful role models. They couldn’t imagine the impact Aldi would have on Australia’s retail and shopping habits.
The history of Aldi began in 1913, when Anna Albrecht opened a small grocery store in 1913 in the western German city of Essen.
His two sons, Karl and Theo, took over the business after World War II.
In the conditions of poverty that followed Germany’s defeat, they focused on keeping costs and prices low.
His strategies included storing only the most popular items and avoiding perishable items.
By the end of the decade they had more than a dozen stores, and by the late 1950s, more than 300.
The brothers adopted the name Aldi – combining the first two syllables of Albrecht Diskont (“discount” in German) – in 1961 (although the accounts differ by year).
Around the same time (again, the accounts differ by year) they had a big disagreement over whether to sell cigarettes.
They resolved the dispute by dividing the business into two geographic entities: Aldi Nord (“North”), run by Theo (and selling cigarettes), and Aldi Süd (“South”), run by Karl.
The division was friendly and the two divisions managed collaboratively.
From the end of the 1960s, Aldi began to expand in Europe, starting with the acquisition of the Austrian supermarket chain Hofer. It opened its first store in the United States, in Iowa City, in 1976, and its first British store, in Birmingham, in 1990.
So when Aldi opened its first stores in Australia, it was a booming multinational. It now has more than 10,000 stores in 20 countries, including China.
Aldi’s growth in Australia
Arriving in Australia, Aldi pounced on a gap in the grocery retail market.
The “meal discount” model had been dominated by the now-defunct Franklins and Bi-Lo (owned by Coles).
By the late 1990s, however, these chains had messed with their “no frills” model through attempts to upgrade. It was disastrous.
Franklins went into terminal decline. Coles left the Bi-Lo brand in 2006.
Aldi quickly expanded. By mid-2003 it had 38 stores in New South Wales and six in Victoria. By 2011, it had 251 stores. As of early 2013, more than 280, and it had expanded to Canberra.
It surpassed the IGA group and became the third largest player in Australia’s supermarket sector at the end of 2013, with 10.3% of all grocery dollars (Coles with 33.5% and Woolworths with the 39%).
Its first stores in South Australia and Western Australia arrived in 2016.
It now has more than 500 stores and a 12.4% share of Australia’s food and grocery sector of $ 110 billion (based on the most recent data from Roy Morgan).
In 2020, Aldi was named the best supermarket in Australia by consumer review website Canstar Blue (the seventh time in a decade) and the second most trusted brand (after Bunnings) by Roy Morgan.
Their practices have influenced the way the other supermarkets operate.
In particular, it has forced competitors to increase their own “private label” (or private label) products, introduce “ghost brands” and promote ever-changing “special buy” ranges of general products.
Private labels and ghosts
In 2004, private labels made up about nine percent of the products that Coles and Woolworths stock.
By 2019, they accounted for 30 percent of Coles sales. Woolworths has similarly increased its range of private labels, explicitly due to pressure from the arrival and expansion of Aldi.
In particular, Aldi does not sell “ALDI” brand products. Instead, it trades in shell brands such as “Belmont” ice cream, “Radiance” cleaning product, and “Lacura” skin care.
These brands are intended to overcome the perception that private label items are of lower quality.
In 2016, Woolworths launched its own range of ghost brands. Coles did the same in 2020 with brands including “Wild Tides” tuna and “KOI” toiletries.
Larger supermarkets have also been forced to emulate Aldi’s menu of biweekly “specials” – deeply discounted items not normally sold in supermarkets.
These have included televisions, lawn mowers, vacuum cleaners, motorcycle jackets, luggage, and (oddly for a country like Australia) ski equipment.
There are always limited quantities and shoppers regularly experience disappointment.
Despite this, in fact because of this, buyers will queue up and keep coming back.
These quirky, seasonal, limited-stock items create excitement and FOMO – fear of missing something.
While its competitors have emulated Aldi in various ways, the German chain is still a very different no-frills operation.
You haven’t bothered to invest in the self-service checkouts that are now ubiquitous in other stores. It continues to offer only long conveyor belts and seated registration operators.
Aldi also has no plans to facilitate online delivery, in which the two supermarket giants have invested heavily.
He also didn’t have to deal with customer backlash over the phasing out of free single-use plastic bags. Because he never offered free shopping bags, he always charged 15 cents for them.
Therefore, Aldi remains an exception to the rule in Australian supermarket retailing. Its history suggests that it is a recipe for continued success.
This article originally appeared on The Conversation and is being republished with permission.