Aldi Could Surge in U.S. Recession

The current economy could provide just the right conditions for Aldi to become a major retail power in the United States.

And not just Aldi. Retailers with similar stores could find consumers warming to their barebones style.

In Europe, Aldi, its major rival Lidl and formats developed by hypermarket operators such as Carrefour to compete with them have become the fastest growing part of retail.

On either side of the Atlantic, Aldi stores are small, hardly bigger than the largest U.S. convenience stores. Displays consist of bins and shelves loaded with products that are offered in cut-down shipping cartons.

Aldis focus on inexpensive, mostly private label products consumers use every day. U.S. Stores offer about 1,400 individual items in an average of 17,000 square feet of space, a company spokesman said. The product selection mixes grocery and non-food consumable products, such as soap and paper towels. A limited number of fresh and frozen products and a little general merchandise, often on a while-supplies-last basis, complement the basic assortment. General merchandise offers consumers cut-rate alternative brands in popular items that can range from messaging showerheads to camcorders.

Aldi isn’t firmly situated in any retail category, doesn’t dominate many big markets because of its habit of scattering stores around and is privately held. As a result, it often flies under the radar in the United States, although it is a major retailer both in this country and worldwide. In a recently released Deloitte report ranking the 250 largest retailers in the world, Aldi GmbH’s sales of $58.5 billion made it the only new entry in the top 10, where it bumped Sears Holdings. Schwarz Unternehmens Treuhand KG, owner of Lidl, made the biggest gains in the global top 10, gaining three places to settle in at seventh. With sales of $69.3 billion, it surpassed Costco and Target.

Aldi now operates about a thousand retail stores in the eastern half of the U.S. after opening 100 last year. At a time when many retailers are closing stores, it plans 75 more for 2009.

Keep in mind, too, that Aldi owns Trader Joe’s. That chain just added 11 stores and is in the process of opening four more, which may represent a slight slowdown in store growth, but not much of one. Trader Joe’s always has grown at a deliberate pace. Still, it operates about 300 stores in select markets from Southern California through New England today.

It isn’t just Aldi itself that is noteworthy, but the growth of its style of retailing. Save-A-Lot, now owned by Supervalu, is an Americanized Aldi with about 1,200 stores operating from Maine to California. At about 15,000 square feet, it offers an average of 1,250 individual products including groceries and consumable items in cut cartons alongside a limited selection of frozen foods, meat and produce.

On top of all that, Lidl recently expressed interest in entering the U.S. market.

U.S. retailers see what’s happening. Smaller concept stores developed recently by Safeway and by Wal-Mart aren’t just a response to Tesco’s Fresh & Easy – which is a bit fancier than Aldi while borrowing grocery display ideas from it — but to the range of smaller, more convenient, value-oriented stores. Indeed, Wal-Mart’s 10,000 to 15,000 square foot Marketside stores, which recently debuted in Arizona, may be as much a response to Trader Joe’s as Fresh & Easy.

Aldi entered the U.S. in 1976 when tough economic conditions first tempted consumers to try generic and private label products. It gained a following in the Rust Belt but had a hard time growing elsewhere. Over the past decade, though, it has grown at a better clip as it expanded into new locations and attracted a wider variety of customers. As has been the case in Europe, even affluent consumers may turn to it – and stores like it — for convenience and low prices on basic items as they make tough choices about spending their money in the recession.