Monday, 8 September 2008

Two articles from the IHT about the success of low-cost supermarkts (IHT)

The lure of plain vanilla from Germany (IHT)
Like its reclusive German founders, the supermarket chain Aldi does not do much to draw attention to itself.
Its stores in the United States are small and spartan, with minimal décor and a limited selection of products. They are often found in nondescript shopping strips and lack the flashy signs and window displays of some competitors. Grocery carts cost a quarter apiece, which is refundable after the cart is returned.
But as the U.S. economy sputters and consumers look to save money, the privately held Aldi is suddenly emerging as a major force in the U.S. grocery business, one that some predict could one day rival Wal-Mart.
What makes Aldi so special is that, quite simply, its prices are cheaper than just about anyone else's, including Wal-Mart's.
The company said recently that prices of its private-label products were 16 percent to 24 percent below those at discounters and big-box stores, and 40 percent less than those at traditional supermarkets.

While the chain's format might perplex some shoppers who are used to a much broader selection, Aldi officials have maintained that the advantage of shopping at its stores — cheap prices — quickly becomes clear.
For shoppers, "there isn't much of a learning curve with a head of lettuce for 99 cents," Jason Hart, president of the United States division of Aldi, told Supermarket News.
Restaurant analysts and consultants are bullish on the chain. "Aldi has been one of the best-kept secrets in the United States for 20 years," said Bill Bishop, chairman of Willard Bishop, a consulting firm that caters to the supermarket industry. "They are a force to be reckoned with."
Neil Stern, a senior partner at the retail consulting firm McMillanDoolittle, said: "Aldi is one example of a chain that is ripe for the time."
The chain's low-key style reflects its reclusive, elderly founders, the octogenarian German billionaires Theo and Karl Albrecht, who reportedly live on the island of Föhr in the North Sea, where they are said to collect typewriters, play golf and tend to orchids. In 1971, Theo was kidnapped for 17 days, and the brothers have kept a low profile ever since.
The brothers split the business in two in the early 1960s, after a disagreement over whether to sell cigarettes. There are now two companies, Aldi Nord and Aldi Sud, which owns the United States division. In 1979, Theo Albrecht bought the Trader Joe's chain, which shares Aldi's small-store format, its reliance on private-label brands and its reputation for value, albeit in a hipper and more upscale way.
An Aldi spokeswoman said that the brothers were not involved in the company's United States operations. But their reputation as relentless economizers infuses the chain, whose name is short for Albrecht Discounts.
"The typical supermarket is a minefield of hidden costs," Aldi's Web site says. "Along with your groceries, the extra freight of free bags, baggers and check acceptance is loaded into your cart every time you shop, whether you use those services or not."
Aldi's stores are designed to cut out many of those costs. While some grocery stores carry about 45,000 items, Aldi stores offer only 1,300 or so products, most of which are private-label brands. They are often displayed in the store in the cardboard box in which they were delivered.
Having so few products ensures regular turnover, reduces spoilage and labor, and gives Aldi tremendous buying power with its suppliers. With its smaller stores, the company can lower its heating and electricity bills. In addition, the stores are typically open only during peak U.S. shopping times, from 9 a.m. to 7 or 8 p.m. Monday through Saturday, and 12 p.m. to 5 p.m. on Sunday.
Though it opened its first store in the United States in 1976, it only recently ran its first national television ad campaign. From a look at the ads on the company Web site, it doesn't seem as if the company spent much on them, either.
Credit cards and checks aren't accepted, eliminating processing fees and the cost of bad checks. Shoppers must bag their own groceries and provide their own bags — though leftover cardboard boxes are free.
So why charge for shopping carts? Aldi says customers are more likely to return their carts, so fewer carts need to be replaced and an employee isn't needed to round up carts in the parking lot.
Aldi's no-frills approach appears to be paying off. There are more than 950 stores in the United States, and it plans to add 100 in the next year. (It has 8,500 worldwide.) Supermarket News estimates that sales last year were $5.8 billion. By comparison, Wal-Mart's grocery sales in 2006 were $92 billion, according to the Food Marketing Institute, which listed Aldi's 2006 sales at $3.3 billion.

Of course, shopping at Aldi is hardly the same experience as shopping at Wegmans or Whole Foods Market, or the local Kroger or Safeway. Those stores spent the last decade catering to shoppers' desire for convenience and more upscale products like artisanal cheeses, fresh-caught fish and organic produce.
Aldi ignored the trends and stayed focused on price. For now, at least, shoppers are rewarding that decision.

Morrison to top growth league (IHT)
LONDON: Wm Morrison Supermarkets is set to post a 19 percent rise in first-half underlying profit on Thursday and confirm it is taking market share from bigger rivals as cash-strapped shoppers flock to its lower price stores.
Britain's fourth-biggest supermarket group is also expected to confirm plans to return 500 million pounds to shareholders both this fiscal year and the next, despite having only bought about 10 percent of this year's tranche so far.
Analysts say the buyback could help underpin Morrison's shares as it faces more demanding sales comparatives in the second half of the year.
Morrison is set to report profit before tax and one-off items of 294 million pounds for the 26 weeks to August 3, according to the average forecast of 8 analysts polled by Reuters. Estimates range from 284 million to 305 million.
Like-for-like sales excluding fuel, a key industry measure, are forecast to climb 7.2 percent in the second quarter, boosted by higher food prices as grocers pass on the rising cost of commodities such as meat and dairy products.
The group is, after several integration problems, feeling the benefit of its purchase of rival Safeway in 2004 as well as its "Refresh" campaign to revamp stores and its image as a lower-priced alternative to some of its rivals.
Cash-strapped Britons are trading down to cheaper stores amid higher fuel and food costs, as well as sliding house prices.
Analysts are looking for signs of whether Morrison will step up promotional spending as it comes up against the second half's tougher sales comparatives, after having a quieter first half than some of its rivals.
They are also keen for an update on whether Morrison will try to buy stores from The Co-Operative Group, which is expected to put some on the market following its purchase of Somerfield.
Bradford-based Morrison runs around 375 stores and has a market share of about 11 percent, trailing J. Sainsbury , Wal-Mart-owned Asda and market leader Tesco .

Ian Walthew

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