Aldi digs in for the battle for well-heeled shoppers
With 8% market share the grocer is firmly established in the sector
Although Aldi’s discounting model means it must be neurotic about controlling costs, it is known as the best-paying grocery retailer in the market. Photograph: Suzanne Plunkett/Reuters
It is Tuesday in the most salubrious Aldi store in Ireland: a dramatic, high-ceilinged old tram depot in Terenure, south Dublin. The attractive building was converted into a supermarket last September. Trade is brisk on Tuesday afternoon, but it isn’t thronged.
This is a front line in the German discounter’s attempt to win over another wave of Irish consumers: the middle classes. The battleground is fresh food, healthy options and quality Irish goods, currently the biggest driving forces in the grocery market.
Ireland’s recession is over, but the march of Aldi and its compatriot and counterpart Lidl is not. To more well-heeled shoppers, austerity might be passé, but so is paying over the odds for pomegranates and gluten-free muffins.
Not simply cheap and cheerful; rather it should be cheap and charming.
On this particular afternoon what appears to be several exceedingly well-to-do women lurk in the fresh food section towards the back of the store where the air is crisp from the open chilled shelves.
One hovers around the extensive organic food section which Aldi brought back 18 months ago due to customer demand.
Another, in her early 30s and wearing a cashmere sweater and a confident air, scrutinises the ready-made salads. She doesn’t pick anything up, but before moving on she shows a keen interest in a quinoa and bulgar wheat mix for €1.59. She also carries a used Lidl bag, so clearly shops around for best value.
In an aisle around the corner Aldi sells Coco Loco, jars of its own-brand cold-pressed virgin coconut oil, for €3.99. Health freaks go mad for this stuff. Coconut oil’s benefits are said to include whitening teeth, banishing wrinkles and other miraculous feats short of curing cancer.
The aisle of special buys – mostly non-food items that are listed in bulk across the Aldi group on a when “they’re gone, they’re gone” basis – include grape therapy day cream alongside 48-inch definition TVs priced at €499.99.
The store also sells a smattering of well-known brands, such as Nescafe coffee and Cadbury’s creme eggs. But such familiar high-street names are few and far between.
This is still Aldi, however, a German discounter, with a long track record of bludgeoning the competition on the price of staple items, including fresh foods. At the end of one aisle shoppers mill around the week’s “super 6” vegetable offers. Two courgettes? That’ll be 29 cents, please. Eight green apples? The same price, along with leeks, corn on the cob, baby potatoes and white cabbage.
In the eyes of some prices as low as this are a form of competitive blitzkrieg. On Monday, Cork farmers held a protest outside Aldi and Lidl in Glanmire, Co Cork, accusing them of sparking a race to the bottom on price. There were dark mutterings about escalating the protests.
After 17 years in Ireland, with a market share of almost 8 per cent – neck-in-neck with Lidl – and annual sales that are now approaching €1 billion, Aldi is firmly a part of the grocery establishment, even if it still attracts regular protest. Perhaps that is simply the latest proof the German discounters are now serious market forces. The discounters, for their part, say they always pay the growers a full and fair price.
Aldi, meanwhile, ploughs on. It opened its 123rd Irish store yesterday in Athy, Co Kildare, and will soon open two more – Sallynoggin in Dublin and Bandon, Cork.
The company, which employs more than 3,000 here, says it will get close to 130 outlets by the end of the year. It aims to keep the pressure on Tesco, SuperValu and Dunnes Stores, its bigger rivals from whom it has plucked so much market share.
Along with Lidl, however, Aldi remains something of a corporate enigma. Its senior management almost never grants interviews. However, The Irish Times was invited along to the Terenure store this week to meet one of its most senior executives in the country and get a sneak peek behind the curtains of its operation.
Finbar McCarthy, group buying director for Aldi in Ireland, is one of the four most powerful executives in the company in Ireland. He is just 31 years of age. McCarthy joined the company a decade ago on its area management graduate scheme, straight from his business degree in the University of Limerick.
Politely but firmly, he bats away the criticisms of the Cork farmers.
“The ‘super 6’ is incredibly popular with our customers. Suppliers, unequivocally, receive the full cost of what is agreed, irrespective of whether an item is on ‘super 6’ or not.”
So Aldi doesn’t force its suppliers to eat some of the cost of such lowball promotions?
Aldi isn’t simply a retailer. It is a logistical and ergonomic-driven machine. McCarthy explains that its finely-tuned operating model, where “everybody knows what they have to do, and how to do it”, helps it keep costs to a minimum, allowing it to charge lower prices than its more mainstream rivals.
“One of our advantages is that the majority of our products are Aldi own-label products, made by suppliers exclusively for us. This means the packaging, the case it arrives in, the way it gets delivered and shipped to store: it’s all in our control.”
Almost all of Aldi’s products come in ready-made boxes that can be placed directly on to the store shelves. This reduces the workload for the staff, who can stack shelves must faster than if they had to place each item individually from the box.
As McCarthy explains: “When a pallet of food arrives, our staff can get it on to the shelf at Olympic speed. The less it gets handled, the less cost is associated with it, and that’s where the value comes from.”
Other innovations include the inclusion of two barcodes on each of its own brand items, allowing for quicker and easier scanning at the till, and hence a quicker flow of customers. Aldi stores also carry only 1,350 product lines, roughly a tenth of that of a larger Tesco.
Aldi is announcing today that it is expanding that range to 1,500, with the addition of a further 150 of its “specially selected” range of premium products. This, it says, is in response to a “marked shift” in consumer buying habits: “Our customers tell us they want a little bit of luxury in their weekly grocery shop without the hefty price tag.”
McCarthy says more than 50 per cent of the group’s lines are Irish products, and they also represent more than half its sales. Its own-label Irish products have won more quality awards than its rival supermarkets, he says. Aldi has doubled to 70 the number of head office staff who exclusively buy Irish products.
“For the most part, if it’s a fresh product it should be Irish. Abroad, quality is synonymous with brands. In Ireland, our research tells us that quality is synonymous with Irishness.”
The Terenure store has about 10,000sq ft of retailing space, a smidgen below Aldi’s average store size in Ireland. But its is still a sizeable operation targeting sales of €11 million annually, according to its planning application. Yet its total staff complement is about 25. On any given shift, there are just six or seven staff on duty, front of house and back.
“That includes everything that needs to be done,” says McCarthy. “The guys you walked past at the till, they will have worked in the warehouse in the morning bringing stock out. They’ll do whatever needs to be done during the day, they will be highly trained in all of it, and they will do it proficiently.”
He says Aldi’s workforce are “multi-taskers: very highly-trained, highly motivated multi-taskers”.
Although Aldi’s discounting model means it must be neurotic about controlling costs, it is known as the best-paying grocery retailer in the market. Its floor staff are all paid at least the “living wage” of €11.50 per hour, rising to €13.80. Store managers are paid between €51,000 and €80,000.
Area managers, who can be in charge of up to four stores within a year of joining the company’s training programme, start on €61,000, rising up to €95,750 after four years. They also get a fully-expensed Audi A4 and a private healthcare package.
McCarthy judiciously toes the company line on its corporate and human resources culture. To outsiders, it can seem more like a creed than a culture.
“A discounter that pays its staff more than anyone else – you think that is an inherent contradiction? We have fantastic people who are well trained and well motivated. The key ingredient to our efficiency is our efficient people.”
So comparatively generous are its terms, and so well-drilled its operating model, that its management team is stuffed with former Army officers. As many as 20 former senior officers work for Aldi, according to latest estimates. Recently a former Army officer who was latterly a senior official with the Department of Finance also joined. McCarthy, however, insists there is no discernible “pattern” to its recruitment targeting policies: “It’s simply word of mouth.”
Whatever about the complaints of the chippy Cork vegetable farmers, Aldi is known in the grocery industry as being tough but fair with its suppliers. McCarthy insists it has a culture of paying promptly and to the letter of its contract.
He says Aldi has “no issue whatsoever” with the Government’s new grocery regulations, designed to protect smaller suppliers from being bullied by big retailers.
Aldi Ireland is split into two regions, based around its two distribution centres in Mitchelstown for the south and west, and Naas for the east and midlands. Its Irish operation is effectively a sub-unit of its UK branch, whose senior executives sit on the Irish board.
The UK unit has just started trialling online wine sales and delivery of Aldi’s special buys. The group hasn’t entered e-commerce before, and McCarthy is cautious about whether internet shopping might be introduced in the Irish market.
“They will only be introduced in Ireland if they are successful. If it is the right thing to do, we will do it, but only when we are absolutely certain.”
Aldi only introduced baskets two years ago, for example, as it was concerned that the loss of baskets would add to its coast base. The hard plastic baskets at its Terenure outlet are tagged to prevent them being taken outside, while the wheels of its trollies lock if removed from the store.
Aldi uses mystery shoppers “every month, in every store” to test adherence to its strict operating model. It also runs scores of focus groups and testing panels. McCarthy insists it is assiduous in tweaking its offering to match the demands of its customers. He says it listens and then acts, but only once it has planned things to precision.
Back out in the store, the handful of staff continue to restock the shelves while a longish queue starts to form at the only open till. A recorded female voice, initiated from a control pad near the till operator, tells customers that till number two is about to open. Behind the scenes, the same voice politely commands a designated staff member to man the till.
Such precise methods have allowed Aldi to dramatically expand market share in the last eight years. As once-chastened consumers again seek out luxury and quality, this time allied with value, the chain has trained its sights on snaffling much more.
The competition awaits.