Why German grocers are expanding in the US

No-frills discount retailer Aldi is the latest grocer to shake up the industry in a big way.

The German retailer announced this week that it plans to buy about 400 Winn-Dixie and Harveys Supermarket locations in the southern United States. As part of the deal, it left Florida, Alabama, Georgia, Louisiana and Mississippi and at least some of them under the Aldi name.

The contract is expected to be concluded in the first half of next year.

Aldi is already expanding aggressively domestically. It has more than 2,300 stores in 38 states. Apart from the acquisition, it is on track to open 120 new stores by the end of the year.

It comes as a suggested contract Hooks‘s Albertsons is expected to be bought for $24.6 billion. Including companies Amazon and Target as inflation-weary consumers continue to buy groceries and essentials, but become more frugal when it comes to other goods such as clothing and electronics, as they try to increase their share of the grocery market.

Like Trader Joe’s and German rival Lidl, Aldi relies heavily on its own brands. About 90% of the products it carries are Aldi’s private label, which gives it greater scale and lower costs in areas such as marketing and supply chain. Including Aldi is getting creative to keep costs down reducing the size of pasta sauce lids and other packaging and using electronic shelf labels that save labor and materials.

As inflation cools, that could pose a new challenge for Aldi — if shoppers revert to old habits of shopping at higher-priced neighborhood grocers or opt for their favorite ad-brand cereal or more variety. It has also had to compete to keep up with rivals’ online options, prompting Aldi to expand curbside pickup to more stores.

The privately held retailer did not share financial details of the acquisition. But the deal has big implications for publicly traded rivals Walmart and Kroger, as well as regional grocers.

CNBC spoke with Jason Hart, CEO of Aldi USA, about why the company made the deal and how he sees Aldi adapting to the rapidly changing grocery landscape. His comments have been edited for brevity and clarity.

Why was Aldi interested in buying Winn-Dixie and Harveys Supermarket? Why acquire rather than setting up hundreds of your stores in similar locations?

This acquisition gives us quick access to the market with quality retail locations, great people and a solid core business in the Southeast region of the country, where we have already seen significant growth and success, but we also see more opportunities. there is more consumer demand to meet.

To do it organically ourselves (expand), that was our plan and that’s been our trajectory for a number of years and in the Southeast as well. …. This acquisition really gives us the opportunity to accelerate all of these plans.

What should shoppers expect to see in these stores on the other side of shopping?

We are currently evaluating which locations to convert to the Aldi format to better support the communities we are able to serve more closely. After the transaction closes and over several years, we will convert a significant amount to the Aldi format.

For the stores we do not convert, our intention is that a significant portion of them will continue to operate as Winn-Dixie and (Harveys) Supermarket stores.

Will people start seeing some of the Aldi products on the Winn-Dixie shelves in the stores you choose not to convert with a purchase?

We can certainly see and envision future synergies and learnings from each other, whether it’s consumer insights, product ideas, or sales ideas, but at this point we just don’t have any firm plans to announce.

What do you think your stores offer that other players like? Walmart, Hooks and even Dollar General no?

We carry a limited number of SKUs (stock-keeping units, a term used to describe each type of product carried by a retailer), primarily because we have several thousand SKUs in our stores, which may be many times higher volume per SKU than our competition, driving scale that drives efficiencies for both our business and our suppliers.

Dozens of brands and sizes and smaller variants of the same product – the result (in competing stores) is tens of thousands of products, which is not necessarily the result of customer demand. It’s more about the brand’s demand for the shelves in those stores. And the result can actually frustrate customers by overcomplicating the shopping experience. At Aldi, we simplify this shopping experience for the customer by offering great quality and reasonable prices.

Why do you think we are seeing such big strides in the food industry right now?

The way consumers shop is changing quite dramatically. Also a driver for value. Obviously, there are alternative retail formats that are growing faster than traditional formats. We pride ourselves on being one of the alternative formats that is truly disrupting the industry.

Consumers seem willing to try other ways to fill out their grocery list, whether it’s through e-commerce, trying discounters like Aldi, (and) trying different products like private label.

When consumers see these changes and find that other retailers and other products are meeting their needs, they change their shopping habits.

With the pandemic increasingly in the rearview mirror, what are the online and in-store sales trends?

We are now seeing equal growth in both our brick-and-mortar sales and our e-commerce sales. If I look into the crystal ball of the future, it will be back to e-commerce, which is growing slightly more than bricks and mortar, both in the marketplace and for Aldi.