Aldi’s Low-Price Makeover Of High-End ‘Healthy’ Food Should Have Kroger And Whole Foods Shaking In Their Boots, Right? Not So Fast

Aldi’s Low-Price Makeover Of High-End ‘Healthy’ Food Should Have Kroger And Whole Foods Shaking In Their Boots, Right? Not So Fast
Food & Beverage

Amid a U.S. expansion binge, the European retailer is planning to siphon market share of vegan and organic fare from the nation’s biggest grocers—but the competitive pressures cut both ways

Barbara Thau
  • 29 august 2018

Aldi’s award-winning-yet-bargain store-brand items, like Côtes de Provence Rosé for $8 and $3 Priano cheese, in its signature, no-frills ambience, has fed a narrative that the German grocer is gobbling up market share with a low-price makeover of high-quality food that’s putting the nation’s established supermarket giants on high alert.

The recent news of its health-and-wellness product refresh only heightened the “Aldi will trample on Kroger to Whole Foods turf” storyline, particularly amid its expansion binge, which aims for 2,500 U.S. stores by 2022.

But that narrative is too easy and doesn’t tell the whole story, according to interviews with grocery experts. While the European chain’s push into health-and-wellness fare no doubt challenges the Krogers and Whole Foods of the world, that challenge cuts both ways.

Aldi’s global reach might grant it a product-differentiation edge, but Kroger’s organic house brand, for example, has amassed a devoted following that the German grocer would be hard pressed to match, experts said.

The Healthy-Food Retail Landscape

Supermarkets have no choice but to play big in the health-and-wellness food space to serve changing consumer tastes.

Within grocery, “it’s a significant opportunity, based on the trend we’re seeing in retail,” said Ryan Powell, vice president of merchandising and category management for SymphonyRetailAI, which enables personalized marketing for brands such as Ahold, Procter & Gamble and General Mills. “The personal connection to healthy living and the level of education consumers now have is at an unparalleled level.”

The gluten-free movement was a seminal development in the rise of micro health-and-wellness categories at retail. Five to 10 years ago, “we saw the first gluten-free sub-categories, attributes and branding emerge,” he said. “This resulted in a better connection with consumers that were gluten-conscious: Shoppers had more loyalty and affinity towards retailers who satisfied their needs.

“With the range of different health-and-wellness micro-categories that are now being driven by increased awareness, education and social sentiment, it is even more important for grocery retailers to provide options that speak to both traditional and established health-and-wellness categories, as well as emerging trends and more localized micro-categories,” Powell said.

Supermarkets have been doing just that. Kroger, Whole Foods, Costco, Albertsons/Safeway, Wegmans and Target, to name a few, have been introducing premium, private-label products under the health-and-wellness umbrella for several years now, said Bob Shelton, a 40-year retail veteran and lifelong Safeway merchandising executive who now runs Shelton Professional Consulting.

But as Shelton sees it, the “health and wellness” moniker in retail and consumer packaged goods “is code-speak for introducing premium and indulgent products into higher than average growth potential categories” that are also higher priced. “After all, ask any customer if they want to be healthy and well, or if they’re concerned about health and wellness, and they would be crazy not to answer a resounding, ‘yes, of course,’” he said.

Aldi’s Edge: Global Delicacies In A ‘Lean And Mean’ Box

Aldi’s distinct retail model—a tightly-limited number of low-priced, mostly store-brand groceries, positioned as upmarket fare in a bare-bones box, no doubt alters the supermarket landscape as the European retailer penetrates new markets and offers a novel food alternative to American shoppers.

Now Aldi is extending that model to a wider selection of fresh and organic meat and produce while expanding its SimplyNature food line that’s stripped of 125 artificial ingredients, as well as its liveGfree, gluten-free items.

Private brands with a differentiated, international flavor, at prices that are known to undercut even Walmart’s, are key ingredients of Aldi’s secret sauce, experts said. “Aldi is excellent at owned-brand development: It knows how to create, and not just clones of national brands,” said Victor Martino, founder and president of CPG and grocery consulting firm Third Wave Strategies.

With stores dotting the world, Aldi can bring to the U.S. “unique product varieties based on its global footprint. For example, it might bring a product that’s hot in Australia or Germany to the U.S. first because it has stores in those countries.”

That it carries an edited selection of merchandise and a fraction of the items of the sprawling big-box chains will serve it well in healthy fare, where the paradox of choice can be especially paralyzing for consumers, said Powell. It “removes the shoppers’ over-thinking. This will be a significant benefit in regard to health and wellness, where there is so much consumer anxiety around selection.”

The retailer’s “austerity-chic” ambience enables Aldi to keep costs low, Martino said. “Aldi runs a lean-and-mean ship. This allows it to bring quality, branded products to market and offer them at low prices”—which puts pressure on Whole Foods 365 store brand, for one. Similar healthy food items from Aldi at 15% less “will be noticed” by consumers, he said.

But low prices and healthy-food with global influences can’t substitute for the massive purchasing power of mega supermarket retailers like Walmart and Kroger.

And Aldi is going up against the big retailers’ long-established healthy-food lines that have amassed a devoted following, experts said. With their economies of scale, Walmart and Kroger can price just as competitively as Aldi, but they don’t necessarily have to, noted Martino. Kroger, for example, the nation’s biggest supermarket chain by sales, “has an advantage in that its Simple Truth natural and organic store brand is very popular. It can actually be priced 10% higher than Aldi’s similar brands without a problem.”

Shelton agreed. “Kroger is the bellwether, best-in-class example for growing premium and now ultra-premium, private-label product under a health-and-wellness banner,” he said.

Aldi is also competing with the exclusive and high-end lines at retailers such as Costco, Albertsons/Safeway and Wegman’s. “These retailers have a primary, highly loyal shopper base above middle income, and cater greatly to the affluent households that recovered from the economic recession 2008 much quicker than the value players,” Shelton said. “Aldi is well behind the curve as it tries to capture a more profitable shopper in this improving [consumer] environment.”

Aldi

Aldi’s award-winning-yet-bargain store-brand items, like Côtes de Provence Rosé for $8 and $3 Priano cheese, in its signature, no-frills ambience, has fed a narrative that the German grocer is gobbling up market share with a low-price makeover of high-quality food that’s putting the nation’s established supermarket giants on high alert.

+Aldi
+consumer goods
+Convenience & Supermarket
+Food
+food & beverage
+Grocery
+Health
+Kroger
+loyalty & membership
+merchandising & curation
+retail
+whole foods

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