"Supermarkets don't understand": inside the extraordinary rise of Aldi

When it comes to supermarkets, everyone hates the trollies, and we all feel our hungriest around the fresh bread aisle. Decades of carefully-honed strategy placed the sweets by the till and the vegetables by the entrance, and gave away free coffees and newspapers with loyalty schemes.

But recently, everything we thought we know about the psychology of the weekly shop has been upended, because one supermarket is challenging everything the industry thought to be true.

Brits, as it turns out, are far less enamoured by loyalty and choice than you might think, if a new Which? survey is anything to go by. Aldi passed Waitrose and M&S to the survey’s top spot.

While Aldi has a small share of the UK market, it has been growing steadily over the past few years. In the past 12 months alone, 76 new stores have opened in the UK and Ireland, and the retailer plans to open 70 more this year.

In the Which? survey, Aldi scored particularly highly on value for money—but it isn’t just value which sets it apart from the crowd. The supermarket is totally upending what bigger supermarkets have been doing for decades.

Despite being in fierce competition, the UK’s “big four”—Tesco, Asda, Morrisons and Sainsbury’s—all operate along similar lines. They offer endless choices stacked neatly on pristine, minimalist shelves: close to 40,000 products.

Aldi, on the other hand, offers roughly 1,750 items in its stores, slid onto shelves in “shelf-ready packaging.”  And while the big four shower customers in BOGOFs, only eight per cent of Aldi’s products are on promotion at any given time.

Once the customer has navigated through all the choices and promotions in one of the big four, they’re rewarded for their custom with the quick flash of their loyalty card.

But while shoppers have been lured to Tesco since the birth of the Clubcard in 1995, Aldi doesn’t offer anything of the sort. Some experts argue that customers don't actually care about loyalty. 

Aldi has made it clear its eyes are on the long game—a game plan made easier because the retailer is a private company and doesn’t have to worry about pleasing shareholders—and it has consistently done things differently.

The Albrecht family opened a grocery store in the German town of Essen in 1913, and their two sons, Karl and Theo, took over from in 1946. One year later, they were the only retailer for miles to stock liquid soap that didn’t need a ration coupon. In 1954, they offered the first self-service in Germany, where customers took goods from the shelves themselves.

Aldi has had stores in the UK since 1990, but it’s also a growing presence in the US, where it’s been operating since 1976. In a report published in the Strategy and Leadership journal in January, Sayan Chatterjee, a professor at Case Western Reserve University in Cleveland, argues that Aldi is “fortifying a formidable presence” in the US economy and even poses a challenge to retail giant Walmart.

Chatterjee ascribes Aldi’s success with “making just about all the right decisions” in its marketing strategy, and tells me that the retailer has “shown that limiting choice resonates with customers.”

Aldi’s ways of doing business are also thought to be influencing British supermarkets. Changes announced by Tesco, for example, are often framed by the press as an attempt to rival Aldi; whether it’s adding more own brands, reducing its number of overall product lines, or its apparent “secret plans” to open stores offering a limited range of own-brand products.

But there are other clues that the traditional supermarket, stocked with tens of thousands of product lines, is failing. Tesco’s secret plans would be a bolder move if the big four hadn’t already reacted to our changing shopping habits with smaller stores, including Tesco Metro and Sainsbury’s Local, as more customers opt for “top up” shops during the week to get fresher food.

And when we do big shops, we’re increasingly likely to do so online—further calling into question the need for supermarkets to have an enormous physical presence.

Retail expert Richard Hyman says Tesco’s alleged plans to open new own-brand stores is a response to Aldi’s “relentless expansion,” and that Tesco looks like it’s planning to follow Aldi’s agenda—which, Hyman adds, won’t end well for anyone but Aldi.

“Aldi is much better at retailing than a lot of major retailers seem to still believe, and major retailers aren’t as good at retailing as they thought they are. They still suffer a lot from arrogance,” he tells me. “Aldi understands what it is and doesn’t try to be what it isn’t.”

One reason customers are responding to Aldi’s smaller selection of products, Hyman says, is because other supermarkets are yet to understand what choice really means.

“Choice is not a matter of volume. Having loads of product options not of interest to you isn’t choice, and I think supermarkets have been very bad at truly understanding what that word means.”

“Aldi has grown by doing exactly the same thing more often in more places, whereas the major supermarkets have grown by doing it bigger, to more and more people, to attract more and more people into those stores. By doing all that, they tended to lose focus progressively on their core customer.”

Hyman predicts Aldi will continue to grow its market share, while other major supermarkets, whom he says never thought their customers would have been “seen dead” shopping in a discount store, will lose out.

“The more attractive shopping environment and greater choice of the major players,” he concludes, “has not been sufficient to outscore the better value that Aldi offers”.

Brits don’t only not mind being seen in a discount store—they openly rave about it, without the luxury of carefully designed aisles or being bribed by free coffee or loyalty cards. Perhaps customers don’t need a shopping “experience” after all.