Discount retailer Aldi is in the midst of its $5 billion US expansion program, building new stores and refurbishing existing ones. One of the changes Aldi recently announced is that they will bring fresh produce to center stage, with a 40 percent expansion in the amount of product lines it has. It will also be positioning the produce department at the front of the store. This is not a surprise given that fresh produce is becoming a highly competitive environment. Most supermarkets are investing into it, which is considered to be a key sector for supermarkets.
"The common belief is that center store will move to e-commerce first, plus it’s harder to differentiate and build a reputation surrounding center store," noted Anne-Marie Roerink of 210 Analytics (pictured). "So retail competition is often played out in fresh. Making a splash in produce is really a way to boost traffic and sales for the entire store. Aldi’s current selection focuses on the produce basics which have high household penetration. So we often see shoppers have what I call a “dual store” strategy, where they shop at Aldi and another supermarket. An expanded assortment in produce is likely the strategy behind trying to keep a much larger share of the total grocery dollar."
Roerink went on to explain that retailers leverage fresh produce for its visual appeal and for the image it gives to the entire store. Aldi's motion to move produce to the front and center suggests the retailer wants to be known as well-stocked store with everything the shopper needs. Additionally, once the fresh produce department is a strong anchor, stores have a tendency to follow through with other departments.
"Good looking produce has a lot of power to drive impulse purchases," Roerink said. "With fresh produce pulled to the entrance, shoppers will be more aware of it and it immediately starts to change the image of that store. By making sure all shoppers are routed through produce, it becomes a great way to build onto the basket size. Produce, along with bakery, also drives the fill-in trips. If Aldi becomes more known as a produce destination, they can start to pick up more of the produce/bakery fill in trips and drive more traffic to the store."
Heavy in organics and convenient packaging
It appears that Aldi will continue its following of market trends. In fresh produce, it means, clean, organic and conveniently-packaged products. Aldi will likely add even more organic and clean options, and by doing so look to draw younger shoppers who are after more affordable organic options. The question will be whether or not Aldi will look to stock more value-added products.
"I wouldn’t be surprised to see a greater selection of organic items," Roerink suggested. "Aldi over-indexes for Gen X and Millennial shoppers and many of their center-store products have specialty claims, be it free of artificial colors or antibiotic-free meat. That shopper tends to look for affordable organic options in produce as well. It will be interesting to see if Aldi will start stocking any value-added, time-saving items. Given their shorter shelf-life, this is not something they have focused on to date, but given their shopper base it would be a natural fit."
She added that packaged produce will likely remain, given Aldi's low-cost business model. "I think packaged will continue to drive most of their produce selection, simply because the younger consumers don’t place great value on self-selecting their produce. Additionally, packaging often has an extended shelf life function, which is important in Aldi’s model. The ease of packaged produce works in with Aldi's model of less labor than traditional stores, so having merchandising solutions that are easy to stock are very important."
The ultimate goal - more shoppers through the doors
No doubt Aldi's aim is to increase the amount of shoppers in its stores. Not only that, but the retailer wants to keep them coming back and not go to another store. Additionally, by revamping and enlarging their stores, it's a signal that Aldi wants to attract more high-end shoppers too, who value things like healthy foods and greater choices. If Aldi is indeed going to become the third largest supermarket chain in the United States, as some are predicting, then this strategy is quite self-explanatory.
"Fresh produce really has a household penetration of 99.7 percent," Roerink shared. "Higher income households place greater emphasis on fresh, so it would be interesting to see if an expanded produce selection beyond basics could attract higher-income shoppers. IRI found that 93 percent of Aldi shoppers said pricing/value drove them to the format and 77 percent purchased fresh produce. One-third of shoppers expect to shift much more of their shopping to Aldi."
If Aldi are successful in their continued expansion and once they do inject life into their fresh produce department, expect the existing supermarkets to up their game, if not the price. On price, Aldi will remain a discount retailer, so if the other supermarkets want to compete, they will have to drop their price or invest in other areas of the store to maintain a 'premium' on Aldi and other discounters by offering a higher level shopping experience. According to Roerink, this has already been visible in the market.
"IRI documented that 60 percent to 70 percent of markets experienced price declines when an ALDI opened," she observed. "These price declines averaged between 1 percent and 3 percent with category prices ranging from -15 percent to +2 percent. Some retailers will also ramp up service levels, emphasize quality, organic offerings, local items and assortment depth in general to really build out their own competitive advantage."
For more information:
Anne-Marie Roerink
210 Analytics
Tel: +1 (210) 651-2719
aroerink@210analytics.com
www.210analytics.com