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From food to flights: The discount business model

Theo Albrecht, co-founder of the Aldi discount supermarket chain Aldi, died this week, but the business model he helped create is here to stay, and its success has already spread far beyond the grocery sector.

Aldi shopping carts

Aldi invented the discount market idea, but many companies profit from it

The keep-it-simple, keep-it-cheap business model that started in the grocery aisle when the first Aldi open end its doors in 1962 has become pervasive in the German supermarket sector, according to Matthias Queck, a senior analyst at Planet Retail.

"Aldi is only able to offer really low prices by its limited range, through which is generates massive advantages in purchasing," Queck said of the chain, which is also known as Trader Joe's in the United States.

The discount concept has been so successful that it is responsible for some 44 percent of national grocery sales, according to Germany's GfK market research group. Though it shares the no-frills sector with a number of competitors, Aldi's network of 4,400 outlets makes it hands-down the largest discounter in Germany. Planet Retail estimates the nation is served by a total of 16,300 discount grocery stores.

No secret to Aldi's success

A Ryanair plane

Ryanair is an indirect decendent of Aldi's no-frills concept

"It is a very German phenomenon," Queck said, pointing to Germans' fondness of getting a good deal on food, clothes or electronics - all of which at some point make it onto Aldi's bi-weekly flyer of special sale items.

Divided into Aldi North, which was managed by Theo Albrecht, and Aldi South, which was controlled by his brother Karl, total revenues for the Aldi brand are estimated to be between 34 billion euros and 53 billion euros ($44 billion and $69 billion).

"There are very few people who have left their mark on an entire branch of the economy; that's what Theo Albrecht did," Stefan Genth, head of the German Retail Federation HDE, said in a statement. "The low-cost philosophy has become an integral part of the retail market."

But the influence of Aldi's business model isn't limited to retail sales. It can be seen at no-frills airlines like Ryanair and Easyjet, the ubiquitous 1-euro stores that saturate city fringes, call-around numbers to lower communications costs, inexpensive clothing lines and discount electronics stores with low prices and limited selection.

But Queck said there is no secret behind the success of low-cost operations - whether they are airlines that deliver passengers without serving drinks or grocery stores with a limited range of unbranded products.

"It has become very popular for all parts of the German society to shop at Aldi," he said. "It's simply because consumers gradually have found that products and product quality is actually very good and that prices are significantly lower than other places."

Author: Sean Sinico

Editor: Sam Edmonds

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