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Business

In US, Penny-Pinching Consumers Boost German Discounter

The economic downturn in the United States has provided a huge opportunity for Germany's discount retailer Aldi to extend its influence in a market not usually known for its frugal consumers.

shopper carrying an Aldi plastic bag

Recession and belt-tightening in the US is benefiting discounter Aldi

At first glance, it's hard to imagine Aldi appealing to the mainstream American tastes. The discounter chain's decor is Spartan. Its narrow product range with goods stacked in cardboard boxes on loading pallets gives its stores a warehouse look.

In a nation where the customer is king, Aldi supermarkets offer little in the way of service. Shoppers need to deposit a quarter to get a shopping cart, bag their own groceries in plastic sacks that cost a dime each and pay in cash. The no-nonsense cashiers have no time for pleasantries and scan the items faster than customers can load groceries into the shopping cart.

Symbolbild USA Wirtschaft Rezession

America's sliding economy is forcing its consumers to change their habits

But those consumer attitudes are changing as the US economy takes a battering, leading to bankruptcies and job losses and forcing Americans to rein in their spending.

And as America's economic fortunes flag, Aldi's are picking up. Analysts say the recession is providing the ideal climate for the privately owned German chain to flourish across the Atlantic.

"The recession is driving shoppers into Aldi's arms. Americans are sitting on a big pile of debt, the jobless rate is going up and unemployment benefits are meager, so whether the weekly grocery bill ends up being $120 or $100 makes a big difference now," said Boris Planer, a retailing analyst at PlanetRetail in Frankfurt.

Success in Germany, unknown in US

With an estimated 51.4 billion euros ($67 billion) global turnover, Aldi is a huge success in Germany. Over 90 percent of all households shop at one of its 4,000 stores nationwide.

But the going hasn't been that easy for the discounter in the US despite its reputation for offering surprisingly high-quality goods for low prices.

Since 1976, Aldi has been operating nearly 1,000 discount supermarkets from Kansas to the East coast, but it's only in the last few years that the retailer has achieved double-digit growth in the US.

Meanwhile traditional supermarkets have grown an average of only three percent, according to estimates by Chicago-based Willard Bishop Consulting.

Last week, Aldi's US division announced its new expansion with 75 stores opening this year at a time when many other retailers are going out of business.

Aldi's rock bottom prices that undercut other big US discounters such as Wal-mart and Target by sometimes as much as 20 percent are the key attraction, according to Planer.

American retail habits changing

However, Juergen Elfers, a European retail expert at Commerzbank Corporates and Markets in Frankfurt says that American customers are not exactly flocking to the Aldi stores yet and it is taking a long time for its concept to gain acceptance in the US.

"Aldi is a still niche market in US food retailing. They've been in the US market for 30 years already and only have 1,000 stores -- that's not a screaming success story," Elfers said.

Aldi accounts for only about one percent of the entire $900 billion food-retailing sector, according to Jim Hertel, managing partner of Willard Bishop Consulting.

A shopping cart with groceries

Analysts say US consumers are increasingly going for low-price retail options

But the global slowdown is slowly but surely changing American retail attitudes, other analysts point out, making consumers previously wary about no-name private grocers adopt a more open attitude toward low-price shopping options.

“Private labels used to have a reputation of being cheap, but of poor quality. Now the quality and perception of quality have improved to Aldi's benefit. Then add factors like inflation in the last year and the recession. The convergence of all these factors are opening up peoples' minds to Aldi,” Hertel said.

Now that even investment bankers are finding themselves on the dole, Americans are becoming more like Germans in terms of being price conscious and ecologically minded, according to Planer.

"In Germany, everyone from millionaires to the social welfare recipient shops at discount stores. The poor have to shop there, but the rich folks like Aldi because it's possible to get good quality at a low price," said Planer.

"Aldi stands for simple life"

Aldi has also worked to remake its image across the Atlantic, making an effort to promote its good-value-for-money concept.

Whereas the discounter previously appealed to mainly low-income groups in the US, the firm is now starting to move aggressively into upper-middle class neighborhoods, where the stores are getting a facelift -- wider aisles, more light and brighter color schemes -- to appeal to a more upscale clientele.

"Conspicuous consumption is out. Aldi stands for the simple life where it's possible to get the essentials at the lowest prices," said Planer. "Even the sale of reusable shopping bags has been phenomenal."

While many retailers have feared Americans would stay away from stores which cut down on their service offerings, consultant Hertel said Americans are not as pampered as conventional wisdom has it. After all, he pointed out, they gave up full-service gas stations for lower cost self-service pumps.

According to retail analyst Planer, the sheer size of the US market means that if only a portion of consumers decided to give up service and convenience for lower prices, discount retailers could still see big benefits, especially in this time of global financial crisis.

“In a recession good value at the lowest price trumps all other factors in luring shoppers,” he said.

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