Low-Cost Aldi Amps Up Pressure on Rivals With U.S. Organic Push

(Bloomberg) -- Aldi is betting more fresh foods will give it an edge in the war for U.S. supermarket shoppers.

In a move that ramps up the pressure on competitors such as Kroger Co. and Walmart Inc., the no-frills grocer is expanding its range of vegan and organic products to lure more consumers. Aldi will increase fresh-food options by 40 percent through early next year, the company said, with a focus on items such as organic hummus, kombucha, zucchini noodles and single-serve packs of guacamole.

Low-Cost Aldi Amps Up Pressure on Rivals With U.S. Organic Push

“More and more consumers are pressed for time and money,” Jason Hart, chief executive officer of Aldi in the U.S., said during an interview at an Aldi store in St. Charles, Illinois, on Wednesday. “As the industry is struggling, Aldi is thriving. Aldi is investing.”

The German chain is also spending more than $5 billion to remodel stores and open about 700 new locations in the U.S. by the end of 2022. That would bring its domestic store count to about 2,500.

Low-Cost Aldi Amps Up Pressure on Rivals With U.S. Organic Push

Aldi wants the store renovations to help the chain move beyond its image as a no-frills discounter. Earnest Research recently found that Aldi is a top destination for so-called “churned customers” from Amazon.com Inc.’s Whole Foods, meaning shoppers who stopped visiting the health-focused chain.

Market Share

Among grocery retailers in the U.S., Aldi has picked up market share over the last five years at the expense of rivals like Walmart’s Supercenters, according to Euromonitor International data. U.S. sales for the discounter jumped 15 percent last year to almost $15 billion -- outpacing growth at Walmart, Kroger, Publix and Safeway.

The closely held German chain made its U.S. debut in 1976 in the Midwest, but has since expanded to California, Texas and the East Coast. Aldi’s growth, along with that of its German rival Lidl, has fueled competition in an industry already shaken up by Amazon’s 2017 acquisition of Whole Foods. Walmart has been forced to cut prices to eliminate a price gap with Aldi and Lidl, while Kroger is also ramping up new initiatives to hold on to shoppers.

On Thursday, a merger between Rite Aid Corp. and grocery chain Albertsons Cos. fell apart, another blow for the grocery chain that has struggled to attract shoppers amid cut-throat competition.

Private Labels

Meanwhile, as consumers’ brand loyalty deteriorates, Aldi and other grocery chains are investing in more private-label goods. Amazon has a new brand of diapers and Kroger recently introduced a line of razors. More than 90 percent of Aldi items are private label.

Aldi wants to capitalize on shoppers’ changing tastes by introducing new items such as vegan black-bean and soy burgers -- sold under the retailer’s private-label Earth Grown brand.

There are also frozen meal kits for two that cost $9.99 -- a segment that’s growing and seeing an influx of competition from e-commerce specialists such as Blue Apron and HelloFresh as well as other grocery chains.

Aldi, which last year partnered with Instacart Inc. in certain markets to deliver, is looking to increase coverage to other areas as people turn to online for convenience, Hart said.

He described the industry as being in a “perfect storm” of e-commerce, too many brick-and-mortar locations and people shaking up their shopping habits.

“There’s a bit of hysteria in the industry,” Hart said. “Traditional grocers are fighting to defend their market share.”

©2018 Bloomberg L.P.