Walmart’s ‘Worst Nightmare’ Coming to Southern California

German discount grocer Aldi plans to open 45 stores in the region.

June 15, 2015

LOS ANGELES – Discount grocer Aldi has quietly expanded to nearly 1,400 locations in 32 states in the past 20 years, reports the Los Angeles Times, with an additional 45 stores planned for Southern California.

The move could force retailers that are getting into the grocery game to lower their prices. The newspaper writes that Pacific Northwest chain Haggen is rebranding 83 California supermarkets, while Walmart and Target are expanding their grocery offers. Meanwhile, online retailers Google and Amazon.com are also vying for the consumer grocery dollars.

Aldi’s entry to the area “will tighten the squeeze on Southland supermarkets, which have been scrambling to offer customers more options both online and at stores. Safeway and Albertsons merged earlier this year to try to gain an edge. Now, Aldi's entrance will force grocers to compete fiercely for patronage, some analysts said,” writes the newspaper.

While Tesco’s Fresh & Easy concept has struggled to differentiate its offer in an already crowded grocery market, some industry analysts say Aldi has a clear concept: Good quality at deep discounts.

"Fresh & Easy and Aldi stores are roughly the same size," Jim Hertel, managing director at Willard Bishop, told the newspaper. "The difference is with Aldi, you walk in there expecting to pay less — significantly less."

Burt Flickinger III, managing director of Strategic Resource Group, suggested that Aldi's entrance will spark “a pronounced price war” in the Southland region, telling the newspaper that Aldi “has been Walmart's worst nightmare. It will be tough on Costco as well as all the established food retailers.” He added that Aldi could open 100 stores in the next 10 years and 250 within the next 20 years. “Aldi has always done best with markets with the highest cost of living,” he said, noting that California “has the highest cost of living in the continental United States.”

Aldi’s concept is a bit different than traditional grocery shopping. For example, customers must deposit 25 cents for cart (which they get back after returning it), bag their own groceries and navigate aisles of goods stacked on shipping pallets instead of shelves. Furthermore, more than 90% of goods are Aldi’s own private label (about 1,300 items), ranging from peanut butter to canned vegetables.

"It's a big-time value play," Hertel told the newspaper, adding, "You can probably do 85% to 90% of your weekly grocery shopping needs as long as you're not brand conscious."

Jason Hart, Aldi's chief executive for U.S. operations, acknowledges "there is a little bit of a learning curve" for first-time shoppers, writes the newspaper, adding that the retailer will run “extensive” advertising to introduce consumers to the Aldi brand, which “needs to be explained a bit,” he said.

Hart added that customers will get used to Aldi once they see the lower prices. “There’s an ‘aha’ moment, when they start to put together the way the store operates and the way we do things a little differently,” he told the newspaper, adding, “It really clicks that they are able to save significant amounts of money.”

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