Aldi needs more customer data

Price competition is becoming more intense

Sebastian Rennack
international retail analyst

Not only have the Schwarz Group’s Lidl and Kaufland together become a formidable force in European retailing and are able to counter Aldi’s price pressure, but supermarket competitors Edeka and Rewe are also investing heavily to neutralize Aldi’s price leadership through their price-matching programs.

The price war in German food retailing is also intensifying beyond the traditional food assortments. dm Drogerie, the market leader in the health and beauty segment, is steadily expanding its assortment into categories that were previously considered to be the exclusive territory of food retailers. Sections such as organic food, baby food, superfoods and even wine are now taking up a considerable amount of space in the stores of near-food operators such as dm and Rossmann, and are constantly evolving.

National uniform pricing increases vulnerability

Aldi’s national pricing policy, which was originally intended to be a fair deal for customers regardless of their zip code and to allow for more efficient operations, has become a major vulnerability. Arch-rival Lidl has recognized this dilemma and launched massive marketing campaigns in its international markets against competitors that differentiate prices regionally. The most viral recent examples come from Poland, where Lidl is fighting the discount giant Biedronka, but also from Finland, where the discounter is up against the duopoly K Group and S Group. In both countries, competitors many times larger than the German discounter are not only able to leverage economies of scale for national and local assortments, but also optimize their margin mix through differentiated local pricing.

Organic growth only a finite solution

Higher volumes are seen as the universal panacea in retailing. But the generally accepted old-school concept of being able to offer lower prices through economies of scale may not be enough for Aldi to maintain its position as Germany’s cheapest grocer. In order to achieve cost efficiencies based on higher volumes, Aldi is expanding its international presence with massive investments.

Aldi Süd has announced billion-dollar expansion programs for its operations in the United States and the United Kingdom. In the case of Aldi US, it is questionable whether the transatlantic retail business will help unlock synergies with the European operations. There is a reason why the American Aldi wants to convince suppliers from Europe to extend their presence to the United States.

Aldi Nord is pouring a massive three-digit million euro amount into a renewed expansion push in its international markets. But despite slowly growing market shares, the development is far from stellar. In Germany, where both Aldis together operate more than 4,200 stores, organic expansion has only a limited impact on volume growth.

Glass ceiling for discount model

With limited opportunities for organic expansion and full geographic penetration, Aldi’s old-school discount concept may have hit a glass ceiling in its more saturated markets. In Austria, Aldi Süd subsidiary Hofer has a market share of over 20%, while 90% of Austrians can reach an Aldi store within 15 minutes, according to the company. Even if one assumes that the actual number of households that regularly shop at Aldi is lower, this still means that there is a significant gap between market penetration and the share of wallet that Aldi has achieved.

To attract more, and possibly different, customers, the private label discount concept needs a more refined, locally adapted approach, including a mix of international and local brands. Using Aldi Nord data as a reference, Aldi is going against the current trend of localization. For 2023, the Aldi Nord group reported a private label share of 83.4% of the assortment, roughly the same level as five years ago. The first forays into the permanent listing of manufacturer brands in 2019 led to a decline in the private label share to 79.1% in 2020, and did not seem to have the desired effects.

At the same time, competitor Schwarz Group is building a manufacturing empire integrated into its retail conglomerate. While Aldi’s discount rival produces beverages, chocolate, dried fruits, bakery products, ice cream, coffee, pasta and paper, Aldi can only rely on its own factories for chocolate, coffee and its comparatively new mineral water production.

Reinvention needed

Traditional hard discounters’ thinking in the dimension of the German-specific accounting KPI “Deckungsbeitrag”, i.e. the product-related profit contribution at item level, has historically been one of the main pillars of the financial and commercial success model of German discounters. In the past, assortment decisions were comparatively easy to make. Copying and pasting single, high-turnover products from supermarket competitors as private labels into the assortment, while regularly “cutting the long tail” by eliminating underperforming, slow-moving stock within the category, was a straightforward approach. But single-product thinking is a thing of the past. Not only are commercial concepts nowadays dominated by shopper missions, but the evolution into the digital realm adds another layer of complexity.

SHOPPER RELEVANCE NEEDS DATA

With national pricing as a strategic pillar and the trend back to private label, Aldi must refine its understnading of who shops, how they shop, when, and why. Capturing greater share of each customer’s grocery spend hinges on one asset: robust customer data. The bonus point-based loyalty program currently in pilot by Aldi Nord in Belgium marks a promising start. Through targeted discounts at checkout, Aldi can incentivize repeat visits and specific purchases without altering its national pricing strategy.

However, Aldi remains behind not only full-assortment competitors like Tesco in the UK or Ahold Delhaize in the Netherlands but also its primary discounter rival, Lidl. Now in the third year of its European Lidl Plus app rollout, Lidl’s app reportedly captures sales penetration of up to 60% in some markets. As data collection and analysis capabilities advance, the significance of these insights grows, shaping critical business decisions. Until Aldi illuminates its customers’ preferences and shopping patterns, its strategy remains broadly reactive, rather than strategically targeted.