Grocer wants you to love it for more than low prices, oddball German food

Discount grocer Aldi will soon reopen its first remodeled store in the Wichita area – a small move in the reorganization of the nation’s grocery business.

The store, 765 N. Maize, will open on June 28 with more space, fresh produce, dairy and bakery items. The store in Derby is already done, and the Hutchinson store’s remodel will begin this summer.

The other three Wichita stores – 2323 N. Amidon, 2826 S. Seneca and 6835 E. 21st St. – will be remodeled by 2019.

Aldi is part of an increasingly fragmented industry in which the market share for traditional grocers, such as Dillons, slowly gives way to other players and places to buy groceries.

A German company with 1,650 stores in the United States, Aldi plans to expand to 2,000 stores by the end of 2018 and 2,500 by the end of 2022.

In comparison, Kroger – which owns Dillons, among other chains – has about 2,800 much-larger supermarkets.

While Aldi’s segment is growing faster than traditional retailers, the fastest-growing segment of the industry is e-commerce, driven by Amazon and matched by Kroger and Wal-Mart, among others, according to grocery industry consultant Willard Bishop.

Why Aldi is expanding

Aldi stores are what’s called limited-assortment rather than a traditional grocery store.

The stores are 10,000 to 12,000 square feet, about a quarter or less the size of a full-sized Dillons. It sells about 1,500 of the most popular grocery items – including produce and fresh meat – plus 30 to 40 items that come and go, sometimes including oddball items from Germany.

Almost all items are Aldi-branded rather than name brand.

To cut costs, Aldi requires shoppers to bag their own groceries, pay a 25-cent refundable deposit to use shopping carts to encourage their return, pay for shopping bags unless they bring their own, and pay with cash, debit or credit card or food stamps.

The renovated stores will be slightly bigger, about 12,500 square feet, feel roomier, lighter and more updated – less like a warehouse and more like a store. They will feature more fresh items and organic foods and more gluten-free and pro-biotic items.

Mark Bersted, vice president of the region that includes Wichita, said the move is being driven by customer demand.

“They will shop with us if we offer the prices and products that they want to see,” he said. “We know the price is right, because we are the low-price store, without question, but we wanted to offer more of the products that our customers want to see.”

Aldi has been in the United States for about 40 years and in Wichita for about 30.

Jim Hertel, managing partner of grocery industry consultant Willard Bishop, said he thinks Aldi is undergoing the growth spurt in part because German competitor Lidl is opening its first stores in the U.S. It has said it will open 100 stores along the East Coast this year.

But, he added, it’s also because Aldi has found a sweet spot in the market following the recession. Aldi sells good-quality food at prices below Wal-Mart and has gained a following among middle-class shoppers.

“They’ve gotten hot as a food retailer, growing their store footprint 10 percent a year and seeing same-store sales grow 10 percent,” he said.

He said that, by one estimate, the U.S. could accommodate about twice as many limited-assortment stores as now exist.

Buying bread, milk

In 1988, 90 percent of groceries in the U.S. were bought in traditional grocery stores, such as Dillons or Albertson’s. Today, that’s 46 percent and falling, according to Willard Bishop.

That was driven by the arrival of Wal-Mart Supercenters, warehouses Sam’s Club and Costco, limited-assortment stores Aldi and Save-A-Lot, convenience stores QuikTrip and Kwik Shop, dollar stores Dollar General and Family Dollar, and upscale fresh markets Whole Foods and Sprouts.

Through it all, grocers have been striving to adapt by expanding stores, shrinking stores, adding gasoline and furniture, lowering prices, adding store brands, offering prepared food and baked goods, and selling high-dollar organic produce and health food.

Now the fastest-growing piece of the grocery business is e-commerce.

Today, 2 percent of the $1.2 trillion in groceries sold in 2015 was sold through e-commerce.

Amazon Fresh is offered in two dozen metro regions on the East and West coasts, as well as Chicago, and is adding locations every few months. Customers can order online and have food delivered the next morning at their door for free if the ticket is over a certain amount.

But Amazon Fresh depends on a certain population to make the home deliveries profitable. It’s not yet available in Wichita.

In Wichita, Dillons and Wal-Mart both offer an e-commerce technology called click-and-collect, in which customers order online, have store employees assemble the order, and then the customers drive to the store to pick it up.

Hertel said this is one solution by existing grocers, and it won’t be the last one.

“The danger is that traditional grocers will look at that 2 percent and say, ‘Get back to me when it sorts itself out and I know which technology to invest in,’ ” Hertel said. “By the time you get back to address it, you may have missed it.”

This story was originally published June 14, 2017 at 5:59 PM with the headline "Grocer wants you to love it for more than low prices, oddball German food."