Age of austerity helps Aldi win out

With its origins in the frugal economy of post-war Germany, it’s little wonder that Aldi has become the destination store for hard-pressed Irish shoppers in search of a bargain. Kyran Fitzgerald looks at the building of a retail empire.

The grocery market is a real battleground, these days. Plenty of price discounting is under way, but the real pain is being borne by suppliers who are being forced to cough up to support marketing campaigns. Pressure on legislators to regulate the sector is growing.

Meanwhile, hard-pressed consumers — traditionally brand loyal — have swallowed their pride and taken to shopping for cheaper, own-label goods.

As a result the German supermarket discounters are on a roll, none more so than Aldi, the intensely private, family-owned company, which has just announced the creation of a further 300 jobs in this country.

Together, Aldi and Lidl now control just over 12.5% of the Irish grocery market, according to the latest figures for the 12-week period to Mar 18 last, compiled by analysts Kantar Worldwide.

Remarkably, revenues at Aldi Ireland have jumped by 30.7% in just one year — a pace of growth easily outstripping that of its German rival.

Lidl benefited from a much more modest 5.8% surge in revenues over the same period.

Aldi stores are highly efficient, with low staff levels, few big name brands and fairly modest opening hours.

The 300 additional jobs — coming onstream over the next three years — will be spread across 20 new outlets as part of a €20m investment.

Elsewhere, supermarket group, Musgrave, is also creating 300 jobs — this year — as part of a €20m investment programme. It is opening just three new stores, with 40 more being extended or refurbished.

The UK multiple and Irish market leader, Tesco, has just announced its withdrawal from the US market — a market where Aldi continues to thrive.

The once high-flying British giant has just reported its first drop in profits in more than two decades.

It is engaged in a strategic rethink, having just put on ice plans for new super stores on the edges of British cities. In the process, it has been forced to take a big hit in its accounts following a writedown in the value of land purchased for these new stores.

Tesco is continuing to expand in Ireland and the UK by going the convenience store route, opening new Tesco Metro and Express outlets.

This year, Tesco will spend €70m on expansion, on top of €59m in 2012.

Despite this, Tesco’s Irish market share has slipped back slightly, suffering perhaps from a Christmas-time burst of price discounting at its main rival, Dunnes.

Tesco’s move into town centres and established shopping streets is good news for opponents of urban sprawl, but another blow to hard-pressed independently run convenience stores. Their share of the Irish grocery retail market has fallen to just over 10%.

Aldi has stuck to its knitting. It is continuing to roll out stores of between 10,000 and 15,000 sq ft in size across Ireland, where it has just opened its 100th outlet. It could soon have more branches than Dunnes, though Dunnes will continue to have a much bigger footprint by virtue of the size of its individual stores.

According to Fionnuala Carolan, editor of Shelf Life magazine, Aldi may have changed the Irish grocery sector, but it has itself adapted to Irish consumers, helping, in the process, to entrench itself more deeply.

“Their packaging is much more appealing — in Germany, consumers don’t care about this. They really are supporters of a lot of Irish suppliers — 50% of produce is said to be from Irish suppliers.” This, she adds, is part of a growing trend for Irish shoppers to support local producers.

Musgrave, with its strong community links, leads the way in backing domestic suppliers. However, even Tesco has accommodated itself to this trend (with M&S alone retaining a strong bias to UK suppliers).

In layout terms, each Aldi store is designed along identical lines. The company motto is: ‘competitive advantage through efficiency.’ Transparency is not, however, part of the package. Aldi and Tesco are joined at the hip when it comes to willingness to reveal anything about the profit margin they earn in Ireland.

The MD of Aldi Ireland, Donald Mackey and buying director, Niall O’Connor, stayed schtum, telling the Oireachtas Agriculture Committee, this week, that information on profit margins was “commercially sensitive.” Executives do not give media interviews, nor may they even exchange information with managers of other Aldi outlets.

This cards close to the chest approach can be traced back to the origins of the company in the industrial Ruhr Valley.

Aldi stands for ‘Albrecht Discount’. It was established just after the Second World War by two brothers, Theo and Karl Albrecht. In fact, the empire grew out of a small shop set up by their mother in Essen in 1913 when her husband, a miner, developed the lung disease, emphysema.

The brothers cut their teeth in the shop. Karl served in the Wehrmacht, the regular German army, on the Russian front, managing to return home having been wounded. Theo served with Rommel’s Afrika Corps in North Africa before being captured.

The discount chain grew out of the frugal economy of the 1950s, a time now fondly known in Germany as the ‘Wonder Years.’ The Albrechts favoured the use of basic packaging and the use of pallets for storing goods. The variety of goods on offer was kept within limits to permit the brothers to take advantage of economies of scale to boost their buying power, bringing down prices.

Theo was famous for wearing cheap, ill-fitting suits and preferring plain meals with lots of potatoes.

In 1971, a bizarre incident occurred at the heart of the empire. Theo was held at gunpoint by a lawyer with gambling debts, Heinz-Joachim Ollenberg at his Dusseldorf office.

The lawyer and an accomplice made off with a seven million Deutschmark ransom delivered to them by the Bishop of Essen. The men were tracked down and jailed, but half the ransom money disappeared. Theo later lodged a claim for a tax deduction in respect of the lost money.

The Albrechts are not alone. Leading Irish retailers, Ben Dunne and Don Tidey, were both kidnapped in the early 1980s, while retail magnate, Galen Weston, narrowly avoided this fate, some years earlier.

The Albrechts have since retreated into well-guarded privacy, but their empire has expanded into territories well beyond their native Germany.

Today, Aldi is established all over Europe with an annual turnover of almost €75bn and 10,000 stores worldwide. It has 1,200 branches in the US and around 1,000 in Britain. However, Germany remains its core market.

Even when the age of austerity is behind us, it seems likely that Aldi will remain a major force on the high street.

Long after the German paymasters have returned home, their grocery compatriots will continue to be the friends of shoppers across the island.

Getting to know: Aldi

- Name: Aldi: ‘albrecht discount’.

- Founders: Theo and Karl Albrecht. Theo died in 2000, then the secretive family did not announce his death until a month afterwards. Karl is still alive aged 93. He stood down as chairman of the company in 2004.

A billionaire, he is one of Germany’s wealthiest people. His hobbies include collecting antique typewriters. He owns his own golf course.

- Range: The Aldi empire is divided between Aldi North and Aldi South. The latter covers southern Germany and eastern Europe. The former covers northern Germany and western and south-west Europe.

- Headquarters: Essen, Germany.

- Competitor: Aldi’s main European competitors include Tesco; Carrefour (France); and Metro.

- Other: In December 2012, heir to part of the group Berthold Albrecht, died. However, other younger family members, including a daughter of Theo, remain active in the company.

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