Lessons from the Aldi Business Model

Aldi is not your typical grocery outlet. The average grocery store will have over 40,000 different items on the shelf at any given time. This discount grocery chain, on the other hand, may only have 1,500 items within the store at any given time. The Aldi business model attracts discount shoppers by offering very low prices on what they do stock. Aldi’s also stocks only their privately owned brands instead of name brands, furthering their profit profile.

There are times when less is more. Walking into an Aldi’s and seeing merchandise on pallets and crates instead of shelves can be disorientating for some customers. Yet the low prices on exclusive knockoff items that have similar flavor profiles help families to save money on every shopping trip and those are profits that Aldi will take to the bank.

How Does the Aldi Business Model Work?

Aldi has created a business model that is based on value and scarcity. This means they attract customers from multiple income demographics, including those on fixed or low incomes, because the prices are at the value level. For this reason, the Aldi business model can be summed up by emphasizing three key points of emphasis.

1. Low prices on every product that beats the competition handily.
2. Limited selections that speak to scarcity of the product or brand within the store.
3. Cost controls that help to add percentage points to the profit margin.

Having a streamlined inventory that is limited means that stocking the stores don’t take as long. It also means that shopping trips for customers don’t take as long, so there is value that can be seen in the extra time a customer has after they shop at an Aldi market.

It’s working. The Aldi brand has opened up more than 300 stores in the last few years. They are expanding internationally as well, which is rare for a grocery brand that has only been in the United States since the 1970s. There are over 7,000 stores in total worldwide. Products are 30% cheaper than competitor products. It’s all because Aldi’s has learned that being lean and mean can really help to make money by saving money.

Does Lean and Mean Work For Everyone?

At an Aldi store, everything is based on providing the best quality and value for a customer by being efficient and fair. Elaborate displays are not going to be found at this store. There aren’t promotions to encourage higher sales, additional services provided, or most anything else that a typical chain grocery store is going to offer. Through experimentation, Aldi has determined their lean and mean best practices do more than just lower costs.

They also help to create a system of lean production. When there is produce in an Aldi’s store, for example, more than half of it will come from locally sourced items. This eliminates transportation costs, which lowers prices and reduces waste from spoilage.

This is all reflective in the core values that are within the Aldi business model. Simplicity, responsibility, and consistency are all highly emphasized because it drives the business forward to continually seek innovations and improvements.

Aldi Works Hard to Eliminate Waste

Many things can add waste to a system. Shopping carts left out in the parking lot, for example, cost time and eventually money. Aldi’s has implemented a security deposit system that encourages customers to return them to the store instead of leaving them in the parking lot. Some stores have customers bagging their own groceries, checking themselves out, or performing other tasks that are employee responsibilities in other stores.

Aldi stores are also only open for a limited time instead of the 24 hour cycle that many grocery stores have adopted today. This means the limited shopping hours reduce staff costs, limit utility costs, and give people better hours to work that don’t include the obstacle of an occasional third shift.

To make sure these efforts are performed consistently and efficiently, Aldi invests into staff training so that best practices are always achieved. This brand also invests into its own people, providing them with one of the highest salaries in the grocery industry today. Aldi staff are trained in multiple skills so that each employee can assume multiple rolls within the store whenever needed.

The Aldi business model proves that profits can be achieved through efficiency. Being lean and mean might not work for everyone, but it definitely works for this grocery chain.