Friday, July 30, 2010

ALDI - From food to flights: The discount business model

Theo Albrecht, co-founder of the Aldi discount supermarket chain Aldi, died this week, but the business model he helped create is here to stay, and its success has already spread far beyond the grocery sector.

The keep-it-simple, keep-it-cheap business model that started in the grocery aisle when the first Aldi open end its doors in 1962 has become pervasive in the German supermarket sector, according to Matthias Queck, a senior analyst at Planet Retail.

"Aldi is only able to offer really low prices by its limited range, through which is generates massive advantages in purchasing," Queck said of the chain, which is also known as Trader Joe's in the United States.

The discount concept has been so successful that it is responsible for some 44 percent of national grocery sales, according to Germany's GfK market research group. Though it shares the no-frills sector with a number of competitors, Aldi's network of 4,400 outlets makes it hands-down the largest discounter in Germany. Planet Retail estimates the nation is served by a total of 16,300 discount grocery stores.

"It is a very German phenomenon," Queck said, pointing to Germans' fondness of getting a good deal on food, clothes or electronics - all of which at some point make it onto Aldi's bi-weekly flyer of special sale items.

Divided into Aldi North, which was managed by Theo Albrecht, and Aldi South, which was controlled by his brother Karl, total revenues for the Aldi brand are estimated to be between 34 billion euros and 53 billion euros ($44 billion and $69 billion).

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