Wednesday, September 27, 2017

Aldi: The Power of Operational Simplicity


Aldi, the German grocery store chain, is planning a large expansion in the United States.

They became one of the most successful grocery chains in the world by focusing on limited choice.

According to a recent Wall Street Journal article, Aldi originally had to start with less—when two brothers (Karl and Theo Albrecht), veterans of WWII, took over their family's store in the bombed out city of Essen.  They only offered 250 items, mostly what families needed to survive, like flour, sugar, coffee, butter, etc.

However, by around 1960, the German "economic miracle" occurred, and fancy supermarkets selling thousands of items appeared.  The brothers were forced with a choice.  They decided to keep the selection in their stores limited because it gave them a cost advantage.

Today, Aldi stores still stock much less than other chains.  The advantages: more clout with less suppliers, faster inventory turnovers, smaller stores (with smaller rents and utility costs), and (ironically) better quality control.

The last advantage, quality control, means that Aldi also attracts more middle and upper class customers than you would expect.

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