WASHINGTON, DC – MAY 02: An Aldi grocery store is pictured on May 02, 2025 in Washington, DC. The discount grocery chain plans to open more than 225 new stores in the United States in 2025 as part of a five-year growth plan to add 800 stores by the end of 2028. (Photo by Kevin Dietsch/Getty Images)
Kevin Dietsch/Getty Images/Getty Images North America
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Kevin Dietsch/Getty Images/Getty Images North America
In the summer of 2020, I lived briefly in Ithaca, New York. This is the only time I live near Aldi, the grocery store known for its low prices. I’ve been there twice and found it to be good, but disappointing. I appreciated the low prices, but it didn’t have everything I needed. The store was small and a little shabby.
I didn’t know it yet, but these are exactly the ingredients that have made Aldi the fastest growing grocery chain in America. By BloombergAldi plans to have more than 3,000 locations in the United States by the end of 2028, which would be more than any other chain except Walmart. In 2024, Aldi generated $29 billion of sales in the United States, which is higher than that of Trader Joe’s.
Aldi is a German company known for its low and low prices, and it deserves this reputation. Culinary journalist Deena Shanker told me that his experience comparing prices for several months was that Aldi either matched Walmart in price or was a little cheaper. Grocers like Wegmans and Kroger have announced defensive price cuts, and an analysis released in late 2023 by Lidl, another German grocer with a very similar model to Aldi but fewer U.S. stores, found that grocery chains were cutting margins. ~7 percent in areas where Lidl stores have opened.
All this to say: Aldi is disrupting the grocery industry and lowering prices even as the cost of food – in restaurants and other grocery stores – rises higher and higher.
This perhaps seems a little trite. But I found it totally intriguing and confusing, because…
- Walmart and Costco’s business models also depend on low prices, and they can offer low prices by having huge stores, giant warehouses, and incredible economies of scale that allow them to pay less for Oreos, baby carrots, and Jif peanut butter than other grocers. So how on earth can Aldi match or beat them on price?
- When a company disrupts a long-standing industry, it’s usually a startup enabled by new technology, like Netflix using online streaming to disrupt blockbusters and video rentals. But Aldi doesn’t have futuristic robots. Its stores resemble grocery stores, and Aldi was founded 80 years ago in post-war Germany. So what’s going on?
- One of the proudest achievements of America’s capitalist market economy is providing its citizens with an abundance of increasingly affordable food. Quite famously, Soviet leader Boris Yeltsin visited a grocery store in Houston during the Cold War and was amazed that the average American enjoyed more variety than leading Soviet politicians. From 1960 to 2019, Americans spent less and less of their incomeon food every yearalthough they enjoyed more frequent restaurant meals, more sushi, and much better beer. But since the pandemic, food has become less affordable. Can US markets no longer offer cheap groceries? Did something break?
A necessary but not sufficient explanation for Aldi’s low prices is that management is obsessed with efficiency and cutting unnecessary costs. There is no music in stores, because speakers (and licensing fees for muzak) cost money. Staff place the products on the shelves, still in the boxes they were trucked in, because unpacking the fruit, bread and dried sticks artfully would incur higher labor costs. Mediocrity is intentional: it’s the cost of cheaper groceries.
But other grocery chains are just as obsessed with efficiency. Here is one of my favorite examples from Costco, courtesy of Zachary Crockett and The restlessness: “In another case, transforming a container of cashew nuts from a circular shape to a square shape allowed Costco to stack more items in a single truck, reducing the number of shipments by 24,000 pallets per year. For shoppers, this meant cheaper nuts.”
Instead, Aldi’s extremely low prices rely on two main tactics:
- Private label products: On Aldi’s shelves, you can find cookies that look a lot like Oreos and boxes containing what certainly look like Ritz crackers. But they are “Benton Chocolate Sandwich Cookies with Vanilla Filling” and “Savoritz Golden Round Crackers.” Both are made by Aldi and therefore cost less, since Aldi doesn’t have to pay Nabisco’s markup or add its own. More than 80 percent of Aldi’s products are these store brand versions, that is, private label products or, in the case of similar Oreos,fooled.
- Limited selection: When the Albrecht brothers took over the family grocery store in 1946, they had a small store and limited funds to stock the shelves. But it became their secret sauce: stocking a very limited selection of items—only essentials like rice and eggs, and just one of each rather than a variety of brands, sizes, and versions—allowed them to keep prices low. They could buy in bulk, which is cheaper, and by not stocking niche products that sit on shelves for weeks or days, they would save even more by avoiding spoilage and limiting shelf space, storage areas, and rent or real estate costs. Even as the brothers became wealthy, they kept the stores small and the selection limited. It’s less convenient: Shoppers often have to go to another grocery store to get products like white pepper that Aldi doesn’t stock. But what Aldi stocks is cheaper.
Aldi’s low prices have made their stores very attractive during times like the Great Recession and the current inflationary era. The Great Recession, in particular, enabled their current growth. But if Aldi only offered bargain prices in run-down stores, customers might flee to Costco, Kroger or Whole Foods when the economy recovered.
Another key to Aldi’s success is therefore pleasure. Aldi has a center aisle known for chaos, with rotating purchases like fun toys, German spätzle and Advent calendars containing 24 festive cheeses. And its U.S. stores have (slightly) expanded their offerings to attract higher-income customers: Aldi not only offers the cheapest apples, but also the cheapest honey crisp apples. Not just super cheap wine, but well priced “premium” wine.
Instead of being a sad place to shop when you’re short on cash, Aldi has more flea market energy: a place where everyone can go in search of great deals and fun finds. Aldi is beloved; many customers areworship in their devotion. In some cases, customers are lining up for new store openings, like early iPhone releases.
My main takeaway from researching and analyzing Aldi over several weeks (e.g.an episode of Gastronomy!) is that there is always something new under the sun. American grocery stores are a mature market. They seem to be in fairly stable balance. But they are dynamic and constantly evolving. Aldi didn’t need futuristic technology to disrupt the industry; just a strategy developed 80 years ago, then adapted for the American market. In healthy markets, there is always an entry point for new competitors.
My other takeaway is a greater appreciation of the famous business saying: “There are only two ways to make money in business: one is to consolidate; the other is to unbundle. »
Probably the clearest example of bundling and unbundling is television. Cable companies bundled together hundreds of TV channels and charged high fees for each one. Then streaming services like Netflix made money by unbundling TV – letting people pay just for Netflix. Which was liberating! For several years. But now customers are bored of subscribing to so many streaming services. So streamers team up to form bundles, like getting Disney, Hulu, and HBO Max at a discounted price. Now, to make money, you have to group together.
Even the person who coined the expression about bundling and unbundling, I didn’t think that was literally the only way to make money. Yet I have often failed to consider (un)bundling as a powerful framework outside of the media industry. Until I realized Aldi was unbundling groceries.
For a long time, grocery stores were more clustered. In the past, people went to the baker, the butcher and the greengrocer. Then the supermarket put all these things under one roof. And then Walmart, Target and Costco created supermarkets where you could buy groceries, clothes and big screen TVs.
Today, Aldi is reversing that process by unbundling groceries. Not only does Aldi not have big screen TVs and Lululemon hoodie and pant dupesthere’s not even everything on your grocery list. Aldi has unbundled the part of the grocery business that it can do very cheaply and is intentionally locating Aldi stores near competing grocery stores so that shoppers can easily pick up the last things on their list (the rest of the package).
With this in mind, I began to see consolidation and unbundling at work in more and more sectors. If you look closely at yours, I think you will too.
My third takeaway is that I simply haven’t lived in Ithaca long enough to scold Aldi. If I had been there longer, I bet I would have incorporated Aldi into a multi-store strategy. I understand now! Aldi, please come to Colorado (where I live)!
At the start of this article, I asked three questions inspired by Aldi’s expansion. I feel like I’ve answered the first two, which are about how Aldi achieved a comparative advantage.
The third question was whether the American economy was still able to provide an abundance of food at an affordable price. I think the way Aldi’s growth has pushed its competitors to keep prices low shows that grocers are the wrong target for our anger over food prices. But grocery stores are only part of the food world.
Gn bussni
