Who would have thought that the 9.9 yuan price point, which first gained traction in the coffee industry, would be executed so successfully by ALDI in the budget community supermarket segment?

In ALDI stores, as of the end of August, there were over 500 products priced at 9.9 yuan or below, accounting for about a quarter of all items. This year, ALDI has reduced prices on nearly 300 products cumulatively.

Image source: Retail Kr Planet

At the end of August, ALDI doubled down again, promising "always new low prices" and launching a new batch of discounted products covering fresh produce, alcoholic beverages, household cleaning, and daily necessities, with some items seeing price cuts of up to nearly 40%.

Clearly, ALDI is now focused on solidifying its "affordable" brand image, aiming to win over middle-class consumers who want both "lower prices" and "higher quality."

A source familiar with the matter told the author that unlike the common high-low pricing promotions used in the supermarket industry, ALDI's continuous introduction of "new low prices" is not a simple promotional tactic but is supported by a long-term, dynamic price reduction mechanism it has built.

Expanding the range of products under 9.9 yuan and continuously introducing "new low price" items essentially creates a low-price anchor, using value-for-money that exceeds customer expectations to highlight ALDI's sense of great value in the market.

In other words, "low price" is a capability, not a promotional tool.

After five years of operation in Shanghai, ALDI's private-label products now account for over 90% of its assortment, which is a key means of building differentiation and achieving low prices. It is precisely the development of private-label products that gives ALDI the underlying capability to continuously offer "new low" prices.

Recently, the author interviewed several industry insiders and compiled some specific strategies ALDI uses in the Chinese market for its private-label products.

How does it achieve the "both/and" of "good quality, lower price"?

In the book "The ALDI Way: How a German Discount Retailer Conquered the World," it is mentioned that initially, ALDI set extremely low gross margins in Germany and immediately lowered selling prices whenever purchase prices dropped.

In the latest long-term low-price list, the 750ml Lugana white wine, originally priced at 159 yuan, comes from a DOC-designated region in Italy and has been reduced by nearly 40%, making it available for under 100 yuan. This is an advantage of imported goods brought by global supply chains, which is difficult for ALDI's local Chinese competitors to replicate. In terms of global collective sourcing of wine, "a single SKU involves a very large volume of bottles to secure a significantly advantageous price." Therefore, ALDI's imported private-label wines are directly sourced, offering competitive quality and value.

So, we are more focused on how ALDI implements its affordable strategy in the Chinese market, builds a local supply chain, explores all possible price reduction spaces, and proactively lowers prices to fulfill its promise of "always new low prices."

Question 1:

How to develop a low-priced product that offers exceptional value?

A source familiar with the matter told the author that when ALDI China develops a private-label product, it first considers quality, then establishes a competitive price range.

Image source: Brand official website

First, set quality, then set price. Conduct in-depth research on target consumer needs and examine products of similar quality in the market. Identify consumer pain points, optimize processes and ingredients, and then determine a price range that is lower than the market average and offers excellent value for money.

Then, continuously optimize costs and efficiency in very small details, such as product packaging, to achieve the ultimate quality-to-price ratio.

For example, ALDI pays close attention to improving ingredient lists. For dumplings, it focuses on increasing the meat content in the filling, thinner wrappers, and better flour; for dairy products, it looks at raw milk content, protein content, and added probiotic strains... These indicators are the quality points that consumers care most about.

Second, in some unnecessary and very detailed aspects, strive to reduce costs without affecting quality. This includes not over-pursuing exquisite packaging materials, such as reducing the weight of mineral water bottles to cut packaging costs. The current 8.9 yuan "Value Yangzhou-style Ham Fried Rice" is a typical example, abandoning plastic box packaging in favor of a more cost-effective food-grade packaging bag.

After such refinement, ultimately, in the same price range, there is no better choice or better quality than ALDI's product, allowing consumers to intuitively perceive ALDI's "exceptional value."

An industry insider revealed that in pricing new products, ALDI is basically cheaper than market brands for products of the same quality.

At the end of 2023, after ALDI's "Value" series was launched, the procurement team found that in certain specific categories, consumers are extremely price-sensitive; but in other categories, in addition to lower prices, quality improvement is a key factor consumers care about. These findings reinforced ALDI's commitment to a quality low-price route and established different development focuses across product lines.

Image source: ALDI Mini Program

Taking ALDI's expertise in Western-style food as an example, ALDI's private-label products particularly highlight quality. The recently launched Youbai original flavor cream cheese, imported from Denmark, is 100% natural cheese, not processed cheese, offering higher quality, but it is sold for only 16.9 yuan, cheaper than similar products on the market, making it easy for consumers to recognize its value.

Question 2: How can a small-scale retailer leverage the scale effect of private-label products to reduce costs?

Objectively, compared with "giants" like Walmart, Yonghui, and Hema, ALDI, which currently has fewer than 60 stores in Shanghai, is just a regional retailer with a small scale. How does it develop high-quality, low-priced products in the early stage of market entry when its scale advantage is weak?

Based on its past experience entering new overseas markets, ALDI generally strives to cooperate with high-quality suppliers. In the Chinese market, ALDI also chooses to partner with reputable suppliers who are willing to grow together and have long-term cooperation intentions, seeking various opportunities to mitigate the disadvantages of small initial scale.

After selecting SKUs and specific items, ALDI leverages the scale advantage of its vertical supply chain to scan the entire chain for cost reduction.

Taking dairy products, which have high cold-chain logistics costs, as an example, ALDI can offer multiple SKUs at around 10 yuan despite its small scale, mainly by consolidating multiple products in the same supplier factory. This optimizes centralized logistics and distribution, spreading costs.

In the fruit and vegetable category, ALDI prioritizes direct shipment from production areas for some products, eliminating wholesale intermediaries to save on intermediate losses and transportation costs while ensuring quality. On this basis, ALDI sets stricter testing standards and lower markup rates, achieving higher quality and more competitive prices in the most difficult-to-operate fresh produce category.

Question 3:

How to establish a long-term, dynamic price reduction mechanism?

Why can ALDI promise "always new low prices," or how does ALDI explore price reduction space to continuously lower prices on some products?

An industry insider told the author that the logic behind this is: by continuously proactively giving up profits, allowing consumers to experience high quality at low prices, stimulating more purchase frequency, driving sales growth, and in turn enhancing scale effects. This cycle lays the foundation for sustained price reductions and offering more products.

Continuously improving details is known as "kaizen" (continuous improvement), a management method originating from Toyota in Japan.

Persistent profit concessions and iterative low-price strategies are reflected in ALDI's logistics, production, and various operational details. Through long-term cooperation with suppliers, ALDI identifies opportunities for cost optimization and efficiency improvement, which is why many of its products can continuously reduce prices.

Image source: ALDI Mini Program

For the currently popular Yangzhou juicy pork buns, ALDI cooperates with a factory that has intangible cultural heritage certification. As product sales rise, ALDI uses this hit product to drive other items, expand procurement scale, and spread logistics costs, leading to a recent price reduction for this bun.

One of ALDI's private-label beverage bottle packaging is redesigned in coordination with transport vehicle models, considering stability and space utilization to ensure maximum use of vehicle space when loaded. This maximizes cost optimization. Some frozen food carton designs also consider the length, width, and height of transport vehicles to improve space utilization, in addition to multi-category applicability.

A designer revealed that when designing for ALDI, they have to revise the design many times around the applicability of length, width, and height. But he admitted, "This logic is indeed very pragmatic and valuable."

Even after products are launched, ALDI regularly compares prices, continuously reverse-engineering costs and process improvements to achieve further price reductions. Especially for products with volatile prices like fruits and vegetables, the procurement team compares prices every two weeks, and once the purchase price drops due to seasonal factors, they lower the selling price.

Of course, the iteration of continuous low prices does not necessarily mean only price reductions; it can also involve quality upgrades.

In June this year, ALDI launched a 9.9 yuan 52-degree strong aroma pure grain liquor, which received a warm market response. Now, ALDI has initiated an upgrade, raising the quality standard from national standard first-grade to national standard premium. At the same time, the bottle has been replaced with more cost-effective packaging materials, upgrading quality while maintaining the 9.9 yuan low price.

Price reductions based on cost and process improvements further drive sales, increase scale, and open up space for further price cuts. This cycle is being realized in more and more ALDI products.

Question 4: How to achieve "both/and" of low price and quality?

While being meticulous in cost reduction and eliminating various potential premium costs, ALDI also invests significant effort in quality, adopting a very "meticulous" German-style quality control, with many mandatory actions and a willingness to spend money on them.

For example, when selecting private-label products and cooperating suppliers, ALDI has established very "complex" procedures. In the initial factory screening stage, in addition to on-site inspections or supplier self-filled questionnaires, only factories that have passed international food safety standard certifications are exempt from third-party on-site audits.

In factory audits, ALDI's internal audit standards are based on the British Retail Consortium's standard requirements; before new suppliers supply goods, depending on product risk, ALDI's quality control team will conduct random inspections at the factory; for existing suppliers, ALDI conducts regular assessments. After products are launched, unannounced spot checks are conducted at any time, especially frequent checks for food categories, with additional testing when abnormalities are found.

Image source: Retail Kr Planet

For pesticide residue testing of fruits and vegetables, ALDI China has stricter settings. On one hand, it conducts tests according to national standards; on the other hand, for pesticides without limits set by national standards, ALDI sets higher internal standards based on the national standard's defined daily allowable intake.

After suppliers self-inspect and upload quality inspection reports, ALDI still conducts additional random inspections at the warehouse upon receipt, based on product risk levels, and regularly sends products to laboratories for a 400+ item pesticide residue testing package, evaluating quality and safety from multiple dimensions. These additional testing costs are borne by ALDI.

In 1990, American marketing scholar Robert F. Lauterborn proposed the 4C marketing theory, which emphasizes consumer needs as the core and redefines the four key elements of the marketing mix: Consumer, Cost, Convenience, and Communication.

The key to this consumer-centric theory is to deeply understand consumer needs, desires, and expectations, especially considering the cost consumers are willing to pay to satisfy their needs, rather than only starting from the enterprise's perspective to produce products and set prices based on profit.

ALDI's approach of starting from consumer needs and reverse-engineering operational actions aligns with Lauterborn's theory. It also differs significantly from traditional supermarkets that have become mere channels for brands, just moving boxes.

In a media interview with Paul Foley, former head of ALDI UK, it was revealed that when entering a new market, ALDI often formulates a 10-15 year long-term plan, opens enough stores, and builds a local team to eventually rely on its own purchasing capabilities.

ALDI believes this purchasing capability is the key to success. "Once you establish a procurement advantage, it's equivalent to leaving competitors behind."

Translating the German discount supermarket DNA into local market strategies and building a long-term, dynamic price reduction mechanism, ALDI's actions have always attracted attention from domestic peers. But in fact, the great way is simple; in summary, what ALDI does is nothing more than repeated refinement and extreme execution based on fundamental principles.

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