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Low prices are not achieved through subsidies or sacrificing profits; focusing on one thing and doing it to perfection is excellence.

"Good quality, low price, and speed" have become synonymous with modern new retail. With the rapid rise of new retail, some "hypermarkets" are increasingly struggling in China and have to cling to e-commerce giants for transformation.

Many have exited the Chinese market due to incompatibility. In 2017, UK's Marks & Spencer fully withdrew from China; in 2018, South Korea's Lotte Mart sold all its stores in China and officially exited; Dia Tian Tian was sold to Suning and became "Suning Xiaodian"; many unknown convenience stores have switched to JD Convenience Store signs.

But there is a store that, on the day of its opening during the Dragon Boat Festival, had people queuing from 5 a.m., with 20,000 visitors flooding in. This store is Aldi, Germany's largest supermarket chain, known as the "poor people's supermarket."

Aldi: The People's Supermarket

This was Aldi's first opening in China and even Asia, with both stores located in Shanghai. The supermarket name was changed from the commonly used "Aldi" to "Olejoy" (奥乐齐).

Founded in 1913, Aldi started as a small food retail store in a mining area on the outskirts of Essen, Germany. In the 1940s, Aldi began operating as a chain and has been growing rapidly. Today, Aldi has over 11,000 stores in more than 20 countries and regions.

In May 2018, WPP released the "2018 BrandZ Top 100 Most Valuable Global Brands," ranking ALDI as the 93rd most valuable brand globally.

In December 2018, the World Brand Lab released the "2018 World Brand 500" list, with Aldi ranking 424th.

On February 11, 2019, Deloitte released its 2019 Global Powers of Retailing report. For the fiscal year ending June 2018, Aldi ranked eighth among the top 250 global retailers with $98.287 billion in revenue, only $13.479 billion behind Germany's Schwarz Group (also a discount chain) in fifth place with $111.766 billion.

What is Aldi's secret to success?

Great Truths Are Simple

Cheap!

Aldi's prices are 35-40% lower than average supermarkets and 15-25% lower than Walmart, which advocates "everyday low prices," while maintaining similar quality.

Instead of losing money, Aldi generates over $90 billion in revenue by taking cost reduction to the extreme.

Using the word "extreme" is not an exaggeration:

First, to save management costs, Aldi has no parent company, no marketing department, no PR department, no customer service department, does no market research, and even does not make budgets or plans.

Aldi only has a "management committee" composed of managers who have previously served as branch managers. A 500-800 square meter store has only 4-5 employees, and even stores over 1,000 square meters have no more than 10 employees.

By eliminating the command departments, the organization "forces" employees in basic positions to participate in management, giving them greater empowerment and more innovative tasks.

If consumers have any issues with purchased items, they can return or exchange them at any Aldi store without reason, saving significant labor costs.

A KPMG report shows that Aldi's labor costs account for only 6% of its operating revenue, while ordinary supermarkets' employee costs typically account for 12% to 16% of total revenue.

Second, economies of scale enhance bargaining power. Compared to Walmart's volume-based approach, Aldi focuses on curation, with product categories once as few as 600-700. Although the number has increased in recent years to meet diverse needs, it remains between 1,200 and 1,700, which is minuscule compared to Walmart's average of 50,000 product categories.

Because of the limited variety, Aldi's average procurement per item can reach 60 million euros, while Walmart's is less than 10 million euros. The larger procurement amounts give Aldi an absolute advantage in bargaining, ensuring it can purchase the best quality products at the lowest market prices. This is also one of the main reasons Aldi's prices are lower than competitors.

Third, the stacking of private labels reduces procurement costs. Private labels are the core of all Aldi products. Since its inception, Aldi has consistently focused on building its own brands. In 2015, the private label share of Aldi South exceeded 90%, and in 2016, the average private label share of Aldi North reached 90.2%.

With a higher proportion of private labels, there are no middlemen to take a cut, and the savings are passed on to consumers, which is another reason for lower prices.

Fourth, store location and shelf placement aim for savings. Aldi stores are generally not located on busy streets but rather in residential areas, near schools, or in suburbs, where rent is cheaper and there is a steady flow of customers. The stores are extremely simple, with areas of only 300 to 1,100 square meters, and all stores have a uniform design.

Product display does not emphasize aesthetics but maximizes efficiency. Heavy items are placed at the bottom, light items at the top, and many products are displayed in full boxes on shelves.

Aldi's founders, the Albrecht brothers, summarized their success secret: "We only put one sheep! Countless facts prove that those who want to put a flock of sheep often end up with not even one sheep left, because they are crushed by endless greed."

This business model of "only putting one sheep" made Aldi the "Walmart killer."

The "Walmart Killer"

At the end of the 20th century, when Walmart, which claimed to be a "discount supermarket," entered the German market, it met its match.

As in other countries, Walmart used an "aggressive dumping strategy" of "always lowest prices" to crush competitors in Germany. But Aldi's prices were even lower, and with a longer history and higher market share, the price war lasted nine years.

In 2015, Walmart announced its exit from Germany and agreed to sell its 85 department stores in Germany to Aldi and Metro, with estimated losses exceeding $1 billion (nearly 7 billion yuan).

Similarly, when Aldi entered the US in 1976, it has been favored by consumers ever since. Today, it has over 1,700 stores in 35 states.

In China, few people may have heard of Aldi. A customer rushing to buy asked others how this supermarket was.

The popularity is mainly due to low prices!

This time, Aldi prepared for four years before entering China. In 2015, it set up a procurement office in Hong Kong; in 2017, it entered China through Tmall Global; and after two months of trial operation, it opened stores in China.

However, its stores in China differ from those in other countries: the shelves use electronic price tags from Hanshow, which are not "cheap," and the store decoration also indicates a significant investment.

It is clear that Aldi has thoroughly understood the competitive landscape of new retail in China and came prepared.

Whether Aldi will successfully take root in China or leave like other "outsiders" due to incompatibility remains to be seen, but Aldi's business model is worth learning from for domestic e-commerce.

Low prices are not achieved through subsidies or sacrificing profits; focusing on one thing, doing it to perfection is excellence.

Source: Finance Breakfast (ID: Femorning)