GMA/FPA Industry Affairs Review

Sales and Sales Promotion

Jeanne Iglesias
Director
Supply Chain & Technology

Jill Johnson
Director
Industry Affairs &
Associate Membership

Brian Lynch
Director
Sales & Promotion

Stephen A. Sibert
Senior Vice President
Industry Affairs

Pam Stegeman
Vice President
Supply Chain & Technology

Industry Affairs Review Team:

Tim Cooke

Business Development Director &

Member Of Board

Planet Retail, London

Jo Anne Sharlach

President & CEO

Singley Associates

Small Ranges and Low Prices: Deep Discounting The Aldi Way

Aldi: At a Glance

Retail Banner Sales 2006:

US $54.2 Billion (est.)

Net Sales:

US $49.9 Billion (est.)

Worldwide Market Share:

0.9 Percent

Top 5 Position:

Austria, Belgium, Germany, Luxembourg, The Netherlands

Markets Currently Operating:

Formats:

Discount Stores (Aldi, Hofer), Specialty Supermarkets

(Trader Joe's)

By Planet Retail

Greatly admired by Tesco for its constancy and unique formula, Aldi and its four CEOs are our subject this month. Aldi, one of the world’s most prolific discounters, has a worldwide network of some 8,500 stores. In the United States, Aldi is the third largest discounter with 850 discount stores and 300 supermarkets.

Aldi traces its origins back to post-war Germany of 1946, when brothers Theo and Karl Albrecht took over the small mom-and-pop store from their parents. With the German economy in ruins, there was little for the grocery store to offer apart from basic commodities such as canned food, sugar, bread and butter. Keen to minimize costs, they stocked no products that required refrigeration, and butter was kept in the cellar to retain its freshness.

Products were competitively priced, and over time came the realization that the range could be kept relatively small and still generate good profits. In his sole public statement (1953), Karl Albrecht commented: “I am convinced that the two principles, that of small ranges and low prices, cannot be separated." At the time, the brothers operated what were essentially neighborhood stores with limited product mixes. However, with experience, they refined the concept, and the first real discount store opened in the early 1960s, marking the birth of their hard discount concept.

In those days, no-one could foresee what impact the idiosyncratic discount concept – which has both been ridiculed and underestimated by ‘traditional’ retailers for too long – would have on modern grocery retailing. Indeed, Aldi and its imitators have been largely credited with driving the mighty Wal-Mart out of Germany last year, after eight loss-making years. It is no wonder that Aldi has often been referred to as the ‘German Wal-Mart.’ Furthermore, fierce price competition has been cited as a key factor inhibiting the success of overseas retailers in Germany, with not one foreign operator among the top 15 grocers.

Having established itself in Germany, Aldi started to expand internationally in 1968. Theo took responsibility for Aldi Nord, which is largely Western Europe (France, the Benelux, Denmark, Spain, Portugal and – this year – Poland), while Karl's Aldi Süd empire went south into Austria, Switzerland and Slovenia, as well as four Anglo-Saxon markets: Australia, the UK, Ireland and the USA.

The decision to create two separate operating companies was taken to avoid differences in opinion between the two brothers and to encourage internal competition, with best practice shared between them. Both retailers cooperate in terms of sourcing, pricing and somewhat in marketing.

Indeed, Aldi’s sourcing policy stands out among the fast moving consumer goods community for its philosophy of fairness, trust, control and cost-consciousness. These factors have helped it develop exceptionally strong, loyal relationships with its suppliers, many of whom have enjoyed tremendous growth. One supplier is quoted as saying: “Admittedly, Aldi got the best prices of all our customers. But Aldi was our favorite customer as well: huge amounts, on-time payments, no need for expensive promotions and field services.”

Following the kidnapping of Theo Albrecht in 1971, the Albrecht brothers have remained notoriously secretive. Theo returned unharmed from the ordeal, after a ransom of seven million German marks was paid. It was rumored that when Theo was captured, his appearance was so modest that the kidnappers asked to see an I.D. card. Displaying his usual business acumen and a keen eye for savings, he attempted to offset the costs of the kidnap against his tax liability. However, he lost the case in court. Both now in their mid-80s, the brothers have long since contributed their billionaire fortune to foundations to uphold the independence of their companies. Even though they are no longer active, their traditional secretiveness remains with the current management.

Hartmuth Wiesemann

Subsequent to Theo’s retirement in the 1990s, Hartmuth Wiesemann, a longstanding friend, took over Aldi Nord. Like the founders, Wiesemann has an unobtrusive, reserved, conservative, but courteous, personality. He could be accused of being a little too cautious as evidenced by the look of the Aldi Nord stores that have been slower to adopt a more modern appearance than their Aldi Süd counterparts.

Conversely, Aldi Süd is considered to be more dynamic, headed by a triumvirate: Norbert Podschlapp and Jürgen Kroll and a more recent addition, Armin Burger. Podschlapp and Kroll have for several years been Karl Albrecht’s confidants, driving the Aldi empire forward internationally. However, virtually nothing is known about these two leaders, even public photos do not exist. Burger joined the so-called co-ordination board, which directs international expansion, earlier this year from Aldi in Austria.

Armin Burger

Like all Aldi managers, the 44-year-old Burger has come up through the business. The son of a farmer in the Black Forest, he left his village to make his career with Aldi, and was appointed general director for Aldi's operations in Austria in 1999. In eight years, he managed to nearly double Aldi's turnover and store numbers in the Alpine republic, taking it to the number three position with a market share of 11 percent in 2006, more than it holds in Germany (10.6 percent). Described as the 'silent tycoon,' he developed industry-leading initiatives such as

organic private labels, fresh pre-packed meat and locally produced, traceable dairy, fruit and vegetable products – initiatives that are now being implemented elsewhere. Farmers are being paid a premium, perhaps in tribute to Burger’s own farm background.

Burger's recent appointment as an international manager for Aldi will doubtless have an impact on its discount operations in the U.S.

Aldi Süd has exported its eponymous Aldi discount stores to the U.S. with stores stretching from the East Coast to the Mid-West, and further gradual expansion likely to take it into Florida and Texas. In addition, Aldi Nord expanded in America with its Trader Joe's cult-like deli supermarket. Although not immediately obvious, this banner shares many similar operating characteristics with Aldi – a very high penetration of private labels (about 80 percent), discount prices and a highly focused product range.

With sales of around U.S. $8.7 billion, Aldi’s U.S. operations have captured less than 1 percent of the fragmented U.S. market, a not inconsiderable feat given its limited product range of some 1,200 products in its discount stores. Its potential for growth is considerable, taking into account the opportunities for its more compact stores to enter markets that are too small for the likes of Wal-Mart. Its weekly non-food promotional offers help attract customers, bridging the gap between neighborhood food stores and big box variety outlets.

By introducing best practices from other countries, Aldi is seeking to become a serious contender in the U.S. grocery business, attracting shoppers not just for its low prices but for its quality products. Of course, this will not be a short-term switch. Aldi is a privately owned, highly cost-oriented retailer that relies on word-of-mouth propaganda and increasing consumer trust rather than short-term marketing gimmicks. As development in its home market Germany has proven, it can take decades for the discounters to change consumers' attitudes – but once it starts, the impact on the grocery market is irreversible.

Industry Affairs News

Sales and Sales Promotion

Take Action To Improve Unsaleables Management

Reservations are still being accepted to the 2007 Joint Industry Unsaleables Management Conference July 17-19 at the Ritz Carlton, Lake Las Vegas, Nevada.

The meeting kicks off with a town hall meeting and ends with a general session on product introductions and withdrawals. In between are two days packed with such sessions as a special program by Grocery Outlet leaders on opportunities for manufacturers to compete for the price-driven shopper.

The how-to of handling discontinued products is the subject for presenters Stephen Kindler, vice president, inventory management, Rite Aid Corporation; Michael Papierniak, manager of merchandise disposition, Walgreen Co.; and Tom Breiten, director, supply chain development, Playtex Products Inc. Peter Zaepfel, Kraft Food’s global logistics manager, optimization and design, spotlights packaging improvements to reduce product damage while keynoter Greg Smith, senior vice president of supply chain and product supply for ConAgra Foods, outlines his company’s three-tiered approach to reducing unsaleables.

A pre-conference workshop features a wide range of speakers representing companies from H-E-B, Walgreen Co., Winn-Dixie Stores Inc., Nestlé Purina PetCare, SUPERVALU INC., The Dial Corporation and Campbell Soup. Moderator of the session is Carol Snyder, supply chain optimization manager at Nestlé Purina PetCare Company.

The conference is held in conjunction with the Food Marketing Institute, the National Association of Chain Drug Stores, the Packaging Machinery Manufacturers Institute, the National Grocers Association and the Consumer Healthcare Products Association. It is open to all professionals involved in operations, logistics, sales/merchandising, marketing or product development.

Registration forms are available on the conference website.

Contact: Troy Beeler (Conference), Jonathan Downey (Sponsorship)

Joint Industry Coupon Committee Leadership Meets June 18-19

The leadership team of the Joint Industry Coupon Committee (JICC) meets June 18 and 19 at GMA/FPA offices in Washington, D.C.

The tentative agenda includes an update and action plan for GS1 data bar rollout, a reexamination of coupon guidelines and recommendations for updates, and the formulation of a committee plan for 2007-8.

JICC Co-Chairs Don King, associate director of advertising services at The Procter & Gamble Company, and Allen Williams, vice president for applications development, information services at Giant Foods/Ahold USA Inc., recently presented at the FMI Show. Their presentation contains all the essentials manufactures and retailers need to know to be compliant with the new coupon bar coding being phased in beginning in January 2008 and, finally, with the shift from UCC/EAN-128 to Reduced Space Symbology (RSS) and the GS1 DataBar required by January 2010. Copies of the presentation are available for download from the GMA/FPA website.

Contact: Troy Beeler

SUPERVALU’s MacNaughton Headlines MSM Conference

Duncan MacNaughton, executive vice president for merchandising and marketing at SUPERVALU INC., is the keynote speaker at the 2007 GMA/FPA Merchandising, Sales and Marketing Conference (MSM) September 30-October 2 at The Broadmoor, Colorado Springs.

Co-chairs of the event are Denny Belcastro, vice president, customer development and industry affairs, Kraft Inc.; Chip O’Hare, president and CEO, Johnson, O’Hare Company Inc.; and Tracy VanBibber, senior vice president, sales, The Dial Corporation.

Sessions spotlight the inaugural retail marketing trends project, the latest on sustainability, an update on the Sales Agency Committee’s value of outsourcing report, and a session on private-label strategy.

Reduced rate, early bird registration is available through July 31. A group discount also is available to companies sending three registrants at full price. For more information, visit the conference website.

Contact: Brian Lynch or Troy Beeler

Health & Wellness

Take a Peak Program Making a Difference

The joint program launched by GMA/FPA, FMI and MatchPoint Marketing in January, Take a Peak into My Pyramid, is making a difference in the grocery aisles across the nation.

More than 30 retailers representing over 5,500 stores in 30 states are participating in the largest in-store health and wellness campaign ever. Take a Peak coordinators say preliminary sales data is showing that consumers in participating retailers are changing behavior.

Due to lack of government funds to promote and inform the public about the U.S. Dietary Guidelines in the government-sponsored food pyramid, the two associations and Match Point stepped in to take the health information to the consuming public in grocery store aisles across the nation.

Numerous industry affairs committees have been briefed on progress of this very worthwhile program. If you are interested in receiving information for your company, contact MatchPoint Marketing.

Contact: Alison Kretser

Supply Chain & Technology

“Garbage In, Garbage Out” Presentation Stresses

Need for Accurate Data

The importance of data accuracy and data synchronization is the subject of a recent presentation by three industry leaders and is now available on-line. Greg Zwanziger, director, electronic commerce for SUPERVALU INC., Marianne Timmons, vice president, supply chain and global business-to-business for Wegman’s Food Markets Inc., and Ann Dozier, vice president, strategic initiatives for The Coca-Cola Company, stress the importance of data accuracy and data synchronization as the foundation of most other supply chain efficiency initiatives. The power point presentation on how retailers and manufacturers are reshaping the way they communicate with trading partners is now available on the GMA/FPA website.

Contact: Jeanne Iglesias

Supplier Relations

AMC Provides Insights into Sustainability via Case Studies

GMA/FPA’s Associate Member Council (AMC) is scheduled to release Case Studies in Sustainability: From the Fields Through the Supply Chain to the Shelf at its annual Good Morning GMA/FPA session at the 2007 GMA/FPA Executive Conference at The Greenbrier June 9.

AMC Chairman Harris Fogel said the case studies profiled include Monsanto’s use of technologies to encourage adoption of plowing methods with less environmental impact, CHEP’s pallet pooling system to reduce waste and use untapped environmental benefits, and Heineken’s approach to sustainability through its supply chain.

The case studies are available at the GMA/FPA website.

Contact: Jill Johnson

Associate Member Research

Kearney: Borrow From Procurement to Save on Marketing

A. T. Kearney’s new article probes how marketers can save money and make their marketing investment work harder by applying sourcing/ procurement disciplines. In an article by Partner Jim Singer entitled “Keep Your Eye on the ‘I,’” marketers are urged to apply concepts developed in procurement to the marketing department, saving an estimated 10 to 15 percent of their total marketing budgets. Find the article at A.T. Kearney's website.

Major Marketing Challenges Surveyed by Clarkston

Noting that the consumer product industry is second only to the high tech industry in dynamic rates of change and accelerated product life-cycles, this white paper stresses a company’s need to keep pace, to adapt and innovate to drive top-line growth. Winning strategies require a mix of new product innovation, strong consumer relationships, sophisticated consumer segmentation and strategic alliances. Clarkston Consulting’s publication, Consumer Products: Major Market Challenges, is available on Clarkston's website.

PRTM: Technology Scouting and the Rise of the Operational CEO

Technology scouting: the ability to identify and rapidly locate emerging technologies to develop innovative products, and, according to PRTM, absolutely essential if your company is to remain competitive. As the pressure to improve R&D productivity rises and the number of technology options grow, companies that know how to find and integrate the right solutions can rush the development cycle at a fraction of traditional costs. Article available at PRTM's website.

Also from PRTM is an article on the operational CEO. Noting that in a world of constant change, business strategy on its own is not enough any more. In addition to knowing where to go, a company needs to know how to get there, and that requires an operational strategy and an operational CEO. Nokia’s President Olli-Pekka Kallasvuo and fast-fashion retailer Zara’s founder and Chairman Amancio Ortega Gaona are used a case studies. Find the article at PRTM's website.

Upcoming Events

July 17-19 Joint Industry Unsaleables Management Conference

The Ritz Carlton

Lake Las Vegas, Nevada

Contact: Troy Beeler

Sept. 30-

Oct. 2 Merchandising, Sales and Marketing Conference

The Broadmoor

Colorado Springs, Colorado

Contact: Brian Lynch

Jan. 17-18

2008 Sustainability Summit

Contact: Stephen Sibert

Jill Johnson

Industry Affairs Review is produced in partnership between GMA/FPA and Planet Retail.

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@ Copyright 2007 by GMA/FPA, 1350 I Street N.W. #300, Washington, D.C. 20005. All rights reserved. Some content and copyright for specific information are provided and owned by Planet Retail, a leading provider of grocery retail intelligence— www.planetretail.net.

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