Low prices, few choices: Discounters remake grocery shopping

NEW YORK -- At a Target in upper Manhattan, shoppers can pick from 19 types of ketchup, including well-known names such as Heinz and Hunt's.

At the Aldi next door, the three options range from 99 cents to $1.79. All are the chain's brands, which doesn't seem to bother shoppers attracted by the low prices.

"If you look at the ingredients, it's the same thing. A lot of people don't realize that," said Anabel Rosado, a bank supervisor who was browsing the snack aisle.

Aldi and its European rival, Lidl, which opened its first U.S. store last week, are hoping to change the way people shop with their smaller, no-frills stores filled mostly with house brands that tend to cost less.

Whole Foods, which has fought the "Whole Paycheck" reputation, also is moving into the discount sector with an offshoot chain named after its 365 brand.

A customer approaches the entrance of an Aldi food market in East Rutherford, New Jersey. Discounter Aldi, one of the no-frills European chains that offer low prices but fewer options and mostly its own brands, is putting the pressure on traditional grocers. Aldi expects to have 2,500 U.S. stores by the end of 2022.Julio Cortez ~ Associated Press

The push could further pressure grocery giants such as Wal-Mart and Kroger, which are contending with the growth potential of online grocers and already have been reining in operational costs so they can keep their prices competitive. Target also is trying to become better known for low prices as it works to boost its struggling grocery business.

"We are certainly aware, paying a lot of attention, have a lot of respect, but we like our strategy," Steve Schmitt, Wal-Mart's vice president of investor relations, said in May about the growth of the European chains.

Aldi, which has 1,650 U.S. locations, has been remodeling stores to have a brighter feel and plans to expand to 2,500 stores in the next five years.

The expansion plans were announced as another German discount grocer, Lidl, prepared to open its first 10 U.S. stores last week, with plans to have 100 within a year.

Already, the discounters have taken market share in the U.K. grocery industry, according to Euromonitor International. There are four 365 by Whole Foods locations and 20 more in development.

Familiar package, unfamiliar name

Walk into an Aldi store, and the products often come in packaging reminiscent of more popular brands. The chain's Millville Raisin Bran is in a purple box similar to the versions made by Kellogg and Post. Its Benton's cookies are in blue packages that resemble those of Chips Ahoy.

Stocking shelves with store brands is a big part of how discounters keep costs down. Lidl also said it will have a mix of private-label brand names, which will account for 90 percent of the products in its stores.

Whole Foods offers its 365 label across a variety of categories, more akin to the approach at Trader Joe's, which also has been steadily expanding its store count in the United States.

The growing popularity of store brands across the grocery industry is expected to help discounters. The trend is partly because supermarkets have stepped up their own private-label offerings in recent years to control costs.

Late last year, Kroger said its store brands reached 29 percent of items sold. Diana Sheehan, director of retail insights at consulting firm Kantar Retail, said more people turned to store brands during the recession.

"They have gotten comfortable and started to embrace higher-quality private-label products," she said.

Another difference at Aldi and Lidl: Presentation.

The stores tend to have fewer aisles than usual U.S. supermarkets, and products often are stocked on the shelves in the boxes they arrived in. It's part of how they keep prices down.

At Aldi, shoppers also are expected to bring their own bags unless they want to pay 10 cents for a plastic bag or 7 cents for a paper one. Lidl also said it will charge for bags but hasn't said how much.

Choices, choices

Aldi, Lidl and 365 by Whole Foods challenge the idea shoppers want the array of choices found at traditional supermarkets.

While a standard Whole Foods may have about 30,000 products, a 365 store has about 8,000, which helps keep down operational costs.

How wide the selection is can vary by item. Because people tend to be more particular about yogurt, the company said 365 may offer just as many choices as the average Whole Foods store.

Jeff Turnas, head of 365 by Whole Foods, said the stores can cater to people who want to do their shopping more quickly.

"We have tried to make the decision-making faster, easier," Turnas said.

Aldi U.S. CEO Jason Hart also said his chain is deliberate about where it wants to offer more variety. He said people can find whatever products they might get at rival grocers, but there might be fewer options within each category. He said people prefer that because too many choices "just add confusion."

"Our format of retailing and our format of shopping is becoming more accepted in the mainstream," Hart said.

For now, Kantar Retail estimates the discounter category, which includes Aldi, Trader Joe's and dollar stores, has 6 percent of U.S. grocery sales. By 2021, it expects that figure to inch up to 8 percent.

Wal-Mart says the scope of its offerings -- including its pharmacy and options such as in-store pickup for online orders -- sets it apart from the competition. The retailer notes it has been working on keeping prices down, and its customer traffic is up.

Kurt Jetta, CEO of consulting firm Tabs Analytics, also said big-box retailers have the advantage of being able to draw a wider swath of shoppers by offering greater variety. Still, he said Aldi and Lidl might have more appeal than dollar stores with middle-income customers, in line with places like Trader Joe's.

"They don't have the stigma attached to them," Jetta said.