Limited-assortment discount retailers are compensating for their lack of square footage by underscoring their unique, value-added product offerings and tapping into the latest food trends.
“What they've done is to say, ‘You can get so much more and all at a great price,’” said Bill Bishop, chairman of Willard Bishop, Barrington, Ill.
Two of the big players — Aldi and Save-A-Lot — have mobilized to elevate the perception of their private labels. Both have introduced new brands and revamped existing items and packaging.
Most importantly, both chains are delivering a “value-plus” message, one that puts quality over price, noted Don Stuart of Cannondale Associates, a Wilton, Conn., sales and marketing firm.
“They've made a distinction between value and price,” he said.
Batavia, Ill.-based Aldi, whose more than 1,000 stores average 10,000 square feet, boasts prices that are up to 50% below traditional supermarkets.
While lower retails are certainly key, “price only initially gets customers in the door,” said Joan Kavanaugh, Aldi's vice president of purchasing.
That's why Aldi is differentiating itself by carrying more premium, better-for-you and other unique offerings designed to position its stores as a destination, not just an afterthought.
It's driving home the message that Aldi is more than just a place to go for a fill-in stop. Rather, it carries the most frequently purchased grocery items and can fill about 90% of a shopper's needs.
Indeed, Aldi is making the most of the limited space in its stores. It carries 1,400 items, about 95% of which are private label. It would like to be 100% private label, but doesn't see it happening in the near future because of its strict standards, which require that all its controlled brands meet or exceed national-brand quality. It has yet to find acceptable private-label alternatives for certain categories and products, like Pringles.
“There are a couple of circumstances where we can't find a match,” Kavanaugh told SN.
Aldi is in the midst of a major rebranding effort addressing new products, packaging graphics, marketing and other areas.
Most of its more than 100 brands — which include the Fit & Active better-for-you line, Moser Roth European chocolates and Grandessa Signature premium items — are being reexamined.
“Every product is being touched,” she said. “We want to make sure everything is in tip-top shape.”
Along with new product introductions, existing items are being reformulated to tap into today's food trends. Better-for-you is a common theme in this effort. For instance, natural sugar is the new sweetening ingredient in Nature's Nectar juices, replacing high-fructose corn syrup. Similarly, kids' juice pouches are being reformulated with 25% less sugar.
“We're definitely working to be more aggressive with brand improvements,” she said. “We want to be right in step with what the national brands are doing — not behind.”
That's why last year, Aldi added “Fit Facts” to the labels of its Fit & Active brand, a line of better-for-you choices that have lower fat, caloric or sugar content, or other health benefits, like being trans-fat-free.
Fit Facts serve as a reference guide to highlight the amount of calories, fat, sodium and other key nutrients, along with the percent daily value per serving.
Brand names have also been revisited. For instance, Aldi is changing the name of its cola from to Summit, from Sweet Value. The change was made to reflect a new formula. Until now, Aldi has used Pepsi's formula as a benchmark. It is now using Coca-Cola's formula as its new standard.
“We're using new brand names to signify to customers that there's been a change in the product,” she said.
Marketing is also being addressed. Aldi historically has run limited advertising, and only in print. While it has kept its marketing budget the same, it has cut back on print advertising and used the savings to start television and radio advertising. It will continue television and radio advertising throughout this year, and explore digital marketing.
“We're being more conscious about how we reach customers,” she said.
The retailer is positioning itself as a source for products with superior quality. As the U.S. subsidiary of Aldi Group, Muelheim, Germany, Aldi has direct access to fine European specialty products.
One of its newest lines in the U.S. is Lacura. Introduced last year, Lacura is a premium line of beauty products created by German skin-care specialists. Selections include facial toners and cleansers; facial creams; eye creams and gels; lip balm; and facial masks and peeling gels. All items carry retails that are up to 95% lower than big-name brands.
“Lacura is a great example of what Aldi does best: Creates luxurious products for less cost,” Kavanaugh said.
Others high-end items include European cookies and premium chocolate with 30% to 80% cocoa. And Aldi's Grandessa Signature premium line includes German roasted gourmet coffee and Bavarian-chef dessert pastries.
A new strategy is the addition of “special buys,” items typically sold for a limited time. For instance, for this past holiday season, it sold authentic gingerbread cookies from Germany.
Aldi has been opening between 80 and 100 new stores a year. New markets include Texas with a store opening in the Dallas/Fort Worth area planned for this spring. It is also pursuing its first New York City location. As reported, Aldi hoped to open a unit in the borough of Queens by year-end 2009, but plans for that location fell through.
St. Louis-based Save-A-Lot is also on a fast growth track. The 1,200-store chain currently is in the midst of a massive expansion plan. Parent company Supervalu recently announced that it plans to double the number of Save-A-Lot stores to 2,400 over the next five years.
About 60% of its some 1,500 items stocked in-store are private label, or what Save-A-Lot calls its exclusive brands.
Over the last year, the chain has overhauled its private-label program, culling some 180 groups of labels down to 70 stand-alone brands. About 20 new brands have been created as a result.
“We want consumers to come to Save-A-Lot not just because of low prices, but because we have great brands,” said Andrea Wagner, Save-A-Lot's vice president of consumer segments and brand strategy.
For instance, in the pasta/sauce categories, there once were several different brands: one for pasta, another for tomato sauce and another for canned tomatoes. Now the chain uses the Mantia's brand as the umbrella for all its Italian offerings, including not only pasta and sauce, but also pizza, Parmesan cheese and the like.
The same goes for the dairy case, where several brands used for cottage cheese, yogurt, hard cheese and other items have been consolidated under the Coburn Farms label.
“It's a way of branding our dairy case and leveraging the attributes of our products,” Wagner told SN.
Likewise, the Wylwood brand has remained in canned vegetables, but has been extended to canned beans as well.
“We tried to build on brand equity in areas that we could, vs. risking a disconnect with the consumer,” she said.
Granted, it's a different approach than other retailers that stretch a common private-label brand across multiple product categories.
Because of its limited square footage, a single brand and package design wouldn't be aesthetically pleasing to shoppers, Wagner explained.
“We needed to find another way to connect with the consumer,” she said.
Along those same lines, Save-A-Lot's newest brand messaging platform is helping its shoppers live a healthier lifestyle.
“Our consumer is not willing to pay more for healthier foods,” Wagner said.
That's why it's launching sugar-free jam, low-sodium soup and several dozen other better-for-you options that cost the same price per ounce as their traditional counterparts.
All items are marketed under Save-A-Lot's existing brands, but carry a new “Smart Selections” logo on the front of the package.