Discount grocer Aldi sees upside in consumer trends
Homegrown supermarkets like Giant Food Stores and Weis Markets dominate the grocery business in Central Pennsylvania, but discount chains like Aldi have been staking a bigger claim.
Aldi recently leased a former Fire Mountain restaurant on Carlisle Pike in Silver Spring Township that it plans to renovate for a new store in 2019. The German chain has 11 stores in the midstate, but officials say the region offers even more opportunities.
The main reason: Central Pennsylvania is one of the few areas of population growth in Pennsylvania. Cumberland County, for example, has been the fastest-growing county in the commonwealth this decade and housing growth remains steady across the region.
But that’s not the only reason.
While other retail activities have moved online, grocery shopping is still largely an in-store experience for most people, said Meg Major, vice president of content for Winsight Grocery Business, a Chicago-based trade magazine.
“Food is serious and people want to see what they are buying,” she said.
However, that’s not to say people aren’t shopping online for bulk household items and staples, like toilet paper, or that more sales won’t move online, Major said.
As that shift continues, it may eventually force traditional grocery stores to remodel sections of their stores, Major said.
It’s happening already in states where restrictions on alcohol sales are falling. Food retailers are buying liquor licenses and devoting a growing share of their floor space to beer and wine.
Supermarket chains also are spending money on grocery delivery and pickup services to capture online shoppers.
With more grocery options today, consumers are willing to experiment and buy products from a variety of stores, Major said. The weekly household budget isn’t being spent in one place, which creates more opportunities for other retailers, including discount chains, to step in and compete with larger supermarkets.
Smaller retailers like Aldi also are able to take advantage of vacant spaces left by big-box brands such as Kmart and Sears, said Chad Stine, president and CEO of Bennett Williams Commercial in York County. The two venerable retailers, for example, have shuttered hundreds of stores just in the last year.
Many landlords are carving large empty stores into multiple spaces for new tenants, which is attracting smaller retailers. That happened recently at a former Kmart store on the Carlisle Pike.
Aldi was able to take over an old restaurant space farther down the Carlisle Pike.
The planned store is part of a nationwide growth spurt for Aldi, which is investing millions of dollars in store renovations and additions in Central Pennsylvania.
“Aldi’s expansion in Central Pennsylvania mirrors its national expansion,” Major said. “It really getting a little bit more aggressive in markets it has not infiltrated up until now.”
The company’s prototype store is about 11,000 square feet with four or five main aisles of products, which is much smaller than a traditional supermarket.
Stine sees the moves by Aldi as having a positive impact on available properties surrounding the company’s stores.
“Typically, Aldi drives consumer traffic and other retailers who often like to co-tenant when possible,” Stine said. “Frequently you see home improvement or furnishings as a complementary tenant.”
Following the recent announcement of a new Aldi store on the Carlisle Pike in Cumberland County, the Business Journal caught up with Jeff Baehr, vice president of the Aldi Frederick Division, to answer some questions about the chain’s national growth plan and how Central Pennsylvania fits into it.
The company’s regional hub in Frederick, Md., covers southcentral Pennsylvania, as well as Maryland and Washington, D.C., and parts of Delaware, Virginia and West Virginia.
Aldi announced last year that it would be spending $3.4 billion to expand its store footprint to 2,500 stores nationwide by 2022. The company currently has more than 1,750 stores in 35 states.
“With this growth, Aldi will be the third-largest grocery store by count in the U.S. and serve 100 million customers per month,” Baehr said.
The chain has 12 new store openings planned for Pennsylvania this year.
Aldi has spent $11 million over the last two years to remodel seven midstate stores.
Q: What makes the Central Pa. region so attractive?
A: When it comes to choosing store locations, we look at a lot of factors including population density, proximity to competition, cost of the property and traffic patterns. Our top priority is being conveniently located for our customers, and the Central Pa. region is a great area for Aldi expansion.
Q: Has Amazon’s purchase of Whole Foods and the rise of grocery delivery services impacted the company’s real estate decisions? Have there been any delayed investments or openings as the retail industry adjusts to this transition?
A: In a turbulent retail environment, Aldi is bucking the trend plaguing many retailers by accelerating its growth of new stores with a total capital investment of $5 billion in new and remodeled stores over the next five years.
Q: As the real estate market has improved and key corridors fill up with retailers, has it been difficult finding real estate for Aldi stores?
A: As part of our growth and expansion across the U.S., we’re open to considering different types of store sites beyond the typical Aldi location you’re used to seeing. We have stores surrounding regional malls, in rural areas, in suburban areas and we also have a presence in major metropolitan areas, such as Washington, D.C., New York, Miami, Dallas, Charlotte and Chicago. We’re building new stores and remodeling existing stores specific to the needs of various communities.