ALDI: Why is it different?

In his first radio and television interview, ALDI Australia CEO, Tom Daunt takes Ross inside ALDI, and why they’ve taken market share off Coles  and Woolworths (ASX:WES).

Interview with: Tom Daunt, ALDI Australia, CEO

Ross Greenwood: Tom, the secret of ALDI the fact that you’ve been able to gain as much market share as you have, what do you really?

Tom Daunt:  I think we are completely different, I would like to think good different but we’re not the same as other major supermarkets.

Ross Greenwood: When you say not the same as other supermarkets, look you’re selling stuff like other supermarkets. What’s different?

Tom Daunt:  The way we operate is primarily the single biggest difference, we don’t compromise. There are some things that we won’t change so we sell a really high quality product, we don’t compromise on the ethics of dealing around suppliers properly. We won’t compromise around the commitment to the environment and certain social things. The entire business model, the way we operate is all designed to deliver a very very efficient business. That efficiency allows us to run at low costs and we tip the low cost back into prices so that’s what I mean when I say different.

Ross Greenwood: The thing that I notice when I come to an ALDI store is that there are fewer items in an ALDI store than there is in a big supermarket. Is that deliberate?

Tom Daunt:  Absolutely, we have a complete grocery range, most of our customers can buy everything that they would typically buy in a supermarket but we focus that range. We don’t offer 12 or 15 peanut butters we offer two. You can have a smooth or crunchy but we make sure that’s a really high quality product.

There’s one other place that I think is really different as well and that is if we turn around here we can actually see that your checkout is quite different to other places as well. We look at this, it’s a longer checkout, people explain that to me.

Tom Daunt:  Designed to be fast so we have long checkouts, physically long checkouts but you’ll notice the queues are not long either, they move very quickly. It’s all designed around cashier speed. If we can save time at the registers where we spend around half of the hour spent in the store are spent serving customers on the register. If we can make that experience as efficient as possible. Again, it helps us lower our operating costs, helps us afford to offer customers a better price.

Ross Greenwood: Then explain to me what are these in your research and your knowledge of Australia’s shoppers that makes you understand that these types of things are so important to them?

Tom Daunt:  We’ve got a long experience in retail, we start with the quality of the product and the product for the customer. We look for any way that we can save operationally in a way that doesn’t offend customers. That is acceptable in order to deliver a lower cost business and then a lower retail price. Registers is just one thing but there are literally hundreds of things that we do throughout the business and throughout the supply chain to reduce our operating expenses.

Ross Greenwood: How important is price right now to the Australian shopper? Is it the be all and end all for them when it comes to where they supermarket shop?

Tom Daunt:  It’s hugely important but it’s not the only thing. Australians don’t want cheap products that are nasty and we’ve never ever been in that game. The primary starting place for us is to hold the quality up really high. We pitch all of our exclusive brand products at branded quality and that’s what our customers expect. Then through the efficiency of our operation we’re able to reduce our operating expenses and lower the retail price. Our customers can save 20 or 30% as the typical saving across the basket of goods. That basket of goods is a high quality branded basket.

Ross Greenwood: Just explain to me from where you started with ALDI in Australia to where it is today, the growth has been quite phenomenal. Really against those big supermarkets, those incumbents it has been quite an astonishing growth record.

Tom Daunt:  We’ve grown steadily to be honest, we opened our first store back in 2001. I guess we’re part of the furniture now in the Australia retail landscape. This month is big month for us, we open our 500th store at the end of this month which is a bit of a milestone for us. It’s not just about store numbers, we now employ about 11,000 Australians on permanent contracts which is something very different in the retail industry. We deal with almost a 1000 Australian suppliers of products and services to us. We’ll spend something over seven billion with those Australian businesses this year.

The whole business has grown exponentially but it’s certainly not just about us. What we’re saving customers is also pretty huge.

Ross Greenwood: The other thing is also the market share that you’ve been able to take off those big Australian retailers is also a quite phenomenal from where was as a standing start in 2001.

Tom Daunt:  Then but look we’re not market share focused, we’ve always been driven by the customer and ultimately where we wind up will be determined by the customer. We brought a lot of ALDI stores close to where people live and offer them a convenient range of products at unbeatable value. Where we ultimately wind up remains to be determined, we’re not sure. But we’ve certainly grown and I think there’s a little bit more growth to come.

Ross Greenwood: Is it right down the Eastern seaboard now, round about 12% market share?

Tom Daunt:  12% on the eastern sea board, we have two new markets, we’ve been operating less than two years in South Australia and Western Australia. They’re of course less, they’ve only just got going. I think there’s probably a little bit more share to come. Not a lot but we’re after a long term sustainable business that delivers the lowest operating costs and that’s what funds the low prices. We won’t go too far to put that a threat but there’s a little bit more growth to come.

Ross Greenwood: One other aspect of this, you put out new research through Deloitte, trying to identify the traits of Australian shoppers and the pressures that they’re under right now. Just give me a snapshot of exactly what you found and how that might change what you do in store.

Tom Daunt:  We’ve engaged Deloitte because they provide a completely independent assessment of what our customers are going through. We of course engage with our customers all the time, I talk to them in our stores and we like to think we stay very close. I think what the Deloitte’s researchers really told us clearly is that customers discretionary incomes are under as much pressure now as they’ve been for a very long time.

House prices in the last five years has gone up 40%, incomes nowhere near that, something around 15%. At the same time, gas, electricity, rent, housing costs more broadly have all gone up. Whilst people have still got money and the net wealth is certainly better off. Discretionary income is under pressure and that’s why operators like ALDI they offer an excellent combination of quality and price that can deliver that value have really benefited and grown through that period.

Ross Greenwood: Tom, explain to me special buys, how does this all work?

Tom Daunt:  At ALDI we have a focus range, 1500 products in the store every day and they’re always at the same price, a really great price. This area gives us a bit of a special opportunity which is why we call them special buys. Every Wednesday, every Saturday we normally have 30, 40, 50 products that will be coming into the store. They’re coming in fixed quantities, enough that we can satisfy all customers over the first week or two but it enables us to sell all sorts of things. One example here is a children’s surfboard $49 but we can sell surfboards, we can hold ski gear, DIY.

Ross Greenwood: How do you pick those, how do you know what’s going to sell?

Tom Daunt:  We’re happy to give a go to anywhere that we can see that we can add value that we look across the retail sector at what everybody else is selling and where we see customers being charged too much or where we think we can bring a higher quality for the same price we’ll give it a go.

Ross Greenwood: Explain to me lobster tails, last Christmas, are they coming back this Christmas?

Tom Daunt:  They will be back this Christmas, they were hugely successful, last year we had queues out the door, rather unexpectedly I have to say, they’ll be coming back in even bigger quantities this Christmas.

Ross Greenwood: In other words the ALDI shopper. Just explain who is an ALDI shopper?

Tom Daunt:  Everyone is an ALDI shopper and from a demographic perspective we actually profile very much like anybody else in the market so our major competitors. The biggest single differentiator is people who are really value value. That’s the combination of a high quality product at a really low price. It doesn’t matter what your background, there are people who struggle who really appreciate that and others who are better off that appreciate it.

Ross Greenwood: Because as it’s shown even where the stores are around Australia it’s not as though you’ve been discriminatory in terms of socioeconomic areas or whatever it might be, you’ve gone into poor areas, you’ve gone right across Australia.

Tom Daunt:  We have a breadth of stores, you name it. In some of the wealthiest areas in our major cities all the way up to the fringes of those cities and into the country. We’re across Australia and Australians shop with us more generally.

Ross Greenwood: In terms of the potential competitors that could come in, you’ve got the likes of Amazon coming it’s got an offer, you’ve got the likes of coming. You’ve got others potentially looking at this market seeing ALDI success, does that trouble you?

Tom Daunt:  It doesn’t, look we have a fundamentally different business model, a very unique way of doing business. The retailers you’ve just mentioned they do things differently. We just prefer to focus on what we’re doing. We have a simple business model, focuses around delivering great quality products really efficiently to the customer which funds our ability to charge low prices.

That won’t change with the entry of another couple of competitors or anyone else. We operate internationally in markets where they’re already very successful.

Ross Greenwood: Hindsight being hindsight, the big Australian retailers, were they a bit asleep at the wheel?

Tom Daunt:  Look, I don’t know about that, again, our model is just to deliver value where we can see it. We’ve done that really successfully and I think customers really appreciate what we’ve been able to bring to the market. Whether customers shop with ALDI or not they’re benefiting because the increased levels of competition that we’ve brought have really forced all market participants to sharpen up, invest in their stores, invest in their range and ultimately offer better prices.

Ross Greenwood: Were you surprised, were even you as the boss of ALDI in Australia surprised as to how quickly you were able to penetrate this market to the extent that you have?

Tom Daunt:  We’re really pleased that it’s gone as well as it has. It’s certainly true that customers have been quick to accept the value proposition. Again, Australians don’t like to buy things that are cheap, that are not good quality but wherever you can offer great quality at a better price people go for it and they go for it quickly and yes is the answer. We’ve been really pleased and surprised with the take-off.


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