Aldi’s Launch of 70-Store Expansion Pushes an Atypical Real Estate Strategy

Article originally posted on CoStar on July 23, 2020

An Aldi storefront in Chicago's Logan Square neighborhood. (Courtesy Aldi)

Discount grocer Aldi’s launch of a significant nationwide expansion, including plans for a Gulf Coast regional office and distribution center, marks its latest push to position itself in the top tier of major U.S. grocery store chains, partly by using a different real estate strategy.

The German company said it plans to open 70 U.S. stores by the end of the year, after recently hitting a 2,000-store milestone in the U.S. The company expects to become the nation’s third-largest grocery chain by store count by 2022. The company did not disclose how many stores it expects to open by then, but in 2017, it projected that it could have at least 2,500 stores in 2022.

Among the planned locations this year, the company expects to make its first entry into Arizona, its 37th state, with four Phoenix stores, and to continue its expansion into the Gulf Coast, including Louisiana, Alabama and the Florida Panhandle next year. Plans include building a 564,000 square-foot distribution center and office in Loxley, Alabama.

The expansion is part of Aldi’s more than $5 billion initiative, launched about five years ago, to massively grow its physical footprint in the United States, revamp its existing U.S. stores and beef up its fresh food selection by 40% with an emphasis on fresh produce, meat and organic foods.

That the company is still moving forward on those plans now stands in contrast to the state of the national retail industry where closings and reductions in property footprints have been increasing amid challenges presented by the coronavirus pandemic. But it comes as other companies, including e-commerce giant Amazon, launch their own brick-and-mortar grocery store expansions to capitalize on the demand for food, which consumers still largely prefer to buy in-person instead of online.

Aldi is an unusual grocer in the industry in terms of real estate, and that could allow it to move into less conventional commercial property than a typical grocer. Aldi’s stores average about 16,000 square feet, smaller than the average supermarket, which come in at around 40,000 square feet.

Its interiors appear low cost and simple with an industrial-chic feeling and not draped in the warm lighting or higher-end finishes popular with chains such as Whole Foods or Kroger. Rather, Aldi says it’s focused on staying well stocked with affordable basics and fresh produce.

Aldi’s emphasis on affordability may be part of its appeal. As the U.S. unemployment rate continues to sit at some of its highest historical levels in the pandemic, consumers are drawn more than ever to saving money.

“In fact, as food costs are rising across the country, we’re lowering prices on hundreds of items to meet our customers’ increased need for savings,” Jason Hart, CEO of Aldi U.S., said in a statement.

The company said it has been one of the fastest-growing grocery chains in the nation. It’s unclear whether its 2017 projection to hit 2,500 stores by 2022 still holds. However, the chain maintains it could be the third-largest grocer by store count in the nation in two years.

Excluding big-box retailers such as Walmart, Kroger is America’s largest grocery chain by store count, with 2,796 stores, according to a disclosure to investors on its website. It is followed by Albertsons with 2,252 stores and Publix with 1,252 locations, according to those companies’ respective financial filings.

Aldi has been buying up locations of some competitors that have closed or gone out of business as some of its organic-focused and pricier peers, such as Lucky’s Market, have not fared as well. In January, Boulder, Colorado-based Lucky’s Market filed for bankruptcy protection. Aldi wound up buying five Lucky’s Market stores and one of the company’s corporate-owned properties. In April, the Asheville, North Carolina-based natural foods grocer Earth Fare sold off several of its stores as part of its Chapter 11 bankruptcy case. Aldi bought one of those stores.

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