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Imagine walking into a convenience store and there’s no Coke, no Budweiser, no Lay’s, no Marlboro. The store is small, less than half the size of a typical layout. Every item is generic: soda, beer, chips and cigarettes; and priced about 20 percent to 50 percent less than the branded products in most other stores.
A recent article, “How Aldi is Beating Wal-Mart at Its Own Game,” in the Charlotte Observer describes this new approach to retailing. “American stores have a mantra of ‘choice,’ but it is really a waste. At Aldi, if you want green beans, they have green beans,” a customer enthused in the article, “just not 15 different brands, shapes, cuts, etc. … Quality products with no more than one or two decision points…saves money and makes folks happier than staring at multiple types of the same product.”
Aldi is positioning itself for the changing demographics in this country. Median family incomes have not increased in real terms since 2007. The average American family was making $57,400 in 2007 and is earning $54,000 today. With less money to spend, every retail business is feeling this depressing effect. The only way to accommodate the lower customer income is with lower prices.
What’s more, fewer choices might actually enhance the convenience shopping experience. NACS estimates the average product selection time, once the customer is inside the store, is 71 seconds. Above some threshold, offering more and more products is hurting the customer’s ability to find what is wanted. When I am in a hurry, do I really need the confusion of 10 different choices of breath mints?
In the last 20 years, our average store size has ballooned by nearly 60 percent, with ever-increasing merchandise lines. Some new convenience stores today rival neighborhood markets. This brings our industry into direct competition with dollar stores and drugstore chains. Instead of constructing larger buildings and trying to be virtual grocery stores, taking a page from the Aldi playbook argues for smaller stores with fewer choices and lower prices.
Eliminating multiple name-brands of the same product and stocking quality generic merchandise allows lower retail pricing and higher in-store margins.
Less SKUs can permit automation and reduce inventory management, which can save labor costs. Fewer product choices also allow the customer to get in and out quickly, which is why they patronize c-stores in the first place.
Real estate expenses eat up about 29 percent to 30 percent of gross profit. With a turnkey cost of about $250 per square foot, smaller stores with fewer cooler doors are less costly to construct, saving per-site development costs of up to three-quarters of a million dollars. Smaller stores can be sited on smaller land parcels, which further reduces development outlay and offers more location choices. All other things being equal, lower development costs increase bottom-line profit.
Aldi’s sales are expected to grow by more than 50 percent in the next five years as it expands its footprint across the United States. Maybe it is time for the convenience store industry to consider the Aldi approach to retailing.
Editor’s note: The opinions expressed in this column are the author’s and do not necessarily reflect the views of Convenience Store News.