retail news in context, analysis with attitude

The Los Angeles Times reports that while Aldi has just 38 stores in Southern California, and "is just getting a toehold" in the market, it "is adding to the pressure on Ralphs, Albertsons, Wal-Mart and other big chains — as well as smaller grocers such as Sprouts — to keep loyal shoppers and avoid losing market share."

Aldi "plans to open at least 20 additional stores in Southern California in the next 12 months ... It’s part of the company’s plan to spend $3.4 billion for an additional 900 stores nationwide by the end of 2022 on top of the 1,600 it already operates in the United States. The chain also plans to spend another $1.6 billion to remodel 1,300 of its existing U.S. stores by 2020."

The Times notes that "a few would-be rivals have already flamed out in the cutthroat Southland market. Fresh & Easy and Haggen Inc. both closed their stores in the region after failing to gain a steady following, due in part to operational and pricing missteps."

And, because it is almost impossible to write a story about the grocery sector without mentioning this deal, the Times reports that the Southern California competition is "about to get even more intense now that Amazon.com has agreed to buy Whole Foods Market Inc. for $13.7 billion. Whole Foods, the leader in the natural and organic food sector, has 465 stores including 85 in California. Whole Foods is widely expected to get more affordable under Amazon, which has transformed other retail segments such as books and electronics in part by driving prices much lower."
KC's View:
In a lot of ways, I think it is a mistake to cite either Fresh & Easy or Haggen as examples of companies that "flamed out" because of local competitive pressures. Fresh & Easy, I think, represented a fundamental misreading of the marketplace by UK retailer Tesco, and Haggen's experience was more a misguided effort by a a company that essentially was a minor league team to play in the big leagues. (Maybe that's not entirely fair ... but Haggen had enough trouble staying competitive in Washington State with fewer than 20 stores, and suddenly it had more than 150 stores all over the west coast. It had no shot.)

The question is how best to compete with Aldi, and the best answer I would have is that retailers have to be true to themselves, continuing to tell the story that they believe best represents their relevance. That's not to say they shouldn't sharpen their prices a bit, or get better at marketing and merchandising. They should. But retailers make their biggest mistake when they run away from their essential narrative.