Published on 14 December, 2008. By John Reynolds
The economic downturn puts German supermarket giant Aldi in prime position to up its share of the market to 10 per cent, writes John Reynolds
A hi-tech kitchen above its distribution centre and office headquarters is the first stop in our behind-the-scenes tour to find out what it takes to muscle in on rivals Tesco and Dunnes Stores, who currently dominate Ireland’s €15bn-a-year grocery market.
Today garlic bread, coleslaw, several different cheeses, a range of crisps, ham, steak, Madeira cake, orange juice and coffee are on the menu. Hurley and his four-man buying team spend four afternoons a week tucking in to over a dozen bite-sized courses, sampling foods for taste, quality and appearance and comparing them to other stores’ products.
While our photographer samples several succulent forkfuls of steak, I discover that the supermarket does — to my untrained and unsophisticated palate at least — sell the best-tasting garlic bread, Madeira cake and orange juice.
In a recent Christmas-themed taste comparison in Britain, the store’s mince pies beat those from ultra-expensive Harrods for taste and quality. Saving about 30 per cent at Aldi on other brands doesn’t mean compromising on quality, however. Coffee comes from Bewleys, crisps from Tayto producer Largo Foods; while meats and cheeses often come from smaller specialist producers.
Being a food sampler isn’t just about being a real food enthusiast. Hurley and his team have all had organileptic training, meaning their palates have been “calibrated”.
“We took a course that taught us to understand where you taste different things on your tongue and how to describe different taste sensations. In between different foods, we use milk and lemon squash to help clear any lingering tastes.”
Hurley got his first taste of food haggling at markets in China, where he spent a year teaching English after studying history at Trinity. “I did a cookery course when I was 18 and I’ve always enjoyed working with food,” he adds.
From the kitchen we head through a busy open-plan operations room that is humming with activity. Twenty-eight people work here looking after everything from property and payroll to accounts and logistics. Getting goods on the shelves at the right time every day in each of its 62 stores involves every product coming in at one end of the huge warehouse beside the supermarket’s nerve centre and leaving from the other.
At roughly the size of five football pitches, a team of packers and pickers are zooming around on German-made yellow electric buggies that carry pallets and boxes. Disappointingly, Hurley and I don’t get a chance to race them, which is probably just as well, because crashing one would land me with a hefty bill. Each one in the small fleet nearby costs €30,000, managing director of Aldi’s Irish stores Donald Mackay says.
He, too, is well versed in the food business. After taking a Master’s degree in manufacturing engineering at the University of Strathclyde, he spent several years managing a food production plant of which Aldi was a client.
Both he and Hurley have served their time on the shop floor, stacking shelves and manning the tills. As a former shelf-stacker and all-round dogsbody at a small supermarket myself, my jaw drops to the ground when Mackay tells me that they both had to memorise the individual prices of 800 products because the store didn’t introduce 3D scanners and barcodes until 2001.
“It took a while for barcode systems to catch up because having people memorise the prices was more efficient,” he tells me. Perhaps just as well that all staff, including store and area managers are paid “quite a bit above the average retail wage”, and can earn a healthy performance-related bonus.
Over the next few years, Mackay will oversee a €350m investment here, as 16 new stores and a new distribution centre ramp up the pressure on Aldi’s competitors. The long-term aim is to increase market share from its current level of 4.7 per cent, seemingly towards the 10 per cent target it has set in Britain.
More and more of us are shopping around more than we used to, though, something that prompted Tesco to slash prices on 1,500 products in a campaign aimed directly at Aldi and its other German counterpart. Whether we’ll continue to do so if we ever come out at the other side of the recession remains to be seen, but until then the competition from rivals will only intensify.
Meanwhile, more pressing challenges lie ahead for the company. “Ireland is unquestionably a more expensive place to do business than elsewhere. The cost of land, commercial rents, duty and VAT are all more expensive,” says Aldi’s UK and Ireland managing director Paul Foley, who recently raised these very concerns with Tanaiste Mary Coughlan.
He also points out where the company’s strengths lie. “Odlums aren’t paying me to put their flour at eye level, for example. If you want to stare at 14 other varieties of flour, then you’re going to pay for that,” he adds, referring to the promotional fees and “marketing support” costs that some of his rivals might demand from a supplier. All of these — along with the television adverts voiced by celebrities, some of whom employ a seductive voice to tempt us to one particular rival — add to the price that we eventually pay at the till.
Foley knows exactly what it costs to build a store, each one of which has the same layout and hardwearing floor tiles. A narrower range of products, compared to rivals, also helps to keep operating costs down.
Weekly promotions of internationally sourced goods — from chainsaws and power tools to bathroom sinks, furniture and clothing — help to bring in new customers and make additional profits.
Aldi isn’t amassing land banks here because that, too, would be an added cost, Foley says. The privately owned company doesn’t have to impress any shareholders, and permanently re-invests profits here to grow the business.
“Our unique selling point is that we’re organisational experts,” he adds, in a straight-talking, engaging and down-to-earth manner that is also typical of Hurley, Mackay and their colleagues.
He re-emphasises the store’s emphasis on quality; preferring not to be seen as a “discounter” in the same way as rival Lidl, and concludes by illustrating Aldi’s specific way of doing business.
When the oil price — and consequently diesel prices — peaked recently, seven sub-contractors who supply the trucks, trailers and drivers that transport all of Aldi’s goods faced losing money.
The company stepped in and helped them out. After sitting down with them and listening to their concerns, he agreed to pay them the additional fuel costs until diesel prices fell again. More uncompromising rivals might not have done so in the same position.