Brand equity is dead. Long live Aldi!

The truly challenging aspect of the recession currently engulfing us is not its depth. It’s the width. Despite the forlorn hopes of politicians and economists, there is no upturn in sight. The Olympics bubble has inflated and deflated to leave us back where we started the year.

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Given the size and pain of the recession, some might dismiss the importance of marketing or brands at the moment. But like any long-term change in temperature, some species will always adapt and eventually thrive in the altered conditions.

Take Aldi. Newly released figures for the privately owned German retailer confirm it has had an astonishingly successful 2011 with sales up by 30% and profits up almost five-fold. It would be easy to explain away these figures by claiming they were the result of new store openings but, according to Aldi, most of its 2011 sales growth came from an increase in same store sales. Existing Aldi customers spent more, while more than 1 million customers switched from the traditional British supermarket brands to their German rival.

And that was just 2011. The secretive retailer won’t reveal its performance this year but according to Kantar Worldpanel, Aldi’s sales grew again by a whopping 27% in just the last three months. According to joint managing director Matthew Barnes: “We have moved from being a top-up shop to being somewhere that people can come and do their main weekly shop. Market data shows we’re the only supermarket where people are putting more items in their basket than they were a year ago.”

We may have three months left in 2012 but I’d recommend Aldi as brand of the year. And like any brand champion there is much we can learn from its success. First is focus. While other retailers, most notably Tesco, fell foul of forgetting their core business at the expense of sales and profits - Aldi has retained what can only be called a maniacal focus on the business it is in.

Aldi’s positioning around high quality products at lowest possible prices and with a no-nonsense approach has also been executed incredibly well. It would be easy to walk into an Aldi store and criticise its drab décor and bland, price-based visual merchandising as being poor marketing. But these criticisms mistake the nature of positioning - Aldi’s store environment is just as successful as Chanel’s or Pret A Manger’s in communicating to consumers what the store is all about. It’s simple. It’s price driven. And perhaps most importantly it’s efficient - the average Aldi is around 8,000 square feet which makes it a far simpler (and more profitable) environment to do your shopping in.

The fastest growing retailer in Britain is living mostly without the help of brands. Brand equity be damned!

Aldi’s positioning is consistent worldwide - but the brand has also exhibited the ability to alter its approach to fit local market tastes here in the UK. In 2009, Aldi’s sales stalled and the new leadership team spent considerable time understanding the British consumer and adapting the Aldi offer to fit their needs. In Germany, for example, shoppers are happy to wait in line for extended periods of time in Aldi to pay for their goods but this was a major issue for British consumers and so it introduced a “one-past-the-belt” system. There is also an increased focus on British grocery foods to please local consumers.

The other big alteration is the communications approach. Aldi has a policy of not advertising in its home market of Germany - believing that a weekly newsletter more than suffices. In the UK, however, consumers are used to learning about their brands via the mass media and much of Aldi’s success in 2011 can be attributed to its TV campaign: ‘Aldi. Like brands only cheaper’. Designed by McCann Manchester, it claims that Aldi’s private label is just as good as major brands but with the added attraction of being significantly cheaper.

The campaign is crucial to recruiting new consumers because Aldi’s lower prices depend on an inventory that is almost exclusively private label led. While most British supermarkets stop their store brand sales at around the 50% level, Aldi is comfortable with 95% of its range being private label. And that might be the most important learning of all for major branded manufacturers - the fastest growing retailer in Britain is living without most of them. Brand equity be damned!

But perhaps the biggest lesson of all we can learn from Aldi is that some brands just fit certain situations. The Aldi brand first blossomed in the sparse climate of post-WWII Germany. It’s a brand for our times. And the more Aldi communicates and delivers its Aldiness to Britain, the more it is likely to grow. “We’ve seen a shift in the socio-demographics,” says Roman Heini, the other joint managing director of Aldi UK. “Obviously we have kept the existing customers so we still have the C1, C2 and D customers but we now also see more A and especially B customers in our existing stores and also in the stores we have opened this year so far.”

It’s an ominous trend for a brand that seems unstoppable in today’s recession-hit Britain.

Readers' comments (12)

  • All part of shrinking supply chains and the dominance and power of large retailers. Aldi is still a brand with brand equity; it’s just stretching it over its products too. Manufacturers need something really special to take the retailer’s margin and let’s face it, beans aren’t that technical. I’ve tried Aldi’s products over 15 years and still think most taste below par but have much improved of late. Maybe that’s a big factor in its success, better products?

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  • Mark
    Great insightful article as always - interesting to see how Aldi are differentiating their approach in each territory.

    However, what I fail to understand is how the company are posting this growth. i don't know if you've ever been into an Aldi store - I've had the misfortune to experience 2 of them (Chichester & Brighton, if anyone knows them).

    Knock-off copy brands (it might look exactly like a Ribena bottle from 2 feet, but it really, really isn't), impossible to navigate floor-plans, exits that only seem to be accessible if you've bought something and a wonderful habit of not having the things in store advertised either on the DM or outdoor poster sites seem to be representative of the whole Aldi experience.
    Plus I've never, ever, been into an Aldi with fresh food on sale, despite what their TV work suggests...

    Perhaps the recession is even deeper than we're all thinking that it is, if Aldi are able to make gains such as these in the food market place. From personal experience, it can't be anything to do with their in-store offering...

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  • Anthony's point (at the top) is bang on and my title is absolutely incorrect.

    Aldi does have brand equity - more and more of it. But its is building its brand equity at the expense of the traditional household brands that - a decade ago - would have been deemed essential to any major retail success in grocery.

    Personally I see Aldi as a very well run brand whose time has come. In contrast I'd wager M&S will struggle over the next 3 or 4 years - not because the brand is being run poorly, just because it is the wrong brand for this particular economic period we are struggling through. When the middle class are up and aspirational its M&S time. When they are depressed and trading down - Aldi's time has come.

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  • Absolutely agree. Regarding the supermarket battle, I also think M&S will have a battle on its hands, as it’s the middle market that is being squeezed, which is why Waitrose is probably trying so hard to escape. Harrods on the other hand...

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  • Completely agree with Neil; Aldi shot themselves in the foot with me by advertising an item via their DM that I wanted; queued at the store opening early morning only to find that they had already completely pre-sold before the store opened; waste of time; at least when I know I go to another retailer I am likely to get the item! I will never shop there again.

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  • The 'trading up/trading down' point is well made. I worked opposite Lidl (a company with a lot in common with Aldi) recently in Wilmslow.

    This is an area where an Aston Martin dealership, two BMW franchises, a Porsche centre and a sink estate all sit cheek by jowl. People from both extremes of the demographic spectrum all shop there quite happily.

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  • Excellent perspective -- consumers are spending money on what they perceive as representing exceptional and lasting value and spend less on routine/grocery items. Interesting insight about the cultural differences: having to travel to Switzerland often I am always amazed and nonplussed at the willingness of shoppers there to stand in line forever seemingly resigned to their fate.

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  • How is customers trading down during a recession linked to brand equity? Just seems like simple price elasticity - no brand hocus pocus.

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  • I was amazed at the figures given for own brand (private label) products sold in Aldi Stores versus manufacturers' brands.

    I have several clients who I think could learn from Aldi's model and start to push their own brands more strongly.

    It helps to distance you as a business from main brand product failures if your customers recognise that you have your own unique range of products. If for example, a major food label launches a new product and customer feed back is terrible, you have very little control over how customer opinion will affect your sales. If however, customers are buying your own branded products, you have much more control over any response to customer comments and you can make changes to the product much more quickly.

    This obviously works both ways, so at Sparkstone Technology we're predicting many manufacturers will soon be looking for more direct routes to market and cutting out the various middlemen. If they are big enough they may even decide to cut out retailers entirely from a sales point of view and instead negotiate distribution contracts only (Amazon's approach).

    So if you are retailer it's vital that you ensure your brand is strong enough to survive the coming shift and you have a strategy that keeps your business in the public eye.

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  • I agree with Mike.

    If, as you say Mark (and I don't disagree with you), that trading up in good times is to be expected, and Aldi struggling is symptomatic of said times, it actually does say a lot about brand equity. It isn't infallible, of course - but isn't as weak or as readily discarded as you might think.

    Consumers will inevitably return to the brands they love as and when they feel they can afford them.

    What will impress me is if Aldi can retain any new found "loyalty" in the boom years - if we ever see them again (there I go being a dour British consumer!).

    Anyone old enough to remember the last recession we had will recall Kwik Save's "No Frills" own label, which won "brand" awards, as the catalyst for the chain's (short term) success.

    Again, consumers were just as quick to shop elsewhere as soon as disposable incomes permitted them to.

    The same effect can and will be seen here with Aldi. Own label items in this case are "brands" you've never heard of and the advertising, ironically, is more sophisticated because it resonates with consumers (and the timing is perfect).

    Prioritization trumps brand loyalty in hard times and as Mike said, it's no hocus pocus.

    ...dare I say, Aldi might be in need of some magic, if and when we return to a situation where we aren't all taxed to the hilt!

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