Aldi’s US expansion could be bad news for low-cost grocers

Aldi is planning to invest more than $9 billion in the next five years adding new locations across the Northeast and Midwest, with plans to add 330 stores by the end of 2028. (Source Aldi Corporate PR March 7, 2024)

Aldi opened its 3rd location in the Chagrin Falls, OH area in July 2023 on Washington Street down the street from an Ohio-native grocery chain Heinen’s. Cybersyn data allowed us to measure the impact to sales of nearby stores.

Key Findings:

• New Aldi store opening captured grocery sales from stores within a 15 minute driving radius.
• The largest capture of revenue is from the lowest cost alternative, Giant Eagle.
• Aldi store location planning seems to limit cannibalization from existing stores, with no hindrance to existing Aldi store transactions

Nearby Store Sales Impact

Aldi opened a new store at 8368 Washington St, Chagrin Falls, OH in July 2023. There are three grocery stores within a 15 minute drive from this new location:

Taking a look at customer transactions back to March 2023 we can see that total transactions in this area grew at all three incumbent stores. When Aldi entered the market, there was a flattening of transaction growth at Giant Eagle stores. The new Aldi location appears to have captured this missing growth.

Market share pre-opening was stable across stores. Since opening, Aldi has captured ~8% of the market in its first 12 months. Most of Aldi’s gains came from Giant Eagle (~7% captured) and about 1% share came from Heinen’s on Washington St.

Aldi has used very strategic location planning to limit cannibalization

Aldi had 3 existing stores in the surrounding zip codes. With Cybersyn’s location-level spending estimates, we can see that the newest Aldi location did not cannibalize sales growth at any of these locations.

Aldi stores in the surrounding area:

Each Aldi store saw continued transaction growth pre and post the new store opening in Chagrin Falls.

Customer Switching Behavior

Based on overall transactions (or store visits), Aldi took share from Giant Eagle. Is this true?

When we look at shoppers who spend at least $1 at Giant Eagle stores in the period before the new Aldi store opening, we see a 15% or 6 point drop in share of grocery store visits (or transactions) to Giant Eagle stores among those same customers after the Aldi opened.

Meanwhile, Heinen’s shoppers’ share of visits only dropped 1% in the 11-month period after the new Aldi opened. This indicates that Heinen’s shoppers had little impact in buying behavior when the new Aldi store opened.

So, why wasn’t the closest store, Heinen’s, significantly affected by Aldi’s grand opening? Aldi is a discount grocery chain focused on low prices, so it makes sense that the cheapest grocery option in the area, Giant Eagle, would be most affected by a new low-price entrant in the market. This can be confirmed by looking at the demographics of the Aldi’s and Heinen’s shoppers.