reading

Dieter Brandes contributed substantially for many years to the policies which successfully steered ALDI towards success, both as a regional general manager and then for ten years as managing director of the Executive Board. Since 1993 he has been an independent consultant in the fields of organization and strategy development. Dieter Brandes acquired ALDI's stake in Albertson's and Trader Joe's in the US. With their consulting firm “Institute of Simplicity” he and his son, Nils Brandes, advised discount projects in Turkey, Poland, South Korea, Saudi Arabia, Mexico and Colombia. Both issue regular Coachingletters on Simplicity which are an efficient and inexpensive way to learn about Management of Complexity. Dieter Brandes and Nils Brandes, both hold a degree in business administration.

Title in Germany "Konsequent einfach. Die ALDI Erfolgsstory". English title: “Bare Essentials – The ALDI Way to Retail Success”. Sold 100.000 times in Germany. Since 1998 on most of the Bestseller's lists; sometimes No. 1. Translated into Chinese, Korean, Portuguese, Dutch.

Together with Wal-Mart and Tesco ALDI is the top retailer in the world. Operating a limited assortment of only 1800 articles* they achieve revenues of more than 77 Billion USD. Per single item they get up to 14 times the revenue Wal-Mart makes.

Since 50 years Karl and Theo Albrecht are following the mission which Karl once established: "Our only consideration in pricing a product is how cheaply we can sell it, not how much people will pay for it."

Together the owners Karl and Theo Albrecht are the wealthiest men in the world. According to Young and Rubican, ALDI is the most famous brand in Germany since more than ten years - more famous than Coca Cola and Mercedes. According to German top managers ALDI is the best organized company in Germany (manager magazin).

ALDI operates 8000 stores in Europe plus more than 1000 stores in the US and Australia.

* Those 1800 articles are sold out of 1000 boxes which are partly mixed with different items of the same kind, same price and same barcode – i.e. one box with 3 flavours of jam. In this book therefore we will always talk about 1000/1800 articles

'Our only consideration when we are working out a product's price is how cheaply we can sell it'

Preface (1998)

Soon after I left ALDI, an editor from the major German news weekly Der Spiegel called me and asked if I would be open to the idea of writing about the company. In keeping with the custom of ALDI people of placing a high value on discretion I turned down his invitation. This uncompromising opposition to any public appearances, a typical example of ALDI's asceticism, is one which I have always supported. And I still consider such a principle as appropriate for the vast majority of companies today. Most corporate statements and executive interviews are promotional and their main effect is to satisfy the vanities of the CEO or his managers. Frequently they help lay the groundwork for selling the company and merely show its strengths. This sort of information can only be useful to the competition, not to the customer – but aren't customers what it's all about?

Today, as the ALDI concept is some 50 years old and both the company's founders, Karl Albrecht is over the age of 80 (in the meantime Theo Albrecht died in 2010 at the age of 88), I feel the time has come to write about the "ALDI phenomenon" - from a distance, after a number of years accumulating new experiences at other companies and with an eye for the essentials. It really is surprising that to date not a single book can be found in the book stores about this "miracle", although many economists and journalists have written about it again and again.

The principles of confidentiality and the loyalty of the employees have prevented the whole picture from being publicized. But in recent years a few employees have switched to competitors and have presumably taken their figures with them although - as at every other company - this is of course prohibited. In this way, it can be assumed, more and more accurate figures from ALDI have found their way into business publications and cleared up some of the uncertainty regarding the company's business standing. So the public is no longer solely dependent on estimates. And yet, in general, these figures are more heavily guarded than the codes of the secret services, as the industry specialist Hans Otto Eglau remarked¹ who has been following developments at ALDI since the company was founded.

Astrid Paprotta and Regina Schneider, who in their bestseller cookbook ALDIdente² wrote a small homage to ALDI which nearly gave the company cult status, call ALDI "a strange empire". Everyone is familiar with it, but hardly anybody talks about it. Perhaps because ALDI is just something natural, nothing special.

The purpose of this book is not to supply the reader with the very latest official statistics in a quantitative study of ALDI. Nor do I consider this essential, although people repeatedly ask questions related to turnover, the break-even point or the net margin. What is so interesting about these isolated figures? Isn't understanding the inner workings of this successful company more important? In regard to quantitative data, companies can only be compared to a limited extent anyway; even concretely as in the case of benchmarking, figures such as these are not very helpful. For competitors it is much more important to think about the purpose and goals of their own business. What counts for success is primarily the collection of virtues also known as the corporate culture. But I will also discuss organization and leadership as well as vital business principles. The description will make clear that nearly everything really is as straight-forward and, basically, simple as it appears.

I consider it thoroughly possible to export the important insights which work for ALDI to many other companies in completely different industries. Entrepreneurs who have recognized that they can put some aspects of ALDI's practices to use are reaping the benefits.

Roller, Germany's largest furniture chain store years ago, is happy to refer to itself as the "ALDI of the furniture industry". The company commits itself to being the price leader at every one of its locations. Hans-Joachim Tessner, the company's founder, came up with the idea of creating a furniture discount outlet following the examples of the Albrecht brothers' company in 1969.³ Thomas Hofmann, the managing partner of the sweet makers Hofmann GmbH & Co. KG, also once said in an interview about his company: "We are the ALDI of the sweets and chocolates business."⁴ This was his way of expressing his recognition of ALDI's success and revealing his business management principle of following ALDI's methods as closely as possible.

By describing some of ALDI's characteristics and principles, it will become clear where decisive mistakes are made in retailing. I am sure that my departure from ALDI was necessary for me to be able to recognize and judge this.

My experience outside of Germany in particular clearly revealed ALDI's special qualities to me. The most important experience involved setting up a discount chain modeled after ALDI in Turkey named BIM. Expanding ALDI outlets to The Netherlands, Belgium and Denmark, as well as the purchase and management of participations in the USA (Albertson’s and Trader Joe’s) were also very rewarding. My experiences in German companies were also varied. When you see how things are done there, you feel compelled to point out how - considering ALDI - they could do these so much better.

My explanations are based largely on insights which I gained as a General Manager and Managing Director of the Executive Board at ALDI North.*

In recent years, however, some aspects of ALDI's corporate culture have changed – and not for the better. In this book I present what ALDI has done successfully – the principles and methods of business management that are most suitable for today and tomorrow.

When I presented some excerpts from this book to my wife Monika Hykel, who as an outstanding professional coach is especially sensitive to underlying themes, her response was that this would become a book on ethics. At first I was somewhat baffled and reviewed what he had written. But her assessment is absolutely right. Ethics also have a role in business. And ALDI is in many respects an ethics-based business proving that it is perfectly possible to make a lot of money while retaining scruples. Anyway, there is nothing unethical about earning money or money per se. The ancient Romans used to say: "Pecunia non olet" (Money does not stink). To this extent, this book is unquestionably a book with an ethical dimension and a "cultural book" since ALDI's corporate culture is a factor in its success which must not be underestimated. Basically, old virtues are also revived by the description of ALDI. The interesting point: these virtues can generate profits. People will see the significance and the benefits of ethical and moral behavior alongside many - more technical - details in this company.

I especially would like to thank the former member of the Executive Board, Otto Hübner. I always appreciated his loyalty to principles. As Theo Albrecht’s right-hand man he had recruited me as "promising talent" from coop in Kiel and assigned him to ALDI North in Herten, Westphalia in 1971. Later he appointed me as General Manager in Nortorf, a small town of 6,000 in Schleswig-Holstein which later was to become the location of the Albrecht Foundation. In 1975 I was finally appointed the third member of the Executive Board in Essen alongside Theo Albrecht and Otto Hübner.

I also would also like to thank Aziz G. Zapsu who unknowingly promoted this project because he was eager to understand both ALDI and the principle of simplicity. He was the entrepreneur of the ALDI-type store (later called BIM) in Turkey. Aziz and his brother Cüneyd have already been called the "Albrecht brothers of Turkey" by the German business weekly Wirtschaftswoche.

This book is meant to work along the lines of typical ALDI principles. I hope it is easy to understand and does avoid management speak which sounds clever but mean little. I only want to describe the essentials: the essentials in the context of an operating business.

* In 1961 the brothers Karl and Theo Albrecht divided their company into a Group South (under Karl Albrecht) and a Group North (under Theo Albrecht). Since then the brothers conducted their operations separately in northern and southern Germany both financially and organizationally. Their respective headquarters are located near to each other in the Ruhr industrial area. Theo Albrecht in Herten (moving later to Essen) and Karl Albrecht in Mülheim an der Ruhr.

Preface (new edition 2011)

For several years, "Bare Essentials" was sold out. No copy was available. However, the authors received many requests for a new edition. We learned that there is quite some demand for an English version. This was even more the case as ALDI was expanding into other countries, some of them English speaking like US and Australia. So we decided to update the ALDI Story to make ALDI´s management principles accessible. The ALDI system is not primarily a retail discount system, but a management and organization system which can be applied in any business. Originally, when people said discount what they meant was a price discount and a sacrifice of quality.

We understand discount as an offer without certain incidentals. Discount is the concept of less. Discount omits many things which are typical for a certain industry.

At ALDI there is no wide range of products. Only some 1000 / 1800 items are carried in their assortment. Only the very few items which meet the daily consumer needs.

Typical discounters are also “Ryanair” or "Southwest Airlines" in the United States. They do not offer any service whatsoever. You do not get a boarding pass and a seat reservation. Only direct routes from A to B are offered using a single type of plane.

This 2011 edition is an updated version of the German and English language original and contains two additional sections which compare ALDI with Wal-Mart and Jack Welch's General Electric. Wal-Mart has entered the European market and was coming up against ALDI - firstly in Germany and England. GE is interesting because Jack Welch works on principles which are similar to ALDI's. In the German edition we argued that ALDI resembles more Toyota than its German competitor Tengelmann/A&P. Having learned more about GE, we can say that together with ALDI, Toyota and GE have formed a three-star constellation of simplicity, concentration, efficiency and persistence.

In the original German edition (see preface above) BIM, the Turkish hard discount chain, is mentioned. Just to make the point and put some emphasize on what hard discount could mean we want to give the reader some numbers of BIM as of today. In 2010 BIM had a turnover of 4,2 billion USD and was operating 3,000 stores together with 27 distribution centers and 16,000 employees. But the initial investment of the shareholders was only 22 million USD between 1995 and 1998. In 2005 BIM went public. Currently BIM has a market value of more than 5 billion USD. Also Biedronka in Poland which Dieter Brandes advised to adopt main ALDI principles made a huge success during the last ten years with current sales of more than 6 Billion USD and 1,600 stores. Biedronka and BIM can be considered the best ALDI copies in the world.

During our update we also again and again were confronted with changes of concept and leadership of ALDI nowadays. This lead us to the idea to principally speak about the ALDI-System which made ALDI that successful. Concepts and also corporate culture are very much connected to the persons in charge. And they change. So this book mainly is above the ALDI-System.

Introduction

ALDI - a Portrait in Miniature

"Our only consideration when we are working out a product‘s price is how cheaply can we sell it"

The following statement is the only publicly available description of the ALDI system provided directly by Karl Albrecht, one of the Albrecht brothers:⁵

"When I talk to you about pricing and about simplifying operations, I'll tell you about my operation, how it works, because I believe that it is simple.

Today, in retrospect, I can say that we only stocked a small number of items out of necessity at the start of our development in 1948 and 1949. We had planned to open more stores and had to be extremely frugal with our cash assets. We believed we would be able to expand our product range later. We wanted our stores to be like other retail outlets, offering a wide range of groceries.

But then we did not follow up on this after all, because we recognized that with our narrow range of products we could also run a successful business and that, compared with other businesses, our expenses remained very low and this was due largely to our narrow range of products.

This insight became the basic principle of our business. Today our costs stand at 11 percent.

Since 1950 we have been adhering to the principle of low prices as well as that of limited selection. This was also a matter of necessity. If we did not want to offer customers a wide range of products then we had at least to offer them some other advantage. From that point on we sold our products for decisively less.

I am convinced that these two principles, narrow product range and low price, cannot be separated. Today we can say that this policy has worked extremely well for us. In 1949 our average monthly turnover per store was DM 8,200 (Euro 4,100), in 1951 DM 12,800 (Euro 6,400) and today it has reached DM 20,000 to DM 21,000 (Euro 10,000 to Euro 10,500).

This rise in turnover was due nearly exclusively to the principles I have just stated, because we are very tight on advertising. Our expenditures on advertising do not even amount to 0.1 percent. All our promotional efforts are put into discount prices, and they are so effective that customers are even prepared to wait in line. At the weekend lines nearly always form in front of the stores before they open. But business is not only good at the weekend – early in the week we also see good turnover figures.

To give you an idea of our turnover, I would like to point out that at our strongest location, with a counter length of 5.5 m, we showed a turnover of DM 44,000 (Euro 22,000) last month. At another location, with a counter length of 4 m, our turnover stood at DM 28,000 (Euro 14,000).

To make this sort of performance physically possible our shelves and counters are simply designed. The whole range of products is on counters or shelves, visibly arranged for the customers. There are no decorations in the stores.

Regarding our product range I would like to add that it amounts to about 250 to 280 items. We take care that we do not offer similar items alongside each other. When we selected items for sale we went so far as to completely exclude whole product categories. The reason for this exclusion:

This means that due to the sales rate we do not carry any preserves in bulk, no fruit or vegetables, no salted herrings and due to turnover no canned fruit or vegetables, nor any delicatessen items such as mayonnaise, pickled fish, herring salad, etc. Our range of products is limited to consumer items which sell fast. We do carry legumes, but only one of each sort at any one time; one kind of beans, of lentils and of rice.

We do not carry packaged legumes either, since the packaging costs make the product too expensive for us and the overall prices do not fit into our low price strategy. We have discovered that if we package goods in advance this is often visibly more expensive than the total sum of our personnel costs. So we package nothing in advance (author's note: there was no self-service in 1953). Everything must be weighed at the point of sale.

1 type of sugar
4 types of preserves in jars
5 types of pasta which we always sell for the same price
5 types of soap

The only shoe polish we carry is by Erdal, the only toothpaste is Blendax and the only floor wax in cans is by Sigella, always sticking to those items among the brands which sell fastest. Even in the case of items with tight margins such as oil, fat, and lard we only sell one kind. Adding any more kinds and raising our costs is something we can do without.

And selling is substantially easier and quicker for our sales personnel at the point of sale, and the customer can decide much more quickly: either to buy or not to buy.

In our pricing policy we have fixed costing rates for many items. For the items with tight margins we apply the following mark-ups:

If purchase prices drop we lower our sale prices immediately, even if we have not bought at the new prices yet. We take the position: offensive action is better than defensive.

It is far too easy to maintain a price even when the purchase price has fallen. But that would have an unpleasant, delayed impact, for the goal which must be achieved is that customers begin to believe that they cannot buy cheaper anywhere else. Once you have achieved that - and I believe that this is true for us - customers will accept anything else. They will even rearrange their schedules to come at the best shopping times.

In turn, this allows us to achieve nearly full employment for our personnel. This is an essential factor for low personnel costs amounting to between 3.1 and 3.7 percent.

This year we have acted even more energetically on these insights and our results have been more successful than ever before. Our turnover figures show it.

In January turnover stood at DM 250,000 (Euro 125,000), in February DM 300,000 (Euro 150,000), in March DM 340,000 (Euro 170,000) and in April DM 394,000 (Euro 197,000).

Finally, I would like to mention that our operation is run nearly solely on the principle of low sales prices. No other measures are used to promote business, they are not even discussed. Our only consideration when we are making price-related calculations for a product is how cheaply can we sell it, not how high we can set the sales price."

Even today nearly nothing has changed since Karl Albrecht made these statements in 1953 - at that time relating to a concept which did not involve self-service - except that the expense ratio has continued to be improved thanks to many years of intelligent work on all the details. Basically, a completely new business model was created along the lines of a discovery in the natural sciences: by accident.

Less is better than too much

Scarcity and necessary frugality demanded the avoidance of waste. The principle was: less is better than too much. This applied to capital, personnel, floor space. In the end, the result of this "emergency program" was the ALDI concept. The shortage of these resources inspired fantasy and created, without exaggeration, the idea of the century in retailing.

In the authoritative German weekly trade magazine for the food industry, Lebensmittel-Zeitung, a letter to the editor appeared on May 11, 1980 written by H. Kuhlmann, at that time chairman of AVA/Marktkauf (today part of the Edeka Group). Regarding ALDI he commented: "ALDI is the most successful food retailer of all time." The former Oetker director, Dieter Baader, a widely respected expert in the German food industry and a frequent panel member at conventions, once worded his opinion at the Cologne/Bonn Marketing Club as follows: "ALDI is the greatest retail-policy driven brand success in the western world."

... groping forward in the dark like Albert Einstein

The ALDI concept was not based on any one specific corporate philosophy or strategic marketing study. It was more an adaptation to market forces and the competitive environment. The lessons that they learned in the process were vigorously applied. The original concept was never changed basically over the course of the decades, the only changes were incremental adjustments to a wide range of internal and external developments. That´s why it is nonsense - as the trade journals do on occasion - to speak of the old or the new strategies at ALDI.

The ALDI strategy was the result of a dynamic process, driven by intuition and decisions whose consequences were not always foreseeable. Starting out as a "Mom and Pop" store with a "simple concept under compelling circumstances" it became, alongside Wal-Mart and Tesco, the world's most successful retailer. As so frequently happens in the history of business economics, the beginnings were not an ingenious, academically reasoned project, but a good business idea which over the years developed into a solid concept for success. The ALDI system was not a sudden invention. With their first "mini-stores in third-class locations" Karl and Theo Albrecht were literally groping their way forward to their sales system.⁶ Not unlike the way Albert Einstein described his own way of proceeding: "I grope my way forward."

Most recently, however, there have been the first indications, both internally and externally, of gradual change. While ALDI for decades clung to an extremely limited range of products, there are signs of widening the assortment. Today the stores may carry up to 1000 boxes, many of them mixed with a couple of similar but different SKU’s (of the same kind, size and price). This could count to a total number of SKU’s of 1800 items.

But other changes are also happening which are cause for concern. Despite all the deeply rooted business and leadership principles, every company changes as decision makers and actors change. The ALDI management team is clearly different from the managers of the 60's, 70's and 80's. In these years the mature concept was lived and refined. Strict principles resulted in this unique success. Asceticism, a low profile, attention to details and incredible rigor were the essence of ALDI.

But what is essential for ALDI's success, and for many other companies in other industries as well, are the basic insights and methods presented in this book which have remained basically unchanged until today. They remain up-to-date and are becoming increasingly important at a time when many companies and, in part, whole industries, must reorient themselves to face global competition. ALDI's insights and methods can help other companies take the top spot in their industry.

If the competition had paid closer attention to the words of Karl Albrecht the retailing landscape might have looked altogether different. But even 30 years after 1953 there was still hardly anyone who believed in the success of this concept.

"Nearly no other marketing concept has been so thoroughly analyzed, or is so readily accessible - and yet practically a whole industry watched the rise of a company and followed the related growth of this distribution segment without doing anything and without a single creative response."

But there was a lot more involved here than a "marketing concept". Those imitators who tried to copy ALDI apparently ran into the problems described by the poet Marie Ebner-Eschenbach (1830-1916): "Most imitators are attracted by what cannot be imitated."

And if anyone copied then they wanted to improve on the original. And then they were forced to admit: ALDI's know-how is so simple that nobody wants to believe it. That is the reason why it is so difficult to imitate.

Confidentiality as a Principle

There is still today very little known about ALDI. Thanks to the intelligent corporate structure ALDI is not required to make its books public. This obligation to disclose accounts would be applicable if two of the three criteria turnover (at least Euro 125 m.), number of employees (from 5000) and total assets (from Euro 62.5 m.) were satisfied. But today according to new EU regulations income statements and balance sheets of the regional ALDI operations (in Germany 66 independent companies called "Kommanditgesellschaften") have to be published each year. But because of different sophisticated rules it is hard to really understand the numbers. Example: one of the most interesting numbers would be the margin between purchase price and sales price. But the rules allow to include different sales expenses into the purchase price. Thus the real margin does not become transparent.

ALDI was discussed in a large number of newspaper articles. Competitors, market analysts and brand manufacturers tried to find out more about the company in image studies and highly confidential papers. So their efforts were all limited to speculation. For ALDI these studies, sometimes passed on to them by their vendors or discussed in the trade journals, were useful to find out more about their own sales market, their customers or about the opinions of vendors and competitors, without having to spend any money. ALDI themselves never spent any money on market research. At ALDI, people thought more about what their customers might want, and they acted on this simply by immediately trying it out.

Waiving publicity is a conscious choice and an integral part of company policy. This limits the competition's access to information. Now, however, anyone can find out the number of ALDI's stores. The addresses of all the stores can be downloaded from the Internet at www.ALDI.de. If companies publish something about their organizational solutions or report proudly about their increases in turnover or their especially high personnel productivity and correspondingly low costs, they only help their competitors. The competitors can use these details to compare and improve their own performance. That cannot be of any advantage to ALDI. As for ALDI's customers who do not read the trade papers, there is nothing in this for them. The customers want good quality at low prices.

The criticism related to "lack of public control" - which periodically arises - overestimates its potential influence: the disclosure of company developments, as reported in newspapers for example, has never prevented large public companies from collapsing or from having internal problems. Let us not forget companies such as coop AG, Bremer Vulkan, Metallgesellschaft, Consumer Cooperative Dortmund or banks during the latest financial crisis. One of the latest desasters in Germany was the 100 years old famous department store KARSTADT.

History and Growth

In 1913 the parents of Karl and Theo Albrecht opened a small grocery store with 35 square meters of floor space in Essen. After their return from prisoner of war camp in 1946 the Albrecht brothers ran a business with 100 square meters in Schonnebeck, a suburb of Essen largely populated by miners. By 1950 this business had already grown into a small chain of 13 stores. At that time, of course, service was still provided. Karl Albrecht says the real business operation actually started in 1948. Two years later the principle of low prices was added to that of narrow product range. The first "genuine" ALDI in today's terms was opened in Dortmund in 1962 - a creation of Theo Albrecht in the north of Germany which was later adopted by his brother Karl.

In 1961 the brothers divided their small dynasty into their North and South business units. They preferred "individual leadership" to "team leadership": a principle of decentralization that has had a decisive and positive impact on the Albrecht Group. The basic reason for the separation was that it eliminated the need for continuous agreement on all essential or even non-essential matters. But all details, performance and cost figures were exchanged, even the conditions of various vendors were compared, and some purchasing negotiations were conducted jointly. The only matter not discussed by the brothers was the actual annual profits of their respective group.

Year	Turnover Million Euros*)	Number of stores	Statistical monthly average turnover Euros
1955	15	100	13,000
1975	3,000	1,000	250,000
1985	9,000	2,000	375,000
1995	15,000	3,000	420,000
2000	19,000	3,400	470,000
2010 Germany	26,000	4,300	500,000
2010 world	55,000	9,300	490,000

In 2000, ALDI already operated some additional 3000 stores outside of Germany moving goods worth roughly Euro 9bn. Today this number increased to 5,000.

Clear Structures

ALDI's business structure is not opaque as has been dicussed in some magazines. On the contrary: it is very transparent and, in fact, also very simple.

The "unifier" as well as the leadership and control body of the corporate group is the Executive Board (Verwaltungsrat) which is made up of formally completely independent, free-lance managers who had previously been successful as general managers of ALDI's regional companies. The members of the Executive Board are not directors or employees of a parent business or holding company. The Executive Board acts as a supervisory board for each of the operative businesses both within and outside of Germany. One characteristic of the ALDI corporate structure is that there is no holding or umbrella corporation which rules other companies and thus could build a concern with all the related consequences such as union-related co-management and disclosure requirements. Since ALDI is not a concern in the classical sense of the term, there is no corporate-level; a fact which was always criticized by the unions. But what is decisive for this structure is the vigorous decentralization - a core principle of the ALDI corporate leadership.

ALDI's Corporate Structure (North)

ALDI has a transparent corporate structure which only appears complicated due to the large number of single, regional companies (ALDI North 36, ALDI South 30).

In addition to this basic set-up there is also a small number of important companies which are part of the corporate group: coffee processors in the towns of Herten/Westphalia and Weyhe near Bremen, the real-estate companies Albrecht Immobilienverwaltung GbR and A+G Grundstücksvermietungs und - verwaltungs GmbH, as well as an insurance agency called Alva Versicherungsvermittlung GmbH & Co KG. The establishment of the coffee processors and the Albrecht coffee brand was an early idea which enabled ALDI to demonstrate its high level of quality. Coffee has remained the sole product which they make themselves.

In contrast to the publications in the trade journals - the ALDI Einkauf GmbH & Co OHG is not a holding or parent company but a subsidiary which exercises service functions for the ALDI companies, especially central buying.

The property development companies served the purpose of buying and managing their own property, the insurance company enabled them to take in the usual agent commissions for selling policies.

The structure of the family trust was selected to protect and promote the interests of family members. Since a trust as a principle cannot be dissolved, the corporate existence is permanently assured, even in the case of family disagreements and inheritance battles. The family trust can prevent the chopping up of whole companies after many years of litigation. If two sons were sole heirs, they would each have a claim to half of the inheritance. But in the case of a company a complex entity is involved which cannot be simply cut in half like a bank account. Since the family members - the partners Theo and Cilly as well as the sons Theo jr. and Berthold - only own small percentages of the company, its continued existence is assured. Problems, such as those recently seen at Bahlsen, a major producer of cookies in Hannover, can thus be avoided. At Bahlsen, interminable inheritance disputes were necessary before a solution could be found involving the break-off of a central part of the company in the USA and its transfer to one of the heirs. The trust structure also puts many obstacles in the way of selling the corporate group to a third party. Walter Pellinghusen published a perceptive report on this subject in the August 13, 1998 issue of the German business weekly Wirtschaftswoche.

Financial Development in Germany

ALDI´s profits were always one of the biggest secrets. Many estimates have been published. Over the years these estimates have come increasingly closer to the reality since more and more details have been leaked about what is now a very large business. In an internal study the Lever company estimates ALDI's profits for 1994 to be 4.5 percent of turnover, more than three times as high as the profit margin of competitors in the food retail business. All the costs of the company are estimated to come to 9 percent.

From various reports published in the trade papers and from data which occasionally leak out to the media, ALDI's overall performance record looks as shown below. The relative sizes of the numbers in this chart are more remarkable than the precision of the individual figures.

ALDI's performance capacity becomes clear if you consider that ALDI only sells roughly 1000 / 1800 items, while other supermarkets and hypermarkets put 20,000 to 60,000 items on their shelves. The largest German chain REWE has a sales volume of Euro 40bn - resulting in an average item turnover per annum of 0.6 mil. Euros. ALDI with a turnover of 26 mil Euros in Germany achieves an average item turnover of 14 mil Euros.

These cannot be precise calculations. They are only meant to give the reader a sense of the scales involved. In this context it should be noted that Rewe, including their different chains is probably the largest German food retailer measured by turnover. As far as the volumes by items is concerned, ALDI is 24 times larger than Rewe (considering the boxes only this number would be 43 times). These ratios are what Klaus Jacobs meant when in 1986 on the subject of the competitive coffee market in Germany he declared: "Our opponent is ALDI." And at that time Albrecht Coffee was sold in some 2000 stores, while Jacob's coffee was sold in nearly every store, every convenience outlet and every gas station in Germany.

With a profit margin of 4 percent – in this dimension each year since at least 1970 – ALDI only in Germany still achieves an annual profit of roughly Euro 1.1 bn before tax. These profits are more stable than at other major industrial companies such as Volkswagen or DaimlerChrysler who in some years also have to face large losses.

ALDI achieves a stable sales and profit performance although competition has heated up considerably. Despite the strong expansion in non-food business and, most importantly, despite the expansion of the number of items from 600 to 1000 / 1800 items ALDI may cause turnover rate to stagnate in the future. More and more the non-food sales become important with currently sales of about 20 percent of total revenue. They offer up to 50 or 60 different products a week. Today, ALDI sometimes can achieve more than Euro 200m in turnover just from a single sales campaign of personal computers.

In this context, the increases in personnel costs are not negligible. Here too, nonfood products and, most important, the widening of the product range assumed important roles.

Bare Essentials The ALDI Success Story

Contents