Dive Brief:

• Aldi this morning announced plans to spend $3.4 billion to expand to 2,500 stores across the U.S. by 2022, according to a company announcement. This footprint would make the hard discounter the third-largest grocery retailer in America by store count.
• The expansion plan builds upon Aldi’s announcement earlier this year that it will spend $1.6 billion to remodel 1,300 stores. The company currently operates just over 1,600 stores. 
• “We’re growing at a time when other retailers are struggling,” said Jason Hart, Aldi’s CEO, in a statement. “We are giving our customers what they want, which is more organic produce, antibiotic-free meats and fresh healthier options across the store, all at unmatched prices up to 50% lower than traditional grocery stores.”

Dive Insight:

With this announcement, Aldi adds an aggressive store growth strategy to go along with its already aggressive $1.6 billion store remodeling plan. The $5 billion total capital investment speaks to the opportunities Aldi sees in an oversaturated market, and offers further evidence that a new era of discount retailing is dawning in the U.S., even as big box stores strive for market dominance through the grocery category. 

At a time when traditional grocers feel fortunate to add a dozen new stores per year, Aldi plans to add close to 200 stores per year over the next five years. The discounter’s small format and low overhead costs mean it can open quickly in more places than other retailers. It can also potentially reach more customers with its low prices and increasing fresh appeal.

Once its expansion plan is complete, Aldi estimates it will serve 100 million U.S. customers each month.

Supermarkets have long dealt with fast-growing competitors like dollar stores and convenience stores. But where these formats have nibbled at their margins, Aldi stands to siphon off large swaths of customers. The company’s private-label-heavy assortment, and savings of as much as 50% over traditional stores are very attractive to shoppers. Its fresh-focused remodels, which add more produce, improved lighting and other soft elements, bring the in-store experience in line with conventional grocers.

The timing of the announcement is notable, falling just three days before fellow discounter Lidl opens its doors in the U.S. The companies will compete in many of the same markets, so Aldi’s shot across the bow is the first of many maneuvers the two will carry out against each other. But make no mistake, Aldi and Lidl are primarily focused on other competitors, including the thousands of large-format, traditional supermarkets that are struggling to stay relevant. Aldi and Lidl see these stores as sluggish, out-of-touch operators that are not meeting shoppers’ demands for convenience, freshness and value.  

This new class of discounter promises a supermarket experience on a smaller scale with vastly better prices. That could be tough for many competitors to beat. It could also reshape the supermarket industry for good.

“The hard discount proposition is going to make the U.S. food retail market better, but it’s going to disrupt it along the way,” Bill Bishop, longtime grocery consultant and chief architect of Brick Meets Click, recently told Food Dive. “There will be a number of retailers that aren’t able to keep up with that disruption.”