One week from now, on 7 June, discounter Aldi embarks on arguably its most ambitious venture to date, with the opening of its first store in China.
The store, which will be located at the Jingan Sports & Fitness Center in Shanghai, follows two years on from the discounter first dipping its toe in the water, with the launch of an online store in collaboration with Tmall Global.
The retailer's burgeoning presence in Australia – it has helped cut the Coles/Woolworths duopoly in that market down to size – is understood to have given the brand the confidence to explore a physical China entry.
Also, in Christoph Schwaiger, Aldi China's CEO, it has the right man in place – Schwaiger has been with Aldi for 13 years, five of those in Asia, and speaks fluent Mandarin, as well as Thai.
Track Record
Aldi will also be conscious of the efforts of many other large-scale European grocers to establish a presence in China, before retreating, often with their tail between their legs.
UK retail giant Tesco, for example, still retains a 20% stake in Gain Land Limited, owned by China Resources Enterprise, however this is a vastly scaled back operation from that envisaged by former chief executive Sir Terry Leahy.
"China is one of the largest economies in the world with tremendous forecast growth," Leahy said in 2004, as Tesco entered the market for the first time. Shareholders weren't so sure.
More recently, Spain's DIA checked out of China last year, selling its local stores there to Suning Group, while Aldi's main rival, Lidl, has also pulled away from its online operations in the country.
A New Challenge
Commenting on Aldi's chances, Nick Miles, head of Asia-Pacific at IGD, said, "China will be a new challenge for the discount retailer.
“Aldi currently operates stores in Europe, Australia and North America. Trading in Asia, and particularly China, will be very different. Many international retailers have entered this market over the past 20 years and not succeeded, while discount is a grocery channel that doesn’t currently exist in China – or Asia – in any meaningful way."
China is a very dynamic country, with a variety of different consumer preferences, and vast geographies. It is also a market in which brands are key, with some western brands (KFC, for example) making great inroads into the country in recent years.
"Brands are king in China, while Aldi relies heavily on its private label ranges," Miles notes. "Meanwhile, online grocery retailing and digital technology in retail is exploding in the market, while Aldi operates through physical stores and its model is based on retail efficiencies."
Middle-Class Consumers
Where Aldi could hit the mark is among China's growing middle class, and their "desire for high-quality, imported products". It's not for nothing that Huawei is feted as arguably the most powerful technology upstart in the world; Chinese middle-class consumers expect efficient, reliable standards, something Aldi is very good at.
In addition, Aldi should learn from others' mistakes, and take time to learn the lay of the land before expanding. The vastness of China promises the potential for untold riches, but as many brands have discovered, unless you understand the nuances that make China unique, you are likely to be a busy fool.
"It has ambitions to open 50-100 stores in the medium term and will be aware to not spread its operations too wide – a mistake other retailers have made in the past," Miles adds.
Aldi has proven itself in the past to be nothing if not adaptable, and it will need every ounce of its versatility to succeed in what can be an unforgiving market.
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.
