Grocery Shopping for the Cost-Conscious

GENEVA, Ill., Nov. 24, 2008— -- Forget name brands. In this grocery store you won't find Kellogg's Cornflakes, Huggies or Kleenex.

In fact, take a walk down the aisles and you won't see much that's familiar. Ever hear of Corntown popcorn, Clancy's potato chips or Millville cereal? Such uncommon names hold the secret to success for one of America's fastest-growing grocery chains.

Welcome to Aldi, the German-owned, low-cost, no-frills, do-it-yourself grocery chain that takes great pride in saving a buck. It's a formula that this deep-discount grocer is taking to the bank in the United States as the economy tanks.

"Money's tight so I want to spend less on groceries," shopper Melissa Albright said at a store in Geneva, Ill. It's one of nearly 1,000 stores in the United States.

"I think this lousy economy has jolted customers, more and more customers, to give us a try to save money on their groceries," said Jason Hart, the president of Aldi.

Aldi's layout is smaller than the typical supermarket, and so is its selection. There are only about 1,400 products, compared to tens of thousands in most grocery stores.

There may not be a lot of variety, but the simplicity, and absence of name brands, allows Aldi to sell groceries for far less than its competitors. A typical basket of items, Aldi claims, includes prices 40 percent to 50 percent lower than most supermarket chains, and 16 percent to 24 percent less than big discounters like Wal-mart and Costco. But Aldi does not cater to low-income customers. Surveys show Aldi shoppers have annual household incomes of about $65,000.

"Discount shopping isn't about low income," Hart said. "Discount shopping is about people wanting to save money."

"I'm a tightwad. I gotta get my kids through college. I want to retire some day. So I don't want to waste money where I don't have to waste it," shopper Brenda Reilly said.

Big Savings on Commonly Used Products

A small sampling of several common products suggests substantial savings. Ketchup at Aldi is $1.15 compared to the $2.75 customers fork over for the same size of a name-brand bottle at big-chain supermarkets. Oat cereal is $1.49 at Aldi, versus $3.49 if you bought the best-known brand. And peanut butter is $1.39 at Aldi. A name-brand version costs $2.99.

Albright said she estimates her family spends 50 percent less at Aldi than at a larger grocery store.

At the U.S. headquarters outside Chicago, the focus is on balancing price with quality.

"We think that our quality is what is going to beat the brand loyalty," said Shane Williams, group purchasing director. "If you had the same quality but you could pay 50 percent less why would you not want to go with the lower price?"

Food buyers conduct weekly blind taste tests comparing Aldi labels to brand-name products. Those found lacking are sent back to the manufacturer to be reformulated.

In the stores, 95 percent of the items are Aldi's labels. The tiny handful of brand names is items that are difficult to duplicate. But customers seem OK with the choices.

"I have two young kids, a 5-year-old and a 2-year-old, so they are not brand conscious yet, especially when it comes to food. They don't know the difference. And it still tastes good," said shopper Michelle Kelly.

The bare-bones grocer also stands out for what its stores do not offer. You won't find a deli, a bakery or a pharmacy at Aldi. Want a grocery cart? That'll be 25 cents. The small deposit helps prevent theft. Paper or plastic becomes a financial decision: Paper costs 6 cents per bag and plastic bags cost 10 cents each.

When it comes time to pay, Aldi only accepts cash or debit cards, which saves the company millions on credit card fees.

Finally, be prepared to bag your groceries, only a handful of employees, all of them non-union, staff every store.

The private company, founded in Germany, has stores in 29 states. It opened its first U.S. grocery in 1976. And it is expanding just as the economy contracts, with plans to add 100 more U.S. stores this year alone.

The discount chain hopes to retain customers who get hooked on low prices during hard times. If it's successful, then the store will likely stay "trendy" even when the economy improves.