Just Checking In - Episode 28: What We Can Learn From Aldi

Episode 28:
What We Can Learn From Aldi

On this edition of Just Checking In, industry expert Alan Ayers discusses the differentiation in retail can teach urgent care and what can be learned from a discount super-market like Aldi.

Just Checking In - Episode 28 - What Can We Learn From Aldi
Video Transcript

Good Afternoon! This is Alan Ayers and I am Just Checking In from the Aldi Food Market here in Columbus, OH where I’m going to be talking about what differentiation in retail can teach urgent care.

If you look at retail in the United States, retailers have spent billions of dollars creating differentiated brands that create consumer loyalty. Almost anybody knows the difference between Wal-Mart, Target, and Kohl’s, yet when asked about urgent care, urgent care exists in a sea of sameness. Most consumers consider urgent care operators to be the same. They consider them to be commodities, and as a result, we don’t really see the loyalty for urgent care that we see in retail. So, in this episode of Just Checking In we’re going to take a deep dive in to one retailer, one differentiated retailer, which is Aldi, and show you what urgent care can learn from a discount supermarket. Next, on Just Checking In.

So I can just imagine what you’re thinking. “If we’re going to talk about differentiated retailers, why don’t we talk about somebody a little more glamorous, like Nordstrom?” And you’re right! The Nordstrom family has been incredibly successful. In fact, the Nordstrom family is worth over $3 billion. But for every $1 that the Nordstrom family has in their bank account, the Albrecht family has $7. In fact the Albrecht family – and Aldi stands for “Albrecht discount” – is one of the wealthiest families in Germany with over $21 billion in assets. You could talk about Wal-Mart. Wal-Mart actually has an Aldi problem. Wal-Mart’s slogan – “Always low prices. Everyday low prices” – Wal-Mart can’t sell food as cheaply as Aldi. Wal-Mart is having a significant issue with Wal-Mart shoppers defecting to Aldi to buy a lot of their groceries. So if we look at Aldi, look at their success, look at the success of the Albrecht family, what can we learn for urgent care?

Well Aldi took a traditional supermarket model and basically turned it over on its head. And the first thing they did was address labor costs. So in retail, like urgent care, labor is your number one cost of operations. Well, to cut labor costs at Aldi, what did they do? They took tasks that normally a grocery store would pay employees to do, and shifted it to the lowest cost resource, which is who? Aldi’s customers. So when you approach Aldi in the parking lot, you don’t see somebody out there gathering carts. There’s a 25 cent deposit to get a cart at Aldi, which assures that people, in some cases, homeless people to make money, return the carts at Aldi. So they eliminate a position in the parking lot. Well there’s another cost in the grocery store, which is stocking. Well rather than pay people to open boxes, stock shelves, re-stock shelves, Aldi has designed their stores with extra wide aisles so forklifts can deliver pallets directly to the sales floor. They open the pallet up and consumers basically do the stocking. Consumers pick goods directly from the pallet. That eliminates stocking fees. Also, there’s a cost of recycling boxes, recycling materials. Well Aldi takes care of that by not providing grocery bags or by charging for grocery bags. Consumers actually look around Aldi for excess cardboard boxes, and that cardboard, which would normally be paid to be recycled out the back door, goes out the front door with consumers.

So finding ways to shift labor costs from employees to customers results in significant overhead cost savings for Aldi. Now, for the employees who work at Aldi, they make their jobs highly efficient. So your typical grocery store, you have somebody scanning items at the front. Well, scanning can be time-consuming, particularly if there’s difficulty in finding the barcode. Well every product at Aldi has a barcode on every side of the package, which reduces scan errors and enables their cashiers to work more quickly. Now, consumers in grocery do tend to complain if there are wait times at the cashier. So how does Aldi deal with that? Does Aldi hire a bunch of part-time people to come during the busy hours and seasonal workers? No, Aldi basically has a full-time staff of full-time employees who come in and work the entire shift, which means if there’s a busy time, the consumers (your lowest-cost resource) waits. But the Aldi consumer, in order to save money, is willing to tolerate somewhat of a wait at the cashier because they know they can get lower food prices at Aldi. So by having a very sharp focus on controlling the overhead of a normal retail operation, Aldi is able to offer significantly lower prices than Wal-Mart and their other retail competitors. And those profits, or those cost-savings translate not only to cost-savings for very loyal consumers, but also profits for Aldi’s bottom line.

There are other things Aldi does in their merchandising. If you think of a typical Kroger store, you may have three different types of corn flakes, three different brands, four different size boxes, which when we look at shop-keeping units or SKU’s, which refer to items on a shelf in a grocery store, there are hundreds of thousands of SKU’s in a typical Wal-Mart or chain grocery like Kroger or an Albertson’s. Aldi reduces the number of SKU’s. So if you walk in Aldi, there’s not a lot of choices. There may be one box of corn flakes, one size, one brand, which is typically Aldi brand, but what they do, is they take all of their purchasing power, and concentrate it in that one SKU and that gives them an enormous scale on a global market for their sourcing, and they’re actually able to buy the products on the shelves cheaper than what Kroger, and Wal-Mart, and other groceries stores can get them for.

Now if you walk in to an Aldi store, clearly it’s no frills. They don’t really decorate the stores. It’s somewhat of a sparse environment. But the Aldi consumer isn’t concerned about an extravagant shopping experience. They’re concerned about saving money on their family’s grocery costs.

So, when you also look at how Aldi interacts with its retailers, Aldi primarily sells its own brands. Well when a chain grocery store like Kroger or Wal-Mart, if you look at the in caps, some weeks it’s Pepsi, some weeks it’s Coke, some weeks it’s Cheerio’s, some weeks it’s Kellogg’s. Those chain groceries tend to engage manufacturers in paying slotting fees, promotional allowances – all these different games that take place in the supermarket. Some of which are actually detrimental to consumers. Well Aldi, by carrying primarily their own brand, their own label, they eliminate all of these promotions, all of these slotting allowances, slotting fees, and other games that take place in traditional supermarkets. And again, they pass the savings not only on to their customers, but also those savings result in bottom-line savings for the consumers.

Now you’d think if Aldi has low cost and low prices, certainly they must treat their employees poorly, they must pay low wages. Actually, Aldi pays significantly above the market minimum wage in every market they operate, and Aldi district or area managers, right out of college, start at a generous salary, sometimes upwards of $65,000, including a car allowance. So Aldi takes excellent care of its employees and offers benefits to employees, primarily full-time employees, who are fully committed to Aldi and the company’s vision.

So when you look at urgent care, how do you differentiate your urgent care model? Is your pricing the same as every other urgent care center? Is your service the same? Do you pay your employees and treat your employees the same? Do you offer a wide scope of services where maybe you could offer a very limited scope of services more efficiently and for a lower cost. I’m not proposing answers here for urgent care, but the point is, when you look at improving urgent care, you don’t want to be the commodity urgent care center that a consumer can’t even remember the name. You want to be the Apple store. You want to be the Aldi. You want to be the Nordstrom. You want to be that differentiated urgent care retailer that cultivates not only extraordinarily strong consumer loyalty, but also strong bottom-line profits.

If you’re looking for ideas to differentiate your urgent care center or if you’re new to the urgent care business, at Practice Velocity and Urgent Care Consultants we have a lot of ideas to help you be successful in your urgent care venture. Please feel free to contact us using the email address on your screen and until next time, this is Alan Ayers Just Checking In.