One of the worldâ€™s great discount retailing entrepreneurs, Theo Albrecht, died recently. He and his brother built Aldi into one of the worldâ€™s largest discount supermarket chains, with consolidated sales likely of over $50 billion. Along the way,Â Theo also managed to buy what was then a small food store in Southern California, Trader Joeâ€™s,Â and then build it into one of the best and fastest-growing food retailing companies anywhere.Â
Where is the Theo Albrecht of China? The question is not an idle one. No country can now match in absolute numbers or recent financial success the entrepreneurs of China. There are great home-grown Chinese companies everywhere, in just about every industry. But, not in food retailing.Â
This is surprising. Food, of course, is the main thread, along with family, that weaves together Chinese civilization.Â As nowhere else, peopleâ€™s lives are organized around shopping, preparing and consuming of food. While itâ€™s no longer a primary form of greeting as it was until about a century ago, the phrase â€œåƒé¥äº†å—ï¼Ÿâ€, or â€œHave you eaten?â€ is still spoken or written by SMS more times each day in China than any other.Â
The most successful retailers in China are, for the most part, all Western companies: Wal-Mart, Ikea, Carrefour, Zara. The most successful fast food chains: McDonalds and Kentucky Fried Chicken. There are Chinese competitors, some of which are quite good. But, in food retailing, the picture is bleak. There are lots of supermarkets in China, modeled on the American style, but none Iâ€™ve been to does anything special.Â Certainly, there is no Chinese food store that can compare with the two chains Theo Albrecht built.Â
Iâ€™ve yet to find a Chinese food chain that even attempts to be a source for quality discounted products, the formula Albrechtâ€™s stores do so well. One result: supermarket food prices in China tend to high, considering income levels. There is no real low-end competition.Â
Chinese love bargains at least as much as Germans and Americans. The Chinese market couldnâ€™t be bigger, or more primed for a great discount food retailer to enter. The fact none has yet to surface in China is a source of real bewilderment to me â€“ in part, because Iâ€™d likely be a frequent customer.Â
A Chinese version of Aldi would be a great place to start. For those whoâ€™ve never been, Aldi stores tend to be much smaller than a typical supermarket. Everything about an Aldi store is bare bones â€“ the merchandise is mainly stacked in corrugated cardboard shipping cartons, placed in pallets on the floor.
Aldi stores have a narrow range of mainly brand-name food products, things like cereal, detergent, beer, processed meats. Prices are low, probably around 25%-40% below prices in full-range supermarkets. Customer service is all but non-existent. Everything about the store screams at you: â€œcome here to buy stuff cheap, not for the ambianceâ€.Â
Aldiâ€™s retail model, with its small stores and efficient use of floor space,Â would work well in Chinese cities, where real estate prices are high. A limited range of only the most-commonly bought products is also suited to China. The Chinese market is simpler. People havenâ€™t yet developed a preference, as many Americans have, for stores stocking 200 different permutations of potato chip. Margins at a Chinese Aldi would grow consistently over time. As the number of stores grows, the company would have more buying power and greater leverage with the brand-name manufacturers.Â
If anything, a Chinese Trader Joeâ€™s might do even better. Again, the store size is smaller than a typical supermarket. But, where Aldi focuses on selling mainly well-known global brands, almost everything sold at Trader Joeâ€™s is the storeâ€™s â€œown brandâ€.
The Trader Joeâ€™s products are all high-quality, as good or better than national brands. But, the prices can be much lower than branded products, since Trader Joeâ€™s isnâ€™t spending/wasting anything on marketing or advertising. Thatâ€™s the retail proposition Trader Joeâ€™s makes to its customers: â€œIf you donâ€™t mind buying our brand, weâ€™ll sell you better stuff at lower prices than you can buy anywhere elseâ€.Â
If going to Aldi is like a trip to a supermarket stock room, a visit to Trader Joeâ€™s is far more pleasant. The stores are always in nice areas, with helpful and friendly staff, free samples, wide and well-organized aisles. The customers seem overwhelmingly affluent and educated. They shop at Trader Joeâ€™s because they like and care about good food, but donâ€™t want to pay an unnecessary premium for a big brand.Â
Trader Joeâ€™s sells both staples like coffee, pasta, cooking oil, bread, milk, and also prepared foods, including fresh salads and soups. Non-food items include detergent,Â vitamins, pet food, plants, and flowers. Every Trader Joeâ€™s Iâ€™ve been to is crowded at all hours of the day. According to Businessweek, the company has the highest sales per square foot of any food retailer in the US.Â
High quality â€œown brandâ€ food items at lower prices sold in a nice environment is a retail idea I think would work very well in Chinaâ€™s major cities like Shanghai, Beijing, Shenzhen. Thereâ€™s a big market for higher-quality food products. Whatâ€™s more, big brands have only been around in China for about a decade. So, it should be comparatively easier in China than in the US to get people to support a single brand that offers top quality across a range of products.Â
The Chinese market is ready. The big mystery is why no Chinese entrepreneurs have attacked it.Â Â