How Aldi Is Pushing Grocery Prices Down While Food Costs Rise Elsewhere

Aldi, the German discount grocer known for rock-bottom prices, has become the fastest-growing grocery chain in America. Bloomberg reported that the company plans to operate more than 3,000 U.S. stores by the end of 2028, which would put it behind only Walmart. In 2024, Aldi generated about $29 billion in U.S. sales, more than Trader Joe's.

The chain's reputation for low prices appears to be earned. Food reporter Deena Shanker, who compared prices over many months, found that Aldi either matched Walmart or came in slightly cheaper. Competitors have noticed: Wegmans and Kroger have announced defensive price cuts. An analysis published in late 2023 looked at Lidl, a similar German grocer with fewer U.S. stores, and found that grocery chains cut their markups by roughly 7 percent in areas where a Lidl opened.

That makes Aldi unusual. Walmart and Costco also compete on price, but they rely on enormous stores, giant warehouses and purchasing power that lets them pay suppliers less than other grocers do. Aldi is not a tech startup either. It was founded 80 years ago in post-war Germany, and its stores look like ordinary grocery stores. Its success also comes at a time when food has become less affordable since the pandemic, after decades in which Americans spent a shrinking share of their income on groceries, from 1960 to 2019.

Part of the answer is a relentless focus on cutting costs. Aldi stores play no music, which saves on speakers and licensing fees. Staff stock shelves with products still in their shipping boxes, which reduces labor. The plain look is intentional. But efficiency alone does not explain it, since rivals chase it too. Costco, for example, once changed the shape of its cashew container from round to square so more could fit on a truck, cutting shipments by 24,000 pallets a year.

Aldi's real edge rests on two tactics. The first is private label products. More than 80 percent of what it sells is store brand, including look-alikes of well-known items such as Oreos and Ritz crackers, sold as Benton's Chocolate Sandwich Cookies with Vanilla Filling and Savoritz Golden Round crackers. Because Aldi makes these itself, it avoids paying a brand's markup and then adding its own.

The second is a limited selection. When the Albrecht brothers took over their family's grocery store in 1946, they had little space and money, so they stocked only essentials and offered one version of each rather than many brands and sizes. That allowed bulk buying, less spoilage and lower space and rent costs. The tradeoff is convenience, since shoppers may need another store for items like white pepper.

Cheap prices alone might not have kept customers once the economy recovered from the Great Recession, which helped fuel Aldi's growth. So the chain added some fun. Its middle aisle features rotating items such as toys, German spätzle and advent calendars filled with 24 festive cheeses. It has also broadened its offerings somewhat to draw higher-income shoppers, with the cheapest honey crisp apples and well-priced premium wine. Some customers line up for new store openings the way people once did for early iPhone releases.

One way to understand the model is as unbundling. Grocery shopping gradually became more bundled, from separate bakers and butchers to supermarkets and then superstores selling groceries, clothes and televisions. Aldi does the reverse, offering only the part of the business it can do cheaply. It deliberately locates stores near competing grocers so shoppers can pick up the rest of their list elsewhere.

The broader lesson, according to the original NPR analysis, is that even a mature market can be disrupted without new technology, and that healthy markets leave room for new entrants. Aldi's pressure on competitors to hold prices down suggests grocers are not the right target for frustration over food costs, though grocery stores are only one slice of the food world.