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Low prices, little choice: Discounters remake messages

NEW YORK – On a Target in upper Manhattan, customers can choose from 19 types of ketchup, including well-known names such as Heinz and Hunt’s. At the Aldi next door, the three options range from 99 cents to $1.79. Though the chain’s own brands, which does not seem to interfere with shoppers attracted by the low prices.

“If you look at the ingredients, it is the same thing. Many people don’t realize that,” said Anabel Rosado, a bank, the supervisor, who was browsing the snack aisle.

The Aldi and the European competitor Lidl, which opens the first AMERICAN store this week, hoping to change the way people shop with their smaller, no-frills shops are usually filled with house brands that tend to cost less. Whole Foods, which has been fighting the “Whole Paycheck” reputation, is also the move into the discount sector, with a rocky chain, named after the 365 brand.

The pressure can further pressure grocery giants such as Walmart and Kroger, who are also struggling with the growth potential of online grocers and already reining in the operating costs so they can keep their prices competitive. Target is also trying to be better known for low prices, as well as working on the promotion of the struggling grocery business.

“We are certainly aware, paying a lot of attention, a lot of respect, but we want to be our strategy,” Steve Schmitt, Walmart vice president of investor relations, said in May about the growth of the European chains.

Aldi, which of 1,650 U.S. locations, the grow shops have a brighter feel and plans to expand to 2,500 stores in the next five years. The expansion plans were announced as the other German discount grocer, Lidl, is preparing for the first 10 U.S. stores on Thursday, with plans to have 100 within a year. All the discounters have successfully taken market share in the uk grocery industry, according to Euromonitor International. There are four 365 Whole Foods locations and 20 in development.

FAMILIAR PACKAGE, UNKNOWN NAME

Walk into an Aldi store, and the products often come in a packaging that is reminiscent of more popular brands. The chain is Millville Raisin Bran is in a purple box, similar to the versions made by Kellogg and Post. The Benton’s cookies are in the blue packages that are similar to those of the Chips Ahoy.

Stocking shelves with store brands is a big part of how discounters keep costs low. Lidl says that it is a mix of private-label brands, which account for 90 percent of the products in the shops. Whole Foods offers 365 label across a range of categories, more akin to the approach at Trader Joe’s, which is also a steady expansion of its store count in the United States.

The growing popularity of house brands in the supermarket industry is expected to assist in discounters. The trend is partly because supermarkets have tightened their own private-label offerings in recent years to control costs. At the end of last year, Kroger said its brands to reach 29 percent of the sold articles. Diana Sheehan, director of retail insights at consulting firm Kantar Retail, said that more people turned to store brands during the recession.

“They’ve gotten comfortable and began to embrace with a higher-quality own-brand products,” she said.

Another difference with the Aldi and Lidl: Presentation.

The shops tend to have less course than the usual AMERICAN supermarkets, and the products are often in stock on the shelves in the boxes they came in. It is a part of how they keep the prices low. At Aldi, shoppers are also expected to bring their own bags unless they want to pay 10 cents for a plastic bag or 7 cents for a paper. Lidl also said that it will charge for bags, but has not said how much.

CHOICES, CHOICES

Aldi, Lidl and 365 Whole Foods challenge the idea that shoppers want to the choice found in traditional supermarkets.

While a standard Whole Foods can have about 30,000 products, a 365 store has approximately 8,000, which helps to keep the total operational costs. How wide is the selection may vary per item. Since people tend to be more particular about the yogurt, the company says that 365 can offer just as many choices as the average of the Whole Food store.

Jeff Turnas, head of 365 Whole Foods, said the stores cater to people who want to do their shopping faster.

“We have tried to make the decision making faster, easier,” Turnas says.

Aldi U.S. CEO Jason Hart also says his chain is deliberate about where you want to offer more variety. He said that people can find what products they could get at rival grocers, but there might be less options within each category. He said that people prefer that, because too many choices “just add confusion.”

“Our form of retail, and our form of shopping is becoming more and more accepted in the mainstream,” Hart said.

For now, Kantar Retail estimates that the discounter category, including Aldi, Trader Joe’s, and dollar stores, has 6 percent of U.S. supermarket sales. By 2021, it expects that figure to inch up to 8 percent.

Walmart says the size of the offer — including the pharmacy and options as in-store pick up for online orders — sets it apart from the competition. The retailer notes that it has worked to keep prices low and that the traffic of the customer is.

Kurt Jetta, CEO of consulting firm Tabs Analytics, also said large retailers have the advantage of being able to set up a broader swath of shoppers by offering more variety. Still, he said, Aldi and Lidl may have more appeal than the dollar stores with middle-income customers, in line with places like Trader Joe’s.

“They don’t have the stigma that to them,” said Jetta.

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Follow Candice Choi on www.twitter.com/candicechoi

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