ALDI, Fareway, and the Value of Discount Grocery Stores

Recently, I came across a great article about ALDI in Forbes Magazine. For those unfamiliar, ALDI is a discount retailer in the eastern half of the United States (and in Germany) that focuses almost entirely on having the lowest prices on its merchandise.

One method ALDI uses is relying entirely on store-brand products – you’re hard-pressed to find any name brand there. The article outlines several other methods ALDI uses to keep its overhead low:

ALDI’s retail strategy has combined a control label National Brand Equivalent (NBE) portfolio with an equally impressive deletion of conventional supermarket services:

– There are no counter service departments; everything is packaged and everything is self-service.
– No shelving means no stockboys to hire; product is wheeled in on pallets by forklift, unwrapped and quickly signed.
– Carts must be paid for by deposit (25 cents) and returned by the shopper to eliminate staff needed to wrangle shopping carts.
– There are no baskets to manage.
– The only staff in an ALDI store are: forklift operators bringing in new pallets, a cashier (or two) and possibly a third-party loss-prevention agent.

The shopping experience at ALDI is a bit different than most other grocery stores, as you might imagine. The thing I notice the most when I go in there is that the aisles are a bit narrower than I might expect and that there are only store brand items, which means there’s very little choice when you’re buying a particular item. There is only one kind of whole wheat bread, for example, and only one kind of sliced American cheese.

Is that frustrating? Actually, it’s not, and Forbes explains why pretty well:

Normally, one might assume that reducing service for NBE products would just create an annoyed shopper who can’t find what they want. Except that it actually creates an ecstatic shopper. Why? Because, by deleting brand as a shopping variable (including the deletion of brand-based shopper marketing), ALDI focuses the entire shopping experience on a simple aggregation of cost savings, a slow and steady cartwheeling trade-down ritual whose foundation, price leadership, has been rigidly defended in virtually every market they’ve entered.

I actually enjoy shopping at ALDI quite a lot. It’s very easy to just blow through a shopping list there. I need whole wheat bread? Well, there’s only one option and it’s really cheap, so I can just grab a loaf and put it in the cart and move on with life.

This is explained even better a little bit further into the article:

ALDI has accidentally reinvented pantry stocking in America by subversively eliminating the variable brand and the shopper marketing that goes along with it. They have also eliminated the variable of price, for there are no price comparisons in a store with only one offering in every category. They have made it radically simpler, cognitively, to execute a shopping trip. No thinking about brands, BOGOs, deals, price comps, coupons, sudden endcap promotions or in-aisle shopper marketing. The trip is also super-fast, because the stores are only about 18-20,000 square feet.

So, what’s the point here?

First, when you shop at a grocery store, part of your expense goes toward a lot of things that aren’t obvious. The store has expenses like maintaining service departments, having shelf stockers, having people who retrieve carts, having wider aisles, keeping produce constantly clean (think of the misters in the produce area), and on and on and on.

Do these things have value? Sure they do. They contribute a lot to the flexibility and comfort you experience in a grocery store. It’s easier to get rid of your cart when you’re done shopping. It’s easier to ask questions and find help when you need it. It’s easier to find clean and fresh produce.

But you pay for those things. Sometimes, when you just have a simple grocery list, you don’t need those things, so why pay for them?

That’s a big reason why I shop at the discount grocers near me – ALDI and Fareway top the list – when my grocery list is short and simple. I can usually get everything I need there quite quickly.

Second, when you shop at a grocery store, you have to make a lot of decisions. As the article alludes to, the typical shopping trip involves “brands, BOGOs, deals, price comparisons, coupons, sudden endcap promotions, [and] in-aisle shopper marketing.” There are size variations, packaging variations, coupons on some packages, and so on.

Those things form a rather large tree of decisions. You have to make several decisions at a typical grocery store prior to buying anything. Yes, many people make these decisions very quickly and almost instinctively, as described in the popular book Blink by Malcolm Gladwell — but they still contribute to decision fatigue, especially at the end of the day. It’s very easy to find yourself buying things that you didn’t intend to buy in a grocery store mostly because of that decision fatigue.

Shopping at a “simpler” grocery store minimizes the number of decisions you make, which reduces decision fatigue along with the opportunities you have to drop unplanned and unnecessary things into your cart.

Why is decision fatigue so bad? It means that the more decisions you make, the worse you are at making good decisions. That manifests itself at the grocery store by adding items to your cart that you didn’t plan on buying, thus costing you money for things you don’t really need or even want.

Third, discount grocers don’t really help if they’re not conveniently located. Right now, I live in rural Iowa, which means that I have to travel at least 10 minutes one way to get to any grocery store. I don’t have an option in that regard.

The nearest grocery store to my house is a Fareway. After that, there are two Hy-Vees (a Midwestern full-service grocery store chain with higher prices than the discount grocers) that are about equidistant, then several stores that are roughly the same distance (a Super Target, two Wal-Mart Supercenters, an ALDI, two Sam’s Clubs, and so on).

Going to anything but that nearest Fareway adds at least a little city driving to that grocery shopping trip, adding time and the fuel and maintenance expense to the trip.

I usually do a calculation like this: For every $10 I’m probably going to spend, I’m willing to drive an extra minute to a discount grocer (or a warehouse club, depending on what I’m buying). I figure that I’ll save enough on that $10 of groceries to make the longer trip worthwhile – and it’s worth noting that this is just a rough estimation in my head, not an exact science. So, if my list is huge, I’ll drive quite a bit further to a discount grocer. If my list is short? I’ll just go to the closest place.

So, what’s our family’s shopping approach?

I personally prefer to buy most of my groceries at a discount grocer such as ALDI or Fareway. Fareway exists in a “middle ground” between ALDI and a typical grocery store in that they do some things much like ALDI (limited selection, tight cart control, narrower aisles, smaller stores), but other things like a typical grocer (multiple brand choices for many items).

The prices are a bit higher at Fareway than at ALDI, however the location of Fareway makes it incredibly more convenient for me, so most of the time, I prefer to do most of my grocery shopping at Fareway.

However, having said that, neither Fareway nor ALDI have all of the items that I’m usually looking for. Their produce selection is very limited (Fareway is a bit better than ALDI, but still not great), and they often don’t stock some options that I prefer.

Because of that, I usually do some “double-store” (or even “triple-store”) shopping. I shop at Fareway and/or ALDI for most of the items on my list, then head to another grocery store for produce, cold/frozen items, and a few other miscellaneous items that I’m willing to pay a little more for. I’ll also stop by the warehouse club if I know that I need some bulk items, too. (Sometimes, I can actually buy everything I need at Fareway, making my trip as short as possible.)

The end result is that I do end up saving quite a bit on groceries, but it does make the trip a bit longer than before.

I’m lucky in that a new Fareway is actually opening not too far from my home, making it the closest grocery store by far. I can easily walk or bicycle to this new Fareway if I so choose. Unless absolutely necessary, I will likely be doing almost all of my grocery shopping there.

Discount grocery stores definitely drop some of the frills of other grocery stores, but that’s not always a bad thing. You gain a lot back in lower prices and less decision fatigue (meaning fewer dumb purchases).

Trent Hamm

Founder & Columnist

Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.