Have you heard of the brothers Theo and Karl Albrecht?

In Germany, the success story of these legendary market pioneers has only just been thrust back into the spotlight, as Theo Albrecht passed away in July. The Albrecht brothers’ invention of the “essentials” discount market in Germany during the 1960s eventually catapulted the humble brothers onto the Forbes 100 list of the world’s richest people, with private assets worth approximately 40 billion euros.

The two brothers transformed their parents’ small grocery store ALDI (an acronym for Albrecht Discount), located in the working town of Essen, into a simple, yet elegant business model. Out of necessity, the store only sold a small number of essential items, but the Albrechts used that to create a brand promise based on the principle of selling the highest quality goods at the lowest prices. The first store opened under the motto, “concentrating on the basics: a limited selection of goods for daily needs.” ALDI’s philosophy on “honest to goodness savings” is the foundation for the brand’s “less is more” approach to grocery retailing, and the resulting shopping experience struck a strong chord with consumers in Germany and eventually around the world (ALDI is also the owner of the Trader Joe’s grocery chain in the United States). The high quality range of goods sold in the store was initially limited to a core selection of goods to be purchased in bulk, sold at affordable prices and presented in a radically simple way. At ALDI, everything from selecting suppliers, building store locations and, of course, selling goods, is done to facilitate significant savings with the “discount” always passed on to customers in the end price.

ALDI still operates under this business model today. The product range has been expanded, but the very low prices remain. The company has transcended from a small, unconventional business to one of the most successful and valuable retail brands with an annual turnover of 53 billion Euros, 9,400 stores in 18 countries and 100,000 employees around the globe. Without the Albrecht brothers, Germany wouldn’t have the world’s most efficient food retail business and consumers would not be benefiting from the lowest food prices in Europe.

ALDI has broken all the rules of market-oriented pricing, (as taught at universities around the world). Its simplified purchase promise has not only redefined the whole trade sector, but it’s brought back a taste of socialism to Germany. Regular lower and middle-class customers blend together with the wealthy “smart shoppers”, who show up in their Porsches to grab luxury items at bargain prices.

The question on the tip of everyone’s tongue is; “how have the Albrecht brothers managed to create a Super brand out of cheap, cheap, cheap?” The brothers developed a simple and streamlined formula for conducting business that allowed them to consistently deliver on their promise to customers. In carrying a limited selection of fast-selling, non-perishable consumer items, the brothers were able to increase order volume, cut handling costs and waste which made it possible to buy their goods cheap. This ripple effect in savings has always reached the consumer, and as a result, consumers have always come to expect it. Simply put, a company only becomes a brand when it consistently keeps its promise, and ALDI has kept its promise of offering the highest quality at the lowest prices since the founding of its first store nearly 50 years ago.

Ulf-Brün Drechsel is the executive director, EMEA for the Siegel+Gale Hamburg office.

References:
+ Forbes
+ FAZ/FAS
+ Handelblatt
+ Strategie und Taktik in der Preispolitik, Nagle/Hogan
+ A.C.Nielsen

Read the German version of this blog.