As post-boom Ireland embraces the low prices of German giants Aldi and Lidl, Derek Scallyin Berlin examines how the chains sold the idea that 'stinginess is super' to an initially sceptical German middle class
IT'S ONE THING for a company to enter a market but quite another to enter a language. Three years ago, German discount retailer Aldi made the official transition from grocery chain to social phenomenon. After opening its first stores in Switzerland, the term "Aldification" formally entered the German language when it was named Swiss word of the year.
No one is sure who came up with the term or when exactly it took hold in the retailer's home market of Germany.
But the term has come to explain the most dramatic stage yet in the evolution of the business established in 1946 by brothers Theo and Karl Albrecht.
After opening a series of stores in the western city of Essen, they embraced their now trademark low-cost, no-frills approach in 1950.
The Aldi brand comprises two separate companies, Aldi-Nord serving northern Germany and its eastern neighbours, and Aldi-Süd serving southern Germany and western European countries including Ireland.
The two companies co-operate closely and operate a total of 4,100 branches in Germany and 2,700 abroad.
The privately-held companies actively avoid all publicity and publish only skeleton accounts, showing a combined turnover of €21 billion in Germany in 2006 with around €10 billion earned in overseas operations.
The Albrecht brothers, now in their 80s, lead secluded lives in Essen and are no longer involved in day-to-day operations, although they remain on the Forbes magazine list as Germany's richest men with an estimated combined fortune of €27 billion.
The arrival in Ireland of Aldi in 1999, on the heels of arch-rival Lidl a year earlier, began a new phase of intense competition for the established players such as Tesco and Dunnes Stores.
Now, nearly a decade on, there are signs that post-Celtic Tiger Ireland is about to experience its own wave of Aldification.
The first wave became apparent in Germany five years ago. Unemployment was nearing 10 per cent, the economy was skirting recession, the housing market was an unhealthy shade of red and consumer spending had all but dried up. Discount retailers, desperate for sales, took a radical and aggressive approach to entice customers to part with their hard-earned cash. They appealed to Germans' inner bargain-hunter with clever marketing slogans like "Geiz ist Geil!" (roughly translated as "stinginess is super!")
Aldi pursued its own strategy. When, in the middle of the economic gloom, the German government increased VAT by three points to 19 per cent, the retailer announced it would absorb the tax rise and keep prices stable. Overnight, the uncool Aldi assumed cult-like status.
Aldi-only recipe books appeared, jostling for bookshop shelf-space with other titles praising Aldi management principles; there was even a romance novel set in the discounter's aisles. Several books, including one titled In Armani at Aldi, analysed the most striking side-effect of Aldification: the arrival of the middle classes.
Easing their passage into the world of no-frills shopping was a slim volume naming most of the suppliers of Aldi's own-brand products, including well-known companies such as Gallo Wines or Campbell's Soups.
"Aldi took away people's fears and shame about cheapness and sidelined the old prejudice that cheap always means questionable quality," says Prof Hermann Diller, head of the marketing department at the University of Erlangen.
With record numbers of BMWs and Audis in Aldi car parks, the company seized the moment and, in the middle of an economic downturn, expanded its range of upmarket products like champagne and olives.
Not to be beaten, Lidl made its own play to the middle classes with the ingeniously subversive slogan "Luxury for All!" According to Thomas Rudolph, marketing professor at the University of St Gallen in Switzerland and editor of The Discount Phenomenon, a classic "downtrading-spiral" had commenced.
The most common trigger for such a spiral is a period of greater consumer price consciousness such as in a time of declining economic fortunes.
In Germany, otherwise civilised consumers morphed into merciless bargain hunters, seeking high quality for a low price.
This is the point where the discounters come into their own, explains Manfred Lange, marketing professor at Munich's Ludwig Maximilians University, in The Discount Phenomenon. "The reason for the discounters' success is not 'now even cheaper' ad campaigns, but their strategy of permanently low prices, underpinned by a complete renunciation of service and a primitive store set-up."
If the circumstances are right, Aldification can make consumers change long-standing retail habits, such as a weekly "big shop" at just one supermarket, causing a drop in margins at traditional retailers.
"For established retailers, their goal to balance out the turnover from low-price goods with premium-product sales works less and less well, so they broaden their own discount strategy, and the spiral continues," writes Prof Rudolph. The media plays a part in driving the spiral, he suggests, portraying the lower prices offered by Aldi and Lidl as long-awaited "justice" for consumers.
In his first and last public remarks on his company, back in 1953, Aldi co-founder Karl Albrecht explained how Aldi became a discounter almost by accident.
"We wanted to set up our stores with a broad range of groceries. We didn't do that because we noticed that we could do a good trade with our small range of goods and that our costs remained very low compared with other countries and, to the greatest extent, could be traced back to our small range," he said.
Aware they would need another selling point to compensate for the limited range, the brothers decided in 1950 to pass on the savings to their customers and have never looked back.
Beyond a weekly newsletter of product specials, the company shuns traditional advertising methods. "Our entire advertising is our low prices," said Mr Albrecht.
Executives in Germany consider far more valuable the free publicity of Stiftung Warentest, a highly influential consumer magazine. It regularly awards better marks to Aldi's own-brand goods than more expensive brand name rivals.
If the magazine gives an Aldi product anything less than a "good" rating, or if it fails random in-house tests, Aldi reserves the right to demand that the supplier recall the product from its stores.
Consumer confidence surveys place Aldi as one of Germany's most trusted companies. The confidence of Aldi's suppliers is less sure.They jostle for contracts to supply the discounter with its own-brand products, attracted by the economies of scale of producing huge quantities of a single product.
But they complain to German newspapers, always anonymously, about the constant pressure of continuing to produce to a price and standard dictated by Aldi.
German economist Wolfgang Fritz, who has written a book on the subject, sees "problematic social consequences" of Aldification including ". . . the limitation of consumption culture".
Consumer groups and Green politicians in Germany have expressed concerns for years about the consequences of discounter price pressures on farmers, bakers and other suppliers.
Earlier this year, German farmers scored a rare victory when, after a nationwide strike, they forced discounters to increase their purchase prices for milk and other dairy products.
German discounters, with a 40 per cent share of their home market, wield incredible power over their customers' diets.
"We have 211 potato varieties in Germany but the discounters offer just three or four; the monotony that brings is shocking," said Mr Thomas Isenberg, a consumer affairs expert in a recent newspaper interview.
Five years on, the current Aldification phenomenon shows no sign of letting up. Customers are voting with their feet and each modest Aldi store in Germany now generates a record turnover of over €6 million annually.
As the phenomenon looks likely to take hold in Ireland, German observers are still undecided on whether less really is more.