Aldi's own-label awards triumph: how a discounter delivers quality

Everyone knows Aldi is seriously cheap. But now there can be no doubting Aldi is seriously good quality, too.

On Tuesday Aldi scooped a record-breaking 16 golds at The Grocer Own-Label Food & Drinks Awards. That’s four more than Tesco. Aldi won 10 silvers, too.

It’s not the first time Aldi has raised eyebrows by finishing ahead of pricier rivals on quality. Only last week the IWC voted Aldi’s £12.99 Champagne ahead of a £130 bottle of vintage Veuve Clicquot. “You don’t need to pay superstar prices for super-quality drinks,” said head of buying Tony Baines.

Yet Tuesday’s remarkable haul of Golds proves the Champagne success, like other taste test triumphs before them, was no fluke.

So how does Aldi do it? What alchemy has taken place in its buying, sourcing and tasting departments? And who exactly are its suppliers?

Investment
Aldi’s success is no flash in the pan. It’s been working for some time now to improve the quality of its products.

“We have put a huge amount of investment in our buying team, growing it and developing more expertise in different product areas, and our buyers are doing a fantastic job,” says joint MD Matthew Barnes. “I believe our quality controls are the best and most stringent of all the retailers,” he adds.

The biggest focus in recent years has been in Aldi’s fresh fruit and vegetables buying team, which Barnes says has seen a “huge amount of central resource and investment”. And, like its more recent foray into ready meals, it’s clearly paid off, with Aldi revealing a 48% year-on-year hike in fruit & veg sales.

Of course, Aldi doesn’t miss a trick, entering every award going and, despite its otherwise secretive culture, promoting its successes to the national newspapers, which clearly relish them as much as consumers. Combined with Aldi’s heavy investment in marketing - spearheaded by the awardwinning TV commercials but also including a sophisticated Twitter presence - the penny seems to have dropped for many consumers, and expectations surrounding Aldi products are unusually high, notes Cambridge Market Research MD Paul Beresford.

In conducting the extensive nationwide consumer panel testing phase of The Grocer’s two-stage judging process of the awards, CMS “have noticed for some time now a ‘halo effect’ in tests of Aldi products, the sort that, in the past, has only been seen when presenting something new from M&S,” he says.

Aldi also scored higher than its supermarket rivals on value for money, with Lidl a close second. And significantly, Aldi products consistently met those high expectations. “Aldi products impressed with their balance of good eating qualities and value for money, recording the highest ratings for overall impression and post trial would-buy intention of all the retailers that entered,” says Beresford.

And with over 12,000 consumers testing the products, “these were not just better ratings than those achieved on comparable measures by the supermarkets, these were statistically better scores at the 99% confidence level”, he adds.

The experts were equally impressed. With the second phase of The Grocer Own-Label Food & Drink Awards requiring expert judges to blind taste all the shortlisted products, “it’s fair to say there were a few surprised faces around the room after the big reveal”, says Food Innovation Solutions founder Mike Faers.

Another judge, Claire Nuttall, from consultancy Thrive Unlimited, was equally blown away. “The olive oil was incredible. I instantly went out and bought some for myself,” she says. And it didn’t even win. But that only goes to show how consistent Aldi’s quality is, she adds.

“Aldi just seem to get it right. They listen and anticipate people’s needs, then focus on what matters. Product development seems quite intuitive and simple to them. Each year they enter, it reminds me just how good they are. The quality never fails to amaze me as it isn’t the brand you would expect to win on that front.”

Winning combination
Faers argues that on “pure quality” other retailers are often stronger. However, he says Aldi offering the quality it does, at its “excellent” price points, combines to give it the edge. “Aldi deliver genuinely premium products within their price parameters.”

A case in point is Aldi’s premium Specially Selected tier. Although it’s been around since 2005, the range is expanding all the time, most recently in varieties of fresh meat, while remaining careful on price.

“Specially Selected is another focus for us that we will continue to grow,” says Barnes. “Even in this economic climate, customers are enjoying treating themselves and are looking for premium quality. They want tiering and quality at both ends of the spectrum. We just launched Specially Selected fillet steaks, rib-eyes and mince and they are some of the very best you can buy in the market at an incredible price. We are seeing a fantastic performance in that range.”

While Aldi (and Lidl) didn’t score particularly highly on innovation - M&S and Tesco led the field in this regard - Baines is unapologetic. “Customers are looking for quality products at everyday low prices - and we’re in a position to give UK shoppers just what they need. Aldi is cooking on gas when it comes to own-label brands.”

Beresford agrees. Aldi’s offer had “clear and strong relevance for consumers in the current economic environment, with outstanding execution leading consumers to consider Aldi products as ‘better than what’s out there’ - only matched by M&S and significantly better than results achieved by the major multiples.”

Beresford adds that “innovation is proving a risky strategy for supermarkets”, noting that NPD didn’t always hit the mark. “Only M&S delivered innovation consistently, reflected in the highest conversion from entry to winner status, with two out of every five M&S entries taking an award.”

Leverage
Of course, while Aldi’s 3.5% share in the UK makes it a relative minnow in these parts, it can leverage its scale: with global sales of over £50bn it has always been competitive in key Continental categories such as cheese, cereals, deli meats, and canned and ambient goods, ensuring that it meets high quality standards at low prices.

It also operates a super-lean business model across all aspects of its business, avoiding the ‘frills’ that many UK shoppers take for granted, charging for plastic bags and keeping staff numbers to a minimum. Even the decision to introduce trolleys last year came after long nights spent debating the pros and cons of the extra costs involved.

And it’s prepared to trade at a low margin: although operating profits increased by 450% in 2011, margins are still wafer thin. When it released its last set of accounts in October 2012, Aldi said it had undertaken a “strategic reduction in gross margin reflecting its everyday low pricing strategy”.

However, this strategy doesn’t impact on quality, according to Kantar Worldpanel director Ed Garner.

“Aldi has a strong value-for-money message because it sells things cheaply, it doesn’t sell cheap things,” he says. “It’s bloody good at what it does.”

Aldi has also worked hard to increase its domestic supplier base, to boost quality perception among UK shoppers, and has aligned itself squarely with the Red Tractor, which certifies the standard and quality of British-sourced meat.

Fresh meat has previously been considered a weakness at the discounters, but it’s rapidly becoming a boom area, not just by Aldi shoppers snapping up the new Specially Selected fillet steaks. Barnes says the Red Tractor tie-up has allowed Aldi to offer customers a reliable stamp of British quality, and that the range “continues to be one of our top-selling categories”.

Smaller suppliers
To attract more British suppliers, Aldi launched a website in February 2012 and introduced a system where smaller UK suppliers can overcome the logistical and financial obstacles involved in delivering to Aldi’s seven regional distribution centres.

“We realised we wanted to expand our offer to introduce customers to a wider choice and invest more in British suppliers,” explains Barnes. “From customer feedback, we know it’s important to customers to have British suppliers. With seven DCs on the mainland, that was too much for some small suppliers.

“So we have used delivery platforms and hubs where suppliers with smaller volumes can combine their deliveries to one central location. Then we will take it from there to the regional distribution centres.

“That has enabled smaller boutique suppliers that might have struggled to cope with our supply chain in the past to join the Aldi business and deliver products to us. It’s very new to us and it’s been really successful in growing our supply base.”

The result is that while Aldi still sources from quality Continental suppliers like Hans Kupfer u Sohn and August Storck, it also includes familiar names like Arla and Yeo Valley and smaller UK suppliers like the English Provender Company and Blustery Braes.

The multi-pronged drive on quality and price is neatly summed up by one of its shortlisted own-label products. Aldi uses award winning Gressingham Foods to produce a 450g twin-pack of duck legs in sweet chilli sauce for its Oakhurst meat label. It sells the product for £2.99. A similar, but branded, 500g Gressingham product sells on Ocado for £4.00.

So Aldi’s duck legs might be 10% smaller, but they are still premium quality. And they are 25% cheaper than Ocado, thanks to the savings it makes through its stripped down business model.

“Value is at the heart of our business model,” says Barnes. “If you want an overarching philosophy of what we do, achieving that balance of price and quality would be it.”

Taste testing is also a key ingredient in the success of Aldi’s products. Speaking to The Grocer in October, after Aldi launched its range of chilled ready meals, Barnes and his joint MD Roman Heini patted their expanding stomachs as they reminisced on a six-month period of tasting sessions where they benchmarked the 12-strong range against premium retailers like M&S.

Barnes says the ready meals range has proved popular and the discounter plans to double it over the rest of this year. Meanwhile, the “relentless” drive on quality - and low prices - continues.

In the kitchens
“We are keeping our focus very firmly on delivering the highest quality at the very best prices,” he promises. “Getting sign-off for a product is no easy thing. Roman and I are in sampling sessions at least two days a week, down in the kitchens.

“We are very hands on, doing blind tasting against all the leading brands, scoring on a number of KPIs. We have also added independent testing, where we get members of the public to blind taste our products. They have no idea which retailer they are tasting food from.

“So there are a lot of hurdles for a product to jump through to get on to our shelves. But when one does, we know our customers are getting the best in terms of quality and freshness. We are very focused on that. And we are getting better.”

Last year Aldi took home seven Gold awards. This year it won 16, so it’s hard to argue with claims by Barnes that Aldi is improving the quality of its own-label offer. The only question is, can Barnes and Heini’s stomachs take the strain of doing it all over again next year?