Will the Aldi store refresh make us spend more?

Jason Murphy
OCTOBER 22, 2015
news.com.au
ALDI has finally decided to invest a bit of money and refresh its supermarkets. Someone at the famously frugal German retailer has decided looking like a 1980s IGA is no longer the correct business strategy.
A spokesperson has promised “new layouts to improve store navigation, how products are displayed, while providing better access to fresh produce bay areas and reducing check-out wait times.”
I for one will miss the massive haphazard piles of soda water bottles and the jumbles of discount sportswear.
But Aldi has to be very careful when it changes layouts and decor. Because if it lets the interior designers have their way, Aldi could lose a big advantage, which is that everyone knows the supermarket is cheap.
The way a shop looks makes a huge difference to how consumers react to it.
Take Aesop, which has the most exquisitely beautiful bespoke stores that architects rave about, and manages to sell 500ml of hand soap for $40. From the look of the store to the packaging of the product, it’s all about the luxury experience that makes you happy to spend more.
But cheap stores have to be very, very careful about their image too — just ask the Costco CEO: “We try to create an image of a warehouse type of an environment … I once joked it costs a lot of money to make these places look cheap. But we spend a lot of time and energy in trying to create that image.”
You might have seen this trick in action at JB Hifi. They have loads of stores and it would be cost effective to print their signs. Instead they hand-write them — to make the whole place seem cheap and cheerful.
So if Aldi makes its stores too glitzy, shoppers could get the wrong impression.
It sounds crazy that the physical shop can affect beliefs about price so much, but that is what research shows, time and time again. It’s not just price that matters — it’s perceived price.
Because it turns out we can’t remember prices very well.
There are hundreds of different items in an Aldi. Thousands of items in a Coles or Woolworths. Except for things we buy regularly, mostly we just compare the price to something else on the shelf nearby.
You won’t be surprised to hear that supermarkets ar
e working to exploit our memory failures. They know what we remember the price of and work hard to make those things cheap. Hence milk and bread for $1. Meanwhile other things can slide up in price without us noticing.
What we do notice is that the aisles are full of little paper tags boasting discounts or “every day low prices.” We can easily come away with the impression that the whole shop is very good value.
And in Aldi’s case, for now, they really are cheaper. CHOICE finds buying a basket of home-brand items at Coles costs $114, but $88 at Aldi.
That difference is substantial. Bigger than I realised.
Aldi can make things so cheap not only by being tough on suppliers, but also by doing things cheaper. For example, it doesn’t unstack boxes or pallets to put them on the shelf — it just puts the pallet on the floor. That saves money. Having fewer brands on sale also saves them a lot in managing supply chains.
But Aldi faces competition too. Another German Brand, Lidl, is expected to launch in Australia soon. They can play the discount game as hard as Aldi. This could be another reason Aldi is changing some stores.
Maybe it’s hoping if it has fancier stores, some shoppers might be attracted to Aldi who weren’t before, believing it is now good quality. Those people might have deeper pockets.
A big study on prices in Finland found “consumers evaluate prices based on retail environment design and accept a higher price level in store environments which are perceived favourable.”
Of course, Aldi promises the point of the upgrades is not to raise prices.
“The changes won’t result in higher prices — we will continue to deliver exceptional value every day, offering the lowest possible price on our range of high-quality products,” the spokesperson says.
It will be interesting to see how long that promise sticks.
Jason Murphy is an economist. He publishes the blog Thomas The Think Engine. Follow him on Twitter @jasemurphy.