Would you have expected to find the German brand Aldi in China? They are one of the up and coming players in the Chinese retail scene, even being tipped to compete with the Alibaba owned “new retail” supermarket chain, Hema (also known as Fresh Hippo).
That may sound surprising, seeing as other retailers have been closing brick & mortar outlets in the past couple of years, but the success story is showing no signs of slowing down yet. Chains such as Walmart, Carrefour, RT mart, jiajiayue, Renrenle & even HEMA have closed stores, whilst Aldi has been opening new ones across Shanghai.
And before you ask, it’s not because the Chinese economy has slowed down and therefore a chain known for being cheap has a chance to grow. If simply being cheap was enough for a foreign supermarket to grow then Carrefour and Walmart wouldn’t have struggled. The situation is a lot more nuanced than that & there are many elements that other brands (either FMCG or retailers) could learn from the Aldi market entry into China.
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Boutique Supermarkets
In response to the modern lifestyles of city dwellers, a plethora of boutique supermarkets (精品超市 in Chinese, such as CitySuper, Olé, and the like) have popped up in China’s fiercely competitive grocery market over the last decade. With rising concerns about food safety, the affluent Chinese have shown a growing preference for high-end groceries. These boutique supermarkets have successfully catered to the needs of the burgeoning middle class by offering a carefully curated selection of imported goods. They provide a more pleasant and convenient shopping environment, which significantly enhances the shopping experience, making it feel much more exclusive.
Moreover, Chinese shoppers place a high value on freshness and tend to visit grocery stores several times a week. Additionally, the limited storage space in urban Chinese apartments means there’s not much room to stockpile groceries. Consequently, unlike the sprawling American-style hypermarkets, boutique supermarkets in China are far better suited to the lifestyle of Chinese consumers.
First up: who is Hema?
Hema, or Fresh Hippo, is an innovative bricks & mortar experiential supermarket chain, owned by the Alibaba Group. You can find their stores across China, focused in major urban centres such as Shanghai, Hangzhou or Shenzhen.
Within China they are known for their impressive range of fresh produce and seafood, as well as the fact you can pick your products and have them prepared in store. As a proponent of so-called New Retail, a large part of the operations have been digitalised from day 1: automated logistics and the option to pay by facial recognition for example. However you can also have your groceries delivered to your home within half an hour of ordering.
One of their newest plans is to develop Hema villages. This is an initiative to help modernise agriculture in China by helping farmers with which plants have demand and offering concrete purchasing contracts.
Tmall Global: the beginnings of Aldi in China
The German discounter’s journey in China began, as with many other brand names (including Costco), with a Tmall Global flagship store. This was in 2017 and allowed them to approach Chinese consumers who were looking for imported goods – and at that time, the goods came from Aldi Australia. The flagship store though was the result of careful market studies to evaluate potential and understand the target consumers. Having this initial flagship store allowed the company to test their concept and the products as well as developing some levels of brand awareness.
For anyone not familiar with the details of Alibaba within the Chinese retail ecosystem, Tmall Global is the cross-border ecommerce platform of the company. That means that Aldi as a company could ship their products from a bonded warehouse in a Chinese free trade zone, or from overseas, but without having to register an entity or the products in the Chinese market.
The Aldi ecommerce in China then took a step forward by launching a Tmall flagship store in 2018. (This meant that the products had to be officially imported into China, but gave access to a larger swathe of consumers than cross-border ecommerce.
Ecommerce isn’t just about the Alibaba channels though, and so Aldi also expanded into WeChat and other major Chinese retail and food delivery service platforms such as Meituan and Eleme.
Aldi Germany vs Aldi in China
The typical Aldi experience in Germany involves a “function before beauty” type approach: wide aisles, harsh neon lighting, no-name products which are often still stacked in their transport cartons, or on pallets. Of course there’s also the infamous centre aisle with offers too…This is the case in for example the UK too, with just the range being more localised. For an outsider there are also surprisingly large localisations made with the range in Austria – as consumer tastes are different to Germany (a lot more organic products) but you’d still recognise the store for what it is. The focus is very clearly on cost management and efficiency in all of those markets – the consumers should get the best prices. There’s also no online shop available.
If I transported a typical German Aldi customer to one of the 57 stores the chain now has in Shanghai, they’d certainly get a shock though! Instead of the basic German store experience, each shop has a modern retail layout & shelves have been carefully curated and merchandised. (It’s virtually impossible to imagine an Asian store where the shelves are not taken care of “perfectly” – at least by European standards).
The range has been carefully selected to reflect on the one hand the quality standards that Chinese consumers expect from a German store, whilst also including local favourites such as hotpot ingredients – listed as a seasonal ingredient for the winter on their website.
Whilst there ARE still many private label products, they are not necessarily “cheap” because they’ve been imported from Germany. In fact, the whole look and feel of the store is different: the lighting is much warmer (& more pleasant) than in Germany which creates a more welcoming atmosphere. There are also a range of high quality ingredients such as fresh seafood, fresh vegetables, and a choice in soy sauces and spices as well as premium ready meals. You can even buy luxury items such as Maotai and premium wines.
So you can see that these stores are catering to a more affluent clientele than is the case in Germany. In a market full of price competition such as China, this kind of differentiation was essential for survival. You could say that Aldi (“奥乐齐” – Ao le qi, the Chinese name for Aldi) is offering value for money in terms of the boutique supermarkets carrying imported goods, but it’s not “cheap”.
Whilst I’m a fan of Chonqing style bullfrog hotpot, I couldn’t imagine there being too many takers in Aldi in Germany! The whole shopping experience in China is designed to encourage shoppers to spend more time in the store and it’s certainly an achievement to have opened so many stores between June 2019 and now. And the option to have your shopping delivered home for you if you live within 3km of the store is certainly a convenience service that you don’t get anywhere in Europe!
A more digital approach
Whilst in Germany using scanner tills counts as Aldi’s nod to technical innovation (for many years cashiers had to learn all the prices off by heart and key them in), the chain is forced to be more modern to survive in China. So if you visit one of the outlets in Shanghai, you’ll see digital pricing labels and either self service check outs, or the option to scan and go from the weChat mini-programme. Not to mention the option of simply ordering online to have your shopping delivered home for you.
And of course, you pay simply by using your digital wallet (Alipay or WeChatPay).
In actual fact, the online sales are still what drives the business, with the offline stores, sometimes feeling more like a showroom (or during covid, a warehouse) although there are plans to open another 500-600 stores so these must be making enough revenue to be viable.
Aldi Digital Marketing in China
Obviously the good old weekly brochure that European clients of Aldi know, isn’t really what Chinese consumers use when they are looking for information, so the marketing strategy for China had to be completely adapted for local taste.
As I mentioned earlier, the chain actually started out selling via ecommerce in China, having recognised early that this is the way to start to build brand equity for a relatively small investment. They really investigated the market up front (as well as listening to the advice from their consultants and TP (Tmall Partner)). They didn’t only use online sales channels though, but also actively targeted their marketing to their potential clients across such channels as WeChat, Douyin and Xiaohongshu (RED/Little Red Book).
At this point I’d like to add, despite what you read online, not all consumers are obsessed with buying everything online, although pretty much all consumers research online. So not all consumers will buy exclusively offline (OR also online) BUT pretty much everyone will research online.
Influencer Marketing & Social Commerce is an essential part of the mix
Working with KOLs (key opinion leaders) has been an important building block in the marketing strategy of Aldi in China in the past few years, helping to build the brand awareness and trust amongst consumers. (In a market with as many food scandals as China has had, trust is an important part of the success equation.) As in other markets across the world, social media events or product placements help to increase the brand visibility, even if the “heyday” of the superstar brand ambassadors seems to have past in China.
And where you have influencers, livestreaming isn’t far behind! This isn’t purely a sales mechanism (although that is obviously an important part of it), but allows Aldi to explain products to consumers and demonstrate how they can be used. Food and beverage is one of the “golden products” for any kind of live demonstration as you can show ways of cooking with different recipes, whilst answering questions and receiving direct feedback from clients.
What have they done well?
Before we come to the question about whether Aldi can compete with the market leader (in this retail category) Hema, let’s do a bit of an Aldi China strategy analysis and look at what they did well, which could be a learning for other brands.
- Invested the time up front to really research the market and their target customers
- Got a suitable Chinese name from the beginning (this enables you to control the narrative – otherwise consumers will give you a nickname and the connotations may not be fitting for your brand)
- listened to the advisors and TP (as a consultant myself, it’s so frustrating when someone asks for your professional advice and then ignores it!)
- The digital first approach with their sales model allowed them to test the market and range, as well as generating visibility the brand as a retailer
- leveraging the power of Tmall (combined with a powerful TP) helped Aldi to gain traction right from the beginning
- In China, Aldi tailored its product range to suit local tastes and preferences. The stores in China presented a wider range of products compared to Germany, focusing on imported goods and catering to a more affluent clientele. This differentiation was crucial in a market already full of price competition
- Aldi China has continued to focus on community-oriented localisation and innovation. They have opened stores in residential and office areas to serve as neighborhood grocery stores, offering ready-to-eat and fresh produce categories in convenient locations for consumers (this brought them market share during the pandemic)
- localised their sales and marketing channels, rather than trying to copy-paste the approach which works in Germany
- although rivals such as Walmart have been pushing their membership models (Sam’s Club), Aldi has focused on a customer loyalty scheme rather than a membership fee
Continuous adaptations are to be expected to pull off a sustainable expansion, in the long run, considering the fast-changing market dynamics and consumer demands in the lucrative market.
Dao Insights
Competing with Hema?
Will all of the points above be enough to compete with Hema in the medium-long term? I think a lot of it will come down to whether Aldi is able to adapt at China speed on an ongoing basis.
Of course, both companies are powerful players with their own strategic strengths (one international, one local) but for sure there will be a head to head on topics such as innovation and the quality of the shopping experience offered.
It’s not easy to stay on the pulse of the fickle Chinese consumers so for sure Aldi will have to learn to be even more flexible in the years ahead. Aldi already has a culture of operational excellence and German efficiency so it will be the question as to whether they can evolve at the same tempo as a technology specialist such as the Alibaba Group.
Compared to Hema, Aldi’s in-store operations are quite labour intensive, and of course they don’t have to same level of access to big data on their clients.
Are the Aldi offline store opening plans too ambitious? If they overreach themselves and end up bleeding cash that could put a halt to their bid for market leadership within Shanghai. Of course, there’s also a lot more to China than just Shanghai, so if Aldi really wants to compete then they also need to expand across all tier 1 cities.
For sure, it’s a tough challenge, but one I’m sure they’ll be taking on even in the intensively competitive Chinese retail landscape!
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Kathryn firmly believes that business is done between people, and therefore places her focus on building strong relationships that form a solid foundation for doing business.
When she's not travelling around the world, Kathryn enjoys playing clarinet in her town's wind orchestra or sharing her love of the outdoors with her Scout group.