How a Major Grocery Store Chain Can Dramatically Lower the Cost of Food

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19:23Baja Mar, life spectacular. spectacular. So more broadly, Aldi's is, I'm not sure famous is the right word, but one of the differentiators of the grocery store is that you have fewer SKUs, right? You just have fewer products there, or you're more mindful about the products that you're actually putting on the shelves. What have you learned from that process that surprised you at all versus, say, if I go into a Walmart and I've got 60 different types of ketchup staring me in the face, including the new dill flavored pickle one. Which does sound good. Yeah. Tempting. Tempting. We have 2 ,000 skews in the store, probably 4 ,000 varieties.

20:01Now let's take the ketchup example. So we just talked about the typical store is going to have 30 to 40 varieties. And as you asked, we have two. I would simply ask the customer, do you really need 40 choices for ketchups or is two good? We have organic, we have conventional. Is two enough? We have the right size. Do you need upside down squeeze, right side up squeeze, small glass, big glass. And what we actually, we did some, I will call it, I'll call it a study, but I'll call it some interesting walks with customers through our competitors. And sometimes you would stand in front of, let's say an olive oil selection.

20:32Ketchup is 30 to 40. Olive oil could be 50 or 60 different selections, depending on where you're shopping. And what we found was afterwards, the customers felt less confident in their purchase. So we have four different varieties of olive oil. Four is a pretty good selection for our store. You're going to have organic, you're going to have Sicilian, you're going to have pure and you're going to have extra virgin. Good selection. If you're a consumer faced with 60 different choices of olive oil, how do you know which one to buy? So they were less confident in their choice when they were trying to choose from 60.

21:02When you have four, they felt pretty good about their selection. Unscientific for sure. But to watch the reaction on the customer's face when you walk them in front of it, they were really puzzled with which one do I buy?

21:13Tracy Alloway:This is probably an unfair question on all sides around. What do you think conventional wisdom is in the grocery store business? If we're talking to the chief commercial officer, whatever, Q Food, what do you think the conventional wisdom is in grocery about why it's important to have 60 different olive oil skis? It's about selection. The belief is that customers want these different options. And to be fair, customers do want some of those options and it can come down to shelf space, which suppliers are paying you to be on their shelf. And sometimes the more you pay, the more shelf space you get.

21:44So at Aldi, you know, with our private label, we have two ketchups. There's no shelf space. There's no slotting fees. And that's a big difference. So yes, there can be selection, but we need to move those articles through the store very, very quickly. Well, talk about this further. So again, like a hallmark of Aldi's is fewer SKUs. How does that actually feed into, I guess, more efficient processes for the grocery store and then lower prices for shoppers? You mentioned the TV show earlier about the people. And I grew up in a grocery store. So I was, I didn't grow up. And so I worked there in high school and I was paid probably$3.25 an hour to come in at night and turn the labels and stock everything forward.

22:19And me and eight of my buddies would do that for about six hours. And you think about that cost, how expensive is that to do that in a grocery store? And I was in a small local grocery store. Think about a big competitor who's paying all those folks to do that. Now our products come in, you're in the case, you only have 2000 SKUs to put on the shelf. We're not having our folks come in and turn the labels and front everything at night. In fact, they sell out so quickly we don't need to. So that's just one example of all that cost that goes into turning those labels and pulling everything forward.

22:45We don't have that.

22:46Tracy Alloway:What does turning the labels mean? So let's like walk through some math. Let's say, I don't know, let's say a store sells a thousand bottles of olive oil a day. I don't know what a number, but that's probably somewhere. So it's a thousand bottles. And let's say that store sells 500 brands of extra virgin and 500 brands of organic. And then, or bottles. And then there's another store that sells 1 ,000 bottles of olive oil a day, but it's like 50 Sicilian, 50 organic, 50 extra virgin, 50 whatever, 50 whatever. Walk us through the math of why 1 ,000 bottles with the two SKUs is going to be significantly more efficient and cheaper from a store perspective than 1 ,000 bottles with more SKUs.

23:25So when the truck comes in at a traditional grocery store, let's say you have 50 different SKUs. If you have to restock them all, that's 50 different cases you have to open. You have to find the 50 different cases. You have to match it up to the spot on the shelf, restock it, make sure you have the right one, get the labels all turned the right way, get the bottles all square. You don't want to drop any. So you have 50 different options. So one person is sitting there with a cart with 50 different cases trying to match them to the right spot on the shelf. Come to the Aldi store. We have two. I'm sorry, olive oil.

23:54We have four. You can very clearly see this one goes right here. So we can literally restock all of our olive oil in probably 2 % of the time that it takes to stock another store. So just think about the math on trying to put that puzzle together of 50 different varieties compared to four. Your price labels are digital, right? We are. Most, if not all of your stores now? All of our stores are digital. All of the stores. Okay. How does that help with labor costs? And then also, I have to ask, there's been a lot of criticism of some of these digital labels because people think they're dynamic pricing and that as they reach for an avocado, the price is going to go up by$2 or whatever.

24:33How should we think about those? Yeah, so let me handle that part first. We've heard those same criticisms or concerns out there. We do not do dynamic pricing. We would never do dynamic pricing. Actually, all of our stores have the same price. We change them usually once a week or so, depending on what's going on in the produce market. Wait, even the New York store would have the same prices? Same price in New York as out in Connecticut. And I know that's going to be pretty nice. It's hard for me personally to believe. We'll call it a pleasant surprise for those in Manhattan. Yeah. When they walk in and they see, you know, chicken breast for$2.19 a pound or eggs for$1.47.

25:01So it's going to be kind of amazing. But when we talk about the electronic shelf labels, we were spending between three and four hours per store per week to change out our signs. So when we switch to the digital version, we save all of that labor. So again, 2 ,600 stores times four hours a week. You can do the math on that. Think about all that savings. Again, that's how we get chicken breast down to 219. But the opportunity is there to abuse that system, but we will not do that. So just to be clear, I mean, the reason you were changing out physical labels is because the prices were changing, but you're not changing them on a minute-to-minute kind of basis.

25:37No, we would usually change them once a week. You know, we have the Aldi fines area where those come in. We have 100 new items every week. I don't know if we'll talk about that, but we'd have to put all those signs out, take the old signs down. That's a lot of labor to do those things, but we don't have to do that anymore.

25:49Tracy Alloway:This was something I did not know about prior to yesterday's field trip. So the Aldi Fine section, I guess apparently your fans have dubbed that the Isle of Shame. They have. So this is where some brilliant merchandise, like a true showman, a merchandiser has figured out something. So explain what this aisle is and why it's so iconic to so many. There's like a four million person Facebook group dedicated to this specific aisle. Where did this come from, this aisle, the so-called Isle of Shame? So it actually, to explain the concept, you know, you walk into a grocery store, you're expecting to buy groceries, your soup, your sushi, all those types of things.

26:24And we have a whole aisle that's a lot of general merchandise. So we're going to have swimming pools. We're going to have - A lot of seasonal stuff. Yeah, seasonal. Right now, 4th of July is coming up. FIFA World Cup's in town. So we have those articles as well. The origins of that actually goes back to our origins in Europe. So if you think about European, I know if you've been to Europe, they don't have a lot of the competitors that we have here, a lot of the big box stores.

26:44Tracy Alloway:Right. So Aldi actually had a pretty big business and still has a significant business selling these types of general merchandise. It could be DIY. It could be paint. It could be power tools. So we took that concept when we came to the U.S. and it's pretty successful. Now, how it's different in the U.S. is it's still very unique that you're going to have all of these articles right next to your groceries. So what we do is we bring in about 100 new items every week. And they're going to be, I'll call it random, but not so random. They're actually going to be the items you need when you need them.

27:15So we're not going to carry these articles all year long. We're not going to have an inflatable pool in February. If you look at the competition, they will have that sitting on the shelf. So we bring in the inflatable pool right when you need it. So back to your comment on the Isle of Shame, which I will say, we do have a Facebook group started by our fans, and it's called the Isle of Shame or AOS. And this popped up, I think, four or five years ago. And we started looking at that as a business saying, what is going on here? what is happening in this aisle of shame? And as a retailer, you're always worried about your brand.

27:47You're concerned about your brand. And you see this growing Facebook group called the aisle of shame. And you have to ask yourself, what are we going to do about that? So it is a hundred percent driven by our fans. And really what happens is our customers come in each week. They start posting back and forth. Oh, look what I got. I got the pool. I got the chainsaw. I got whatever it is. And they're having a lot of fun with these things. And this group has grown to over 4 million users on a regular basis. So origins of Isle of Shame, pretty interesting. People were posting onto Facebook, hey, I went to Aldi, I got my ketchup, I got my barbecue sauce, I got my olive oil, and I also got these cute athletic shoes.

28:25And then they were like, I'm so ashamed.

28:27Tracy Alloway:I didn't stay on budget. I'm so ashamed. So they were posting these shame photos from trunks of their cars, from their kitchens. We sell a tremendous amount of candles. People were posting their family rooms with 50, 60, 70 different candles of Aldi. For shame. I love a good scented candle. I fully admit my basicness when it comes to scented candles. So it was shame in a good way. So I think as a brand, we've said, okay, let's not fight this. It's great because people love it. So it's the Isle of Shame. It's the Aldi finds. And we love that our fans want to post about it and talk about it. And we learned from this as well.

29:01So like I said, I run the buying department and we have great buyers out there. They watch this all the time.

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30:53So you have Facebook groups like the one you just described, and you can watch those and maybe get a sense of what customers are liking. You also have social media trends. So every once in a while you have a food item or an Alison Roman recipe that goes viral and suddenly everyone wants to buy new tomatoes or a particular type of cheese. How has that impacted the buying process for you? Certainly, we have to pay attention to those trends. And you mentioned the feta cheese and tomato recipe from a few years ago. Our feta cheese sales went through the roof. So we had to work very quickly with our suppliers to get more feta.

31:25More recently, one is the sourdough trend. So sourdough baking at home, the sourdough trend. Now, sourdough is not easy. You got a future starter. I would love to do it. I don't have the patience for it. But that tells us and our buying team, hey, what's going on with sourdough? So now we've launched a couple of sourdough items a couple of years ago. It's actually the top performing item in the bread set now. So we are selling over half a million loaves of sourdough every single week in our stores. So when you suddenly see feta flying off the shelves, how long does it take you to actually figure out what's going on here and what's driving the additional demand?

32:00And then how long does it take for you to respond to it? And that's one of the great things about being private label because we're in control of our label. We're in control of our supply chain. We work directly with our producers. So if we were a brand, we'd have to call them and say, hey, can we get more of your brand that you're sending to every other retailer? We go directly to the manufacturer. We say, look, how can we get more line time? How can you dedicate more Aldi product? What can we do with packaging? It can be as quick as a couple of months. It can take a little bit longer depending on the item.

32:26But being a private label, we can just pick up the phone, call directly that supplier. Oftentimes, it's the owner, the president of the company, and say, look, what can we do about Feta? How can we expand your sourdough line? What can we do to help you? Then we partner with them.

32:38Tracy Alloway:One of the things, and I had never gone into an Aldi before, and I'm not sure I would have noticed it had you not pointed it out. But then once you pointed it out, it was quite obvious. So, for example, like on a bag of chips, you have really big barcodes. And some boxes then you notice had a barcode on every surface and some had really big barcodes. And it's like, okay, I get that. That's intuitive. It makes the swiping faster. Give us a little history of barcode innovation and how do you actually sort of measure the optimal, I guess, ratio of adding barcodes and figuring out how much that can contribute to faster throughput versus adding barcodes.

33:16Tracy Alloway:And then like you can't even see what the product is. So finding that sort of efficient frontier of barcode allocation on a package. And I think before we talk about barcodes and scanning, we actually have to go all the way back to before we had scanners. Okay. So we were actually the last retailer to roll out scanning in stores. So I started with a company in 1995. I showed up on day one and my training district manager said, I hope you've memorized all the prices by now. Oh my God. And I had this look on my face and I said, no, no, no one told me about that. Memorized all the prices. Memorized all the prices.

33:47So up until 1998, all of our employees memorized all of the prices and they would enter them by hand on an old fashioned 10 key. And so the price memorization was critical to our efficiency. We talk about efficiency and throughput. Now you could say, why didn't we do scanning back then? Our cashiers were, they were too fast. We couldn't find a scanning system that was fast enough to keep up with our 10 key. So we did two things. One, we started working with scanning manufacturers and the bi-level scanner, which you may or may not be familiar with. If you think back long, long time ago, there was one scanner.

34:20It was level. And cashiers, so bi-level scanners were essentially created out of our input saying, look, we need to do this faster.

34:28Tracy Alloway:Bi-level, so that means there's the horizontal service and then the vertical thing, and they both have a chance of picking up the barcode. Exactly. Okay. Exactly. So that was one of the innovations that we were pioneering with our suppliers to say, look, how can we move our... Memorizing prices wasn't the long-term fit for sure. It's very difficult, by the way. But when you have these bi-level scanners, it's, okay, there's a chance here. And the second part was on packaging. So I think we've all been in a grocery store, and you've seen the cashier struggling to kind of turn the item and twist their wrist.

34:54Or we've been at self-checkout. Yeah. So we came up with the idea and we're just going to add multiple barcodes. So we measure everything we scan, right? So all of our associates, they're measured on items per minute and we can, we can track the items per minute. So if we're going to do a scanner update, does it pick up scanning faster? We track those items per minute. If we do packaging innovations and we get, we'll get feedback from our store staff to say, look, this item's not scanning well. So to your example, you didn't notice it in the store. And actually most of our customers don't because we hide it so well.

35:25So you can take an article, any item in the store, you will find four, five, or six barcodes. And until we point it out to a customer, they don't even know it exists. So hopefully people go check their pantry and go, oh my gosh, I never noticed this. Well, it is funny though, on the chips example, it almost looks like it's part of the bag design because it's like a stripe that basically goes around the whole thing. But wait, now I'm thinking back in the age of when cashiers were memorizing grocery prices, do you think that had an impact on the monetary policy transmission mechanism. Do you think price increases didn't filter down into -

35:58Tracy Alloway:Because it would have been too burdensome on the company to make their employees do another memorization. Someone needs to do a paper. Yeah, we should. Okay. Obvious question though. The barcode thing, it kind of blew my mind because as you said, I never noticed it before. How come other grocery stores or other brands don't do something similar? Because we're private label, these are our products. And we use that real estate. We design the labels. We design the brands. We control the ingredients. We design the labels. So for us, we're based on efficiency. I would say some of our competitors aren't as focused on that.

36:32It does take up real estate on the package. There's no doubt about it. But the fact that nobody notices it is pretty interesting as well. So for us, it's strictly productivity. And since we control the product and the packaging, we can put 20 barcodes if we wanted to. But if I'm like a Haagen-Dazs or something and I'm designing my box of ice cream sandwiches or whatever it is, I would be reluctant to give up some of that additional space to barcodes. I think so. I mean, if you're a brand, you want to talk about the products and we have the romance copy and you want to tell the history of the product.

37:01I think they're more focused on that than the retailer's productivity. We're focused on the productivity so we can get the savings for the customer. But you're absolutely right. Adding romance copy and all those great words on the back of the bill. Is that what you call it? Is that the term of art? It's called romance copy. I have often felt feelings of romance as I read the back of ice cream packages.

37:19Tracy Alloway:Do you ever like those things? It'll be like Bob and Joe's corn chips. And it's like the story will be like Bob was working at Goldman Sachs and realized why am I devoting my life to M &A when I could be devoting it to like design bake? I always I'm not a fan. I always think that's I do not need romance. You need to know the origin story of your potato chips, Joe. You need more barcodes. Yeah. Yeah. Talk to us about what you see in this sort of this current state of the art of self-checkout. And the reason there are a couple of things I ask, because, for example, Uniqlo, which is where I buy a lot of my clothes.

37:53Tracy Alloway:I love their self-checkout, but there's clothes. There's not grocery. But you dump all of the clothes into a bucket. It spits out a price, probably like RFD or whatever. It's done. It's that. And then so my local key foods, you're like doing the thing where you're twisting half the time, like someone has to come by and like swipe something. Maybe something will need an age verification. It doesn't really quite seem to work yet. And so I'm curious what you're seeing at Aldi in terms of where we are with self-checkout technology. I think it kind of drives people crazy. Yeah, I think it's a mixed bag.

38:24I mean, some people love it. Some people don't love it. And for all the reasons that you said, you know, RFID hasn't come to grocery yet. RFID is a pretty expensive technology when you're talking about selling avocados and tomatoes. So RFID hasn't quite made it there yet. Even the best self-checkout, you're going to have to have an age verification for alcohol purchases. You're going to struggle sometimes to weigh the produce. So we have it in about a third of our stores. I think some customers love it, but in our stores that have self-checkout, we always have an employee checkout as well. And that's the option to the consumer.

38:51I think we're still learning. Retailers are figuring out what works best for them. Do you want to corral? Do you want an attendant? What's the best layout? Let's corral. So you might want to move people through more of a line, or do you want more of a separated area? So the layout of the self-checkout can have a pretty big impact on the effectiveness. How many people are monitoring it? And by the time you pay someone to stand there and monitor it, could you just scan their groceries for them? Those are the questions that I think all the retailers are facing right now.

39:17Tracy Alloway:I actually think, Tracy, the way the Wegmans does it in Astor Place with a self-checkout is not bad, where they have one line and then like 30 different or 50 different machines. And they're like, you in 25, you at 28. That actually seems to work reasonably well compared to some of the other versions I've seen. I think it's fine, especially in New York where people are usually grabbing a few items and then just leaving. I could see the argument for self-checkout. But actually, this brings me to what I wanted to ask. You opted for no self-checkout at the new Times Square location. So I'm really interested in why you decided to do that.

39:50And then secondly, you mentioned Corral versus Line. So there was a big space in front of your checkout counters that we saw yesterday. What system is that and what's the logic behind having that particular system in New York? I think when you think about self-checkout, the appeal on that in a lot of our competitors is their checkout system is pretty slow. So we've already talked about we have our multiple car codes. We have our scanner systems. We're incredibly efficient. So we don't always need the self-checkout to speed that process along. Now, that space is there. We might decide in the future to try some self-checkout.

40:21We want to have the real estate available to change the layout if we think we need it. So like I said, we're still trialing to figure out what works. But for us, if there's three people in front of you in line at an Aldi store, you're going to get through so quickly, you may not even need the self-checkout. And I will say, if we've watched people in self-checkout, it's kind of like standing in a fast food restaurant. Which one do you pick? Who's going to be fastest? Who's going to be able to figure out the machine? That can be a bit of a frustration as well, because if you pick the wrong one, you could be waiting even longer, even in a self-checkout.

40:50So the space we saw yesterday, that's just you go up, you decide which checkout you want to go up to. You're not waiting in a single line. No, no. That was my question. I found line management really interesting for a few years. And I kind of wanted to write a book about lines and the strategy behind lines. So maybe I'll get back into it.

41:07Tracy Alloway:I'm sure that we could do, I'm sure there's a lot of really impressive mathematics behind line and queuing theory and all that stuff. How many different types of green grapes are there? We talked about this yesterday. And I just want to go back to that. You go to the farmers, you pick a grape. How many different options are you looking at, et cetera? Novelty. And we talked about this again with tomatoes. They always seem to be coming out with new tomatoes. Where are we at with the grape market? Yeah. So the grape market is fascinating because for the average consumer, which we are all average consumers, right?

41:35You have green grapes and you have red grapes. You go to the store, you want green, you like red, and you ask a customer, I like the green ones. I like the red ones. But when you get into the details, like I said, we have an awesome produce buying team. There's over a hundred varieties of green grapes. So when you go to the Aldi store or the competitor next door, likely you're going to have two different varieties. Now, each of those varieties has a different flavor profile, different yield. The higher the yield, sometimes the less the flavor. So there's trade-offs on all those types of things.

42:01So what we do, we work with the growers. We mentioned this earlier. We figure, what's the best flavor profile? We don't want the customer to have to think about it. We want them to come to our store, come to Aldi and say, I love the Aldi green grapes or I love the blackberries. I love the blackberries and they don't know the details behind it. Those blackberries were huge. They were big and they didn't have that sort of tart that sometimes makes your pucker. Yeah, that's another example of picking the variety. So if we were just buying off the market, you're just going down to the local produce market and saying, give me whatever blackberries you have.

42:29You're going to get what they have available. Working with the grower, you can narrow that hundred varieties of green grapes down to the one or two you want to have in your stores. What's in season? What's going to have the right flavor profile? We don't want it too sour. You don't want it too sweet. You want to have good shelf life, produce waste. All those types of things go into the decisions of our produce team. It's actually pretty sophisticated. And it's fine. The customers take it for granted. We just want them to come in and say, these green grapes are great. But we've done all the work to figure that out with the farmers.

42:56I want to ask at least one what Aldi can tell us about the macro environment right now type question. So one of the stories that we've been talking about on the show and lots of other people have as well is high produce prices, higher beef prices, certainly general inflationary pressures on the consumer. And I'm very curious if you've seen that in the spend at your own stores, if you've maybe seen smaller basket sizes, or maybe you've seen people trading down from beef to chicken, that sort of thing. What are you seeing in terms of inflationary pressures on your shoppers? So shoppers are, I think, they've been under pressure for several years now.

43:35And for all the reasons we talked about before, whether it's the case design or the UPCs or going straight to the farmer, we try to keep all those cost pressures down. but we're not immune. We're not immune to commodity markets. You mentioned beef, for instance. Beef prices are at 70-year highs. So we still see our customers buying beef. However, I'll give you an example. Ground beef right now is relatively expensive by historical context. You can talk $5.99 or$6.99 a pound, even at the Aldi store for ground beef. What we've seen is some consumers opting for ground turkey or ground chicken. A nice substitute, a good quality product, still fresh, probably 30 % cheaper or 40 % less expensive.

44:12And that's a good option. Customers are still going to buy their protein. Protein is all the craze right now. But we have seen some switching between maybe a higher protein, expensive protein like beef and a lower cost like chicken.

44:23Tracy Alloway:I guess we should ask a question about that protein, all the craze right now. So it's like the problem with all this, there's a lot of confounders, right? Because say a lot's changed in the last 10 years on all kinds of levels. We can talk about the role of social media. We can just COVID and how that made sourdough bread a thing, the hobby. But GLP-1 is clearly part of the story, I think, with the protein boom. What are some sort of like clear data points that you see where you say, okay, like the GLP-1s are changing consumer buying behavior other than just say, yes, they want more protein? Yeah.

44:59So GLP-1s, we worked with some of our partners probably 18 months ago. And I think it was roughly 5 % of the population at that time was on GLP-1s. We'd have to check that. But they also said, when this goes to pill form, which is happening right now, we're going to see that adoption rate go up. So as GLP-1s are coming into pill form, of course, we're seeing more protein sales. What's interesting is if you talk to the meat team and the meat growers out there, they would say we're the original protein. And of course, we're selling more of that. But we're seeing is protein really go throughout the store.

45:27Protein bagels. Oh yeah. And you're talking about protein popcorn, which there's going to be a point when it comes too far we're rolling out of protein sparkling water so our data points would say it's actually quite tasty when you take a protein sparkling water and anything with protein right now is accelerating i think there'll be a pullback at some point yeah the pendulum needs to swing to fiber americans need more fiber not more protein yeah fiber is coming on as well okay you can have fiber bean sales are actually up significantly yeah we're selling significantly more beans is that a glp1 thing as well it's a fiber it's a fiber protein combo.

46:02Yeah. So we have a Greek chickpea that we've just rolled out, which is actually amazing. And I would say two years ago, we wouldn't have carried a Greek chickpea, but now we've rolled out a Greek chickpea high in fiber. Customers are responding to it. We're rolling out a fiber, water, but you're right. More protein, more fiber. And for us, it's making sure we have the products the customers want and being on trend. But bean sales five years ago, bean sales weren't surging, but we're seeing a research in some of these categories that maybe weren't thriving in the past, but now they're starting to come back to life.

46:32That might also be inflationary pressure because one of the greatest value meals, most filling meals you can ever make is red beans and rice, as I like to say. Anyway, just going back to the sort of competitive advantage of Aldi. So we talked about your own label and how that makes you more efficient and all of that. We've seen a lot of other stores, I guess grow their own label options. So Walmart, I think has, it's called Great Value or something very obvious like that. And they've been talking about the customer like trading away from known brands into their own Great Value labels because of the inflationary pressures.

47:09Have you boosted your, have you ever decided to do your own sort of Aldi brand for a lot of these items? Because when we say your own label, a lot of them don't say Aldi. They say some random farm. What was the Brent one? Something Acres, you know, something pastoral like that.

47:28Tracy Alloway:But it's not like Kirkland where it's like one name that you associate with a store. Yeah. So we've asked our customers a couple of years ago, we said, how do you feel about the Aldi products? And they said, well, we love your products. We love your prices. We love your quality, but they don't understand our branding. So about six months ago, we made a big announcement that we need to change the way we brand. So right now we had over 90 different, we'll call them Aldi brands in the store. And you're exactly right. Berman's would be a good example. It was the Berman's barbecue sauce. So we asked our consumers, we said, do you understand what's happening here?

47:57Of course, I've worked at Aldi. I'll call it too long. When you're an insider, you don't see these things. You're like, okay, of course, Berman's is barbecue sauce and Sweet Harvest is applesauce. Everybody knows that. And the customer said, no, we actually don't know what you're talking about. So we said, okay, what should we do? So we asked them, which brands do you know? Of course, Clancy's is our chip brand. That's actually, a lot of customers knew that brand, Mama Cozy for our frozen pizza. They knew that one. So we're switching from 90 brands down to about 23. Now that's a big departure.

48:25We're going to relabel every product in the store. That's a big shift for the consumer. But even within that, you're exactly right. We're going to put Aldi on the front of the package because Aldi is a great brand. We've been in the States for 50 years and we recognized, I don't know why it didn't dawn on us earlier. We didn't have Aldi, the logo and the name on the front of the package. It was always on the back. So now when customers come in, they're going to know it's an Aldi product. Now the trick is we have 90 % private label in our store. So if you imagine a store with all Aldi on the front and it's 90 % versus competitors are going to be 25 to 30%, it could look a little bit boring.

49:01So the trick is to make sure that we design the labels in a way that it's not boring.

49:06Tracy Alloway:That actually is my final question. I could ask a ton of grocery questions, but before it was called private label. Like when I was a kid, they were called generic. And generic is like basically synonymous with boring. When did the grocery industry sort of figure out that these quote in-house brands, that this kind of business should not be called generic and should be called private label, which does not sound as boring. And I think there was a negative connotation. Oh, you bought the generic, you bought the generic ketchup? What? Yeah. And generic, if you think about the labels, if you go back, they were black and white.

49:37Yeah. I remember. They were actually poor quality. It was generic. It was poor quality. It was actually not a good quality and it was labeled appropriately because it looked terrible.

49:44Tracy Alloway:So when was the moment where it was like, let's actually make these appealing things? I think we had something to do with that because in 1976, we opened up with all private labels. So I think we started the private label transition. Now it took a long time for our competitors to catch up, but this is what we've done for 50 years. So I think we started the trend. We started with great labels and we started with good quality. And then eventually you can see that that cost difference. If you're talking 30 to 40 or 50 % difference for us, the consumers resonated with it. Now, if you're a competitor, do you want to sell the brand or product or do you want to sell your private label?

50:16That depends. It depends on your margins, but we are set up to develop those products. Our whole buying organization has been buying and developing products for 50 years. And I talk about buying. It's easy to buy a branded product. You call up your local CPG. You say, I want to carry these five SKUs. What's my cost? You negotiate a little bit. You have a little back and forth, which is always fun to negotiate. You get a cost, it's on your shelf, and off you go. If I want to do that with a private label, we have to have an idea. We have to have a buyer who says, you know what? I want to have a Greek inspired chickpea.

50:46We have to go find a supplier. We have to create the recipe. We have to sample it. We have to send it over. We put it in our test kitchen. We sample multiple varieties. We say, this is the variety I want. Then you start negotiating the costs and then you ship it to the store. So it's a whole different business operation, developing and selling private label products as compared to, I'll call it just buying and selling brands, much more complicated and requires expertise. And that's why I said, we've been doing it so long. That's what we're built on. It's easier to just buy someone else's product.

51:14But when we're developing our own, it takes a lot of skill, a lot of market research, and a lot of category management.

51:20Tracy Alloway:All right, Scott Patton, thank you so much for coming on OddLots. I love talking about food. You know, the Times Square audio is not on my typical route, but I'll try to check it out soon. I would go there for the hot honey goat cheese that we That we sampled yesterday. I would make a special trip. Yeah, we'll go there one of these after now. All right, well, I appreciate it. Thanks for having me on.

51:52Tracy Alloway:Tristan, I thought that was fun. I would genuinely say I learned a lot about grocery store, business, operations in the last day. between that and our trip to the Aldi store. I know more about the grocery store. No, and it was fascinating just to see, I don't want to say little, but these, just a subtle variety of efficiency improvements like the packaging system, the display cases, the barcodes everywhere that in theory could be replicated by other stores, but like you don't actually see it. No, it definitely seems like you have to make a choice because I would say like there's two things. You know, we did that episode on the proliferation of snack food.

52:31Tracy Alloway:And one of the trends is we truly live in a golden age of variety, right? Of skews. Yeah, of skews. Skews abundance. We talked about how you can go to a place like, there are a couple popular Asian grocery stores and see 45 different versions of Kit Kats from Green Tea or whatever, prawn Kit Kats. But then also, you're just like, okay, here is a company that has made a choice to just go in completely the opposite direction. But then you can see it's like, all right, well, the consumer really doesn't have as much choice. But if you can get them to mostly what they need, then the price differentials seem pretty genuine and real.

53:11The other thing I was thinking is it feels to me like technology changes are still an understudied area of inflation dynamics. And I mean just the actual barcodes switching from like physical labels to barcodes and maybe now having the tags that Uniqlo has and things like that. I would love to see more research on that particular area.

53:33Tracy Alloway:Yeah, I know. That's like the – because the original is like menu costs, right? You can't update the menu. But it's like, was that real? And now we all order through QR codes. Yeah, there's been so much change. Like those, some of those first things need to go back and revisit it. But yeah, all very interesting to me. Shall we leave it there? Let's leave it there. All right. This has been another episode of the All Thoughts Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Joe Weisenthal. You can follow me at The Stalwart. Follow our producers, Carmen Rodriguez at CarmenArmandDash.

54:01Tracy Alloway:You'll be at DashBot. Kale Brooks at Kale Brooks. And Kevin Lozano at KevinLloydLizano. And for more Odd Lots content, go to Bloomberg.com slash Odd Lots. We have a daily newsletter on all of our episodes. And you can chat about all of these topics 24-7 in our Discord, discord.gg slash Odd Lots. And if you enjoy Odd Lots, if you like it when we take field trips to grocery stores in Manhattan, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there.

54:36Thanks for listening.

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