What Real Estate Investors Can Learn From ALDI’s Clever Business Model

by | BiggerPockets.com

Most grocers have gone bigger and bigger, with Super Targets and Walmart Supercenters that expand across the horizon as far as the eye can see. I’m sure you’re familiar with Costco, which goes big both in terms of store size and in terms of the quantities they require you to buy. Bigger, bigger, bigger is what everyone else is doing.

So when everyone else zigs, you should probably zag.

And ALDI has zagged.

Instead of going bigger, ALDI cut everything down to the bare essentials and usually offers only one brand of each type of product — their own. This allows ALDI to have some of the smallest grocery stores thinkable while still providing everything one would need at very low prices. Indeed, they’re generally about the same size as most pharmacies and not much bigger than a QuikTrip convenience store.


An Average ALDI Store is Only the Size of a Pharmacy

An average ALDI store is only 16,500 square feet. Compare that to a Walgreens pharmacy, which comes in at 14,500 square feet. On the other hand, the average Safeway is 46,000 square feet, and the average Walmart Supercenter is a mind boggling 182,000 square feet!

Related: 3 Factors to Study in Your Market BEFORE Buying an Investment Property

Instead of sifting through aisle after aisle to find what you need, ALDI cut out all the clutter and has made grocery shopping a straight forward, in and out operation.

And what has been the result? Well, rapid growth. In 2015, ALDI increased sales by 16 percent, and its market share has gone from about two percent in 2011 to just shy of six percent today!

Not only does ALDI provide inexpensive products and a niche consumer experience that has allowed it to carve out a substantial market share, its small size grants it access to markets big grocers don’t have. This is particularly true in low income neighborhoods that simply don’t have either the population density, income, or both to support a large 40,000 plus square foot grocer.

In Kansas City, there is a low-income area East of downtown that has from time to time been labeled “the grocery store desert” for its complete lack of grocery stores. Residents there had to either go a long distance (and many don’t have cars) or settle for the few offerings at convenience stores, pharmacies, and small retailers, such as The Family Dollar, which rarely have fresh produce or meat. There simply wasn’t enough wealth in that area to sustain a large grocer. But then ALDI moved in to act as an oasis. Besides the social benefit this provides, ALDI was able to capture a market segment that other grocers weren’t designed for.

And the same exact thing could be said for areas that are so dense there’s insufficient space to put a large grocer, such as many places in New York. As The New York Times notes:

“After decades spent fleeing cities for the strip malls and boulevards of the suburbs, grocers and discount retailers are doing an about-face. Target plans to open its first smaller, city-size store in Seattle next year, and Wal-Mart announced recently that it would build “hundreds” of smaller, mostly urban stores in the coming years. Meanwhile, ALDI has quietly been setting up its shops in cities around the country.”

In short, ALDI beat them to the punch.


What Real Estate Investors Can Learn from ALDI

There’s certainly something to say about doing something others aren’t, as ALDI did. Indeed, my dad got started by focusing on student rentals at a time when most real estate investors were ignoring the potential there.

But what I want to focus on is how ALDI specifically offers just what their customers want. Not too much, but not too little either.

Related: The Simple Secret to Building (Literally) Any Kind of Business From the Ground Up

It’s not that they never change or add new things. Right now, they are expanding their selection of organic food and gluten-free options to satisfy that segment of consumer demand. But for the most part, ALDI focuses on offering what their consumers want without any of the bells and whistles that do little more than distract.

Last week, I discussed how QuickTrip has set itself apart from other convenience stores by offering a higher quality store and experience. And while it’s extremely important to sweat the small stuff and offer a quality product in that regard, it’s also important to know who it is you are marketing to and not provide more than is necessary.

Provide EXACTLY What Your Market Wants

I’m going to focus mostly on landlording, but this can apply to flipping, too. With regard to rentals, though, a key question to ask is, “What type of properties do you want to rent out and to whom?” For us, the first question is area. We don’t want to be in an area that’s to challenging to manage, but we also don’t want to be in a high end area that’s mostly homeowners where rentals are an aberration. So we focus on the lower middle to middle market segment.

We also don’t want a home that is too small because the tenants are more likely to be transient, and we don’t want it to be too large because bad turnovers could be too costly and most people looking for houses that large are buyers. So we aim for between 800 and 1,500 square feet.

That’s not to say this is the only way to do it. Indeed, one investor I met has a very ALDI-like model. He focuses on buying only one-bedroom houses and leases them out mostly to elderly people who don’t want or need a large home. That’s very specific and niched. There also isn’t much liquidity to such homes. Then again, how many investors does this guy have to worry about competing with?


Don’t Spend Where You Don’t Have to

But furthermore, it’s important to note that while it’s critical to have quality rentals, you will quickly start spending money that won’t increase your equity or rental value if you are not careful.

Tenants in lower middle to middle income areas don’t need and don’t particularly want granite countertops, Brazilian hardwoods, an accent wall in every room, or top-of-the-line stainless steel appliances. And they’re certainly not willing to pay much extra to get them. Sure, you may get a little more in rent, but it will get more than eaten up by the extra rehab costs.

Of course, with flipping in high end areas, the story is different.

But if your customers aren’t asking for something and aren’t willing to pay for it, then don’t provide it. It’s a waste of money. Cut it down to what they want, but just make sure to provide what they want at a level of quality that will set you apart from the competition.

What ALDI has done so well is to understand what their customers want and build a niche model to take advantage of this. So make sure to ask:

  • “Who are my customers?”
  • “What do they want?”
  • “What is the best way to provide that to them?”

But it goes further then that. Like ALDI, you should also ask, “What do my customers not want, and what would I just be wasting money on if I provided it?” This is a question that is rarely asked. And by not doing so, it has cost many real estate investors a lot of money.

What do YOU think about ALDI’s business model? How do you cater to your niche market?

Let me know with a comment!

About Author

Andrew Syrios

Andrew Syrios has been investing in real estate for over a decade and is a partner with Stewardship Investments, LLC along with his brother Phillip and father Bill. Stewardship Investments focuses on the BRRRR strategy—buying, rehabbing and renting out houses and apartments throughout the Kansas City area. Today, they have over 300 properties and just under 500 units. Stewardship Properties on the whole has just under 1,000 units in six states. Andrew received a Bachelor's degree in Business Administration from the University of Oregon with honors and his Masters in Entrepreneurial Real Estate from the University of Missouri in Kansas City. He has also obtained his CCIM designation (Certified Commercial Investment Member). Andrew has been a writer for BiggerPockets on real estate and business management since 2015. He has also contributed to Think Realty Magazine, REI Club, Elite Daily, Thought Catalog, The Data Driven Investor and Alley Watch.


  1. Mike Makkar

    Andrew, Great post!
    Your dad’s podcast about Riches-Are-in-the-Niches was truly inspirational to me. I’ve taken it heart and focused in my own rental business. Currently catering to 3 specific niches in the dallas area. Once the formula is fine-tuned and perfected, its an unstoppable blue-print!

    Furthermore, I’m a big fan of ALDI since I discovered them in the mid-90’s in Chicago. They are the epitome of operational efficiency. Reduced staff, small store footprint and their infamous self-managed quarter-deposit shopping cart. Just brilliant! But then again you can’t expect anything less from a german company! German ingenuity at its best!

  2. Mary B.

    Interesting comparison. IMO, Aldi’s being an overseas based food chain is treading light here in the US, which is smart – better to be safe then sorry. If I were doing real estate investing in another country I’d do the same. They bought out Bottom Dollar chain as soon as I was getting used to it. OK. So I just went there last weekend(last minute run to the market, first timer there) and tried to get some shopping done as they are only a 5 minute drive away. Problem is that they don’t have a lot of items. If it were a corner store run then their inventory would be acceptable but I was set to go to the supermarket. Aldi’s is not a supermarket, imo. This is bothersome because I could’ve just gone to Price Rite(just as affordable as Aldi’s and only a township over) or Giant(expensive but has everything plus plus) but I give them a shot. Well when I get to the check out counter the cashier asks ‘credit or debit’ its a credit card, no debit option. She tells me they don’t accept credit cards. Beg your pardon?! Aldi’s DON’T ACCEPT CREDIT CARDS only debit. Mmmkaay. I don’t know how they operate in Europe but America is certainly a credit card using country. Thankfully I grabbed some cash to put in my wallet before I left out. The gentlemen that was in line with me just left his cart filled with groceries. Unless its an emergency toilet paper run I doubt I’ll be returning there. Sorry for the rant, just not a fan of Aldi’s. Hopefully they will make more Americanized adjustments in the near future. My coin.


  3. Tim Graham

    The ALDI in my town accepts credit cards now, and has for about eight months. We usually go to ALDI twice a month or so, and know what we can get there versus what we have to buy at SuperTarget. It is generally not possible to do 100% of a family’s grocery shopping at ALDI, but that’s not their intention. If they can catch 3/4 of my trips, then I only go to Target for obscure things like cilantro and water chestnuts.

    I think the point the OP was trying to make is that ALDI will never try to chase the cilantro and water chestnuts customers. They are who they are and they are comfortable (and profitable) with that. As landlords or flippers, it’s easy to fall into the trap of trying to over-offer, and essentially throw away money. We came *this* close to doing a custom concrete counter and sink in a bathroom for a flip until we realized that none of the houses in the neighborhood or price range had any updates at all in the bathrooms. We swapped out the fixtures/trim and made our bathroom nicer than the comps and saved $2000 in the process.

  4. Mikael Winkler

    Great article! I love ALDI. I started shopping there out of necessity, as the often-uttered “poor college kid”. Now, I still shop there, in large part, because they don’t have all the bells and whistles. This makes shopping soooo much faster. They have what I need without have to debate for 10 minutes on what brand of oatmeal I should go with. Plus, any money saved that I can put toward investing is fine by me! 😉

  5. Rod Hanks

    Great Article! I’ve always been taught the riches are in the niches in my business. Just like the foot surgeon makes much more than the family doctor, that same concept applies across all businesses. Thank you for the article!

Leave A Reply

Pair a profile with your post!

Create a Free Account


Log In Here