Aldi Puts Arizona Expansion on Hold

While Aldi continues a new-store expansion that is rapidly approaching the 2,000-store mark and is intended to make it the third-largest U.S. grocer by store count by the end of 2022, it’s unclear now how much of that growth will take place in Arizona, where the discounter has evidently put plans on hold.

The Arizona Republic reported that although Aldi has acquired more than a dozen sites in the Grand Canyon State, building permits in several cities have expired, and stores that were expected to open as soon as this year or in early 2020 are no longer on that schedule. Also arriving later than expected is a warehouse and regional headquarters in Goodyear, Ariz., which according to one local official could be “several years out” due to a logistics facilities redesign being undertaken by the grocer.

Batavia, Ill.-based Aldi, which tends to closely guard specific plans for growth and its internal dealings, in a statement provided to WGB reiterated its 2022 growth goal but declined to share specific information about expansion areas or specific sites in Arizona.

Aldi also declined to address questions about a facilities redesign and the role it might play in the reported delay.

The company acknowledged in the summer of 2017 it was pursuing the Goodyear distribution center site, and reports since then identified a number of acquired store sites.

It should be noted that anticipation of its earliest openings came not from Aldi but after a local official in Buckeye, Ariz., in a 2018 speech said an Aldi store would open there in early 2019. That site however, won’t be built until after Aldi completes its warehouse, a Buckeye city spokeswoman told WGB earlier this year.

Should an Arizona distribution center indeed be “several years out” it would represent a historically lengthy market expansion by Aldi standards and a rare case of it underperforming expectations of its growth. Its first stores in Southern California, for example, arrived in 2016, about three years after reports surfaced it was seeking to establish a headquarters there.

Local sources say whatever delays Aldi is facing won’t necessarily mean the company is having second thoughts on the expansion, however. Thomas Brophy, research director for Colliers International in Phoenix, told WGB in an interview this week that he was confident Aldi would arrive.

“The distribution center deal is taking longer than expected, and it just looks like they want to be sure they aren’t opening stores ahead of that. We’ve seen retailers try to expand around here too soon, like Fresh & Easy, and that didn’t work out,” Brophy said, referring to the short-lived expansion of Tesco’s now-defunct U.S. grocery brand. “If Aldi didn’t want to come, those sites would be listed for sale in a heartbeat, but that hasn’t happened.”

Brophy said he was confident that Arizona could still be a strong market for Aldi, noting a relative dearth of national food discounters. “I think this market could be right for them, especially the way they position themselves in the market. They have a good thing going.”

Aldi in 2017 said it would open 900 new stores in five years, aiming to be the third-largest grocer to Kroger (2,764 stores as of Feb. 2) and Albertsons (2,269 stores as of Feb. 23), according to annual reports. The company said it has more than 1,900 stores now and could reach the 2,000 mark by early next year.

Bill Bishop, chief architect for Barrington, Ill.-based consultancy Brick Meets Click, told WGB that in some markets, Aldi appears to be nearing a “saturation point” for discounters. “In Chicago, we’ve seen them raise prices significantly on certain known value items like milk and produce. They’re still the lowest in the market but not nearly what they were,” he said. “This change generates gross profit for the company but probably slow sales growth.”

Bishop speculated that Aldi might also be struggling to develop leadership fast enough to support the rapid growth.