The following article is from our March 2009 issue.

BYOB (Bring Your Own Bag) Frugal to a fault, discounter Aldi expands in the U.S. - By Thomas Schuler

Two years ago, Aldi's cut-price strategy drove Wal-Mart out of Germany. Now the German discounter is taking the fight to its bigger rival's home turf.

Bad times for the economy are good for Aldi. The German discount supermarket known for its rock-bottom prices intends to use the crisis to expand in the U.S. with 75 new outlets, including its first New York branch, reported the Wall Street Journal in February. The economic slump has created the "perfect combination of factors" for Aldi's success, said Jason Hart, president of Aldi USA.

Aldi stands for AL(brecht) DI(scounter). It is a German phenomenon, a success story that started in the small grocery store of the present owners' mother. Theo Albrecht, now 86, and his brother Karl, 89, expanded the shop in Essen in Germany's Ruhr region into a supermarket chain in the years following World War II.

In 1961, the company split into Aldi Süd (run by Karl) and Aldi Nord (Theo), keeping coordinated purchase and price policies. In 1962, Aldi opened its first store entirely focused on cheap merchandise. Today, the enterprise runs 4,000 outlets in Germany and about the same number elsewhere with annual sales of about $50 billion. Aldi Süd covers Austria, the UK, the U.S., Ireland, and - since 2000 - Australia and New Zealand, Aldi Nord spans continental Europe from Spain to Denmark.

Gradually, the brothers moved to the top of the list of Germany's wealthiest people and have held the number one and two spots on the list of German billionaires for years. In 2008, Forbes magazine listed Karl Albrecht as the world's 10th wealthiest individual with $27 billion; Theo Albrecht came in 16th place with $23 billion.

Their family fortune is pooled in two family foundations. For years, Karl Albrecht has been fighting a legal battle with the German authorities over tax debts. The state claims he owes up to ?1 billion ($1.3 billion) in back taxes.

Karl Albrecht was born on Feb. 20, 1920, his brother Theo on March 13 or 28, 1922, presumably in Essen where they also grew up. There is hardly any verified personal data as the brothers do not reply to requests for information and keep to themselves. Only one picture exists showing both of them together. One thing we know is that they play golf.

Their companies barely do any public relations either - on purpose, as secretiveness is part of Aldi's company policy. "The most important criterion for success is: making things easy," Aldi's former managing director Dieter Brandes told the weekly Frankfurter Allgemeine Sonntagszeitung. Brandes worked for Theo Albrecht for 14 years, many of them with him on the board of directors.

According to Brandes, 'making things easy' means that neither managers nor employees talk to the media. In the U.S., however, Aldi makes an exception, even keeping press spokespeople.

Because the brothers are so closed-mouthed, just why they went their separate ways remains unclear. They allegedly disagreed about selling cigarettes. Both have described their relations as "friendly." Their respective companies have similar logos and share the same lawyers, website and purchasing department - presumably because it's cheaper that way.

According to Brandes, Aldi prefers flat hierarchies and does without strong centralized departments such as marketing. The company barely collects any statistics and does not do market research, rather following the principle of "trial and error," Brandes said. In Mannheim, Aldi Süd is experimenting with a surplus goods store selling everything but groceries.

Making things easy also means offering a smaller range of goods than the competition and selling them in comparatively small stores 'straight out of the box.' Instead of stocking thousands of different products, Aldi has only between 600 and 700, helping it undercut its rivals' prices.

People shopping at Aldi are expected to bring their own bags. If you want to use a shopping cart, you have to put in a small deposit. This way, Aldi doesn't have to employ someone to collect the carts. In Germany, that is completely normal; in the U.S., consumers are astonished. Not accepting credit cards has also been a longtime company policy.

Aldi conducts only internal comparisons - Aldi Nord with Aldi Süd, the different national subsidiaries among each other - but not with its rivals, said Brandes. "It's part of the company culture to continuously strive for improvement." That includes cutting prices whenever the competition does. The motto is: "Best quality, lowest price."

Even as a director, Brandes sometimes had to check the sell-by date of coffee or the number of sheets of toilet paper. Any of the approximately 40,000 employees could suddenly be approached by an elderly gentleman introducing himself, "My name is Albrecht, Theo Albrecht," who would then complain about empty boxes and needlessly switched-on lights.

The Albrecht brothers "are thrifty and modest," said Brandes. "They turn off the lights if there is sufficient daylight and use writing paper on both sides." They were raised in a strictly Catholic tradition and ever since Theo Albrecht was abducted in 1971 and had to pay a ransom of seven million German marks (then a record amount), both have lived reclusive lives.

Apparently, Albrecht bargained with his kidnappers for the ransom and later tried to write it off as company expenses. That, however, was prevented by a court decision. According to Focus magazine, members of his family have had microchips implanted underneath their skin so that they can be tracked at any time.

Aldi's expansion in the U.S. rings in a new round in the fight with Wal-Mart: Aldi is apparently planning to penetrate states like Texas and Oklahoma where Wal-Mart, the world's biggest retailer, has had barely any competition at all.

Aldi has been present in the U.S. since the 1970s; today it has about 1,000 stores there. Brandes claims to have negotiated two deals for Aldi Nord in the U.S., one of them with the supermarket chain Trader Joe's (250 stores). In contrast to Aldi's bare-bones outlets, Trader Joe's stores are decorated with an eye for detail. It has a store on Union Square in Manhattan. Aldi is now planning to open one of its typical deep-discount stores in New York, too.