Bentonville, Arkansas (CNN Business)Less than a mile from Walmart's massive headquarters in Bentonville, Arkansas, a new neighbor has settled in: German discount grocery store Aldi.
Aldi opened a store in Bentonville in October. It's part of Aldi's $5 billion plan to expand to 2,500 stores in America by the end of 2022, up from around 1,900 today. Aldi is on track to become the third-largest grocery chain in the country behind Walmart (WMT) and Kroger (KR).
"There is a lot of buzz in northwest Arkansas about the new Aldi store," said Annibal Sodero, a former assistant professor of supply chain management at the University of Arkansas. Aldi poses a "significant threat" to Walmart and seems "very well positioned to gain market share in the short run," she said.
Aldi opened a store in Bentonville, Arkansas in October, less than a mile from Walmart's corporate headquarters.
On a sign in its Bentonville location, Aldi cited one customer survey that found it was the "value leader" ahead of Walmart and Kroger.
Kroger, Albertsons, Costco and other big grocers have steered clear of Walmart's hometown. Sam Walton stationed Walmart's headquarters in Bentonville nearly five decades ago and the retailer's footprint is on display throughout the town. From Walmart distribution centers and superstores to gas stations, Bentonville revolves around Walmart.
But Aldi hopes to win over Walmart customers in Bentonville with rock-bottom prices, an approximately 22,000-square-foot small store and its own private brands: Clancy's pretzels, Chef's Cupboard chicken noodle soup that resembles Campbell, and Belle Vie sparkling water, which is similar to LaCroix.
More than 90% of the brands Aldi sells are its own private labels, and the store only stocks around 1,400 different items — compared with around 40,000 at traditional supermarkets and more than 100,000 at Walmart supercenters.
Aldi also features several quirks not typical at other American grocery stores.
Shoppers need a quarter to rent a shopping cart, which they get back after they return their carts. Plastic and paper bags are available only for a fee. And at checkout, cashiers hurry shoppers away, expecting them to bag their own groceries in a separate location away from the cash register. These tactics help Aldi drive labor costs down.
Despite those minor inconveniences for customers, Aldi seems to be gaining traction in Bentonville. "The store is in a very convenient location with high foot-traffic volume in a part of northwest Arkansas that is growing considerably. It is very strategic," said Sodero.
Walmart executives are taking Aldi seriously and have lowered prices in some markets to counter Aldi.
On a visit inside Walmart headquarters this week, Aldi was one of the brands listed on a sign about where budget-conscious customers shop, along with Walmart, Family Dollar and Dollar General.
But Aldi is not only winning low-income customers. Aldi has attracted wealthier shoppers looking to save on their grocery bills.
"I never underestimate them," Walmart US chief Greg Foran said at a retail industry conference in March. "I've been competing against Aldi for 20-plus years. They are fierce and they are good."
Aldi in Bentonville has dedicated wine and craft beer section.
Aldi and its German rival Lidl — which is also trying to crack into the United States — "are very worthy competitors and keep us extremely honest in terms in terms of our price position," Foran added on a call with reporters in May. "We track them closely."
About 40 people — including one woman carrying a blue Walmart Museum tote bag— were shopping for groceries on a visit to Aldi in Bentonville Thursday evening in the middle of Walmart's annual shareholder week.
Vegetables and fruit greet customers when they enter the low-ceiling store with tiled gray floors. From there, Aldi has a few wide aisles stocked with packaged foods and canned soups displayed in their original cardboard shipping boxes to save employees time stocking shelves. Refrigerators of milk, orange juice, frozen meats and fish line the sides of the store, and the beef and poultry sections are in the back.
The Bentonville Aldi also features a dedicated wine and craft beer section, and it carries items including notebooks, greeting cards, flowers and seasonal items, such as lawn and garden tools.
Montinique Davis, 42, who was shopping at Aldi in Bentonville with her daughter on Thursday, said she visited the store after coming from Walmart.
"It's not as hectic in Aldi," she said, adding that she thought Aldi's "prices are usually better" than Walmart. And it didn't bother Davis that she couldn't find some of her favorite brands at Aldi, either.
"I don't have to have a name brand as long as it tastes good," she said.
