Aldi's acquisition of 400 Winn-Dixie and Harveys locations in the Southeast has the potential to increase its customer base by nearly 2.5x in Florida and 2.1x in Alabama. On the surface, the move appears to be just a land / location grab, and a tactic to step in front of Trader Joe’s, Lidl, or Grocery Outlet doing similarly. Does this make Florida grocery more competitive? Absolutely--call it a forming hurricane named Aldi. Moreover, it comes at a time where consumers are being pinched by high national packaged food prices and are very willing to try retailer brands that offer extreme value--brands that Aldi is known for. The Aldi press release outlining the acquisition quotes Aldi's CEO Jason Hart: "The time was right to build on our growth momentum and help residents in the Southeast save on their grocery bills. The transaction supports our long-term growth strategy across the United States, including plans to add 120 new stores nationwide this year to reach a total of more than 2,400 stores by year-end...Aldi will operate Winn-Dixie and Harveys Supermarket stores with the same level of care and focus on quality and service, as we also evaluate which locations will convert to the Aldi format to better support the neighborhoods we'll now have the privilege of serving. For those stores we do not convert, our intention is that these continue to operate as Winn-Dixie and Harveys Supermarket stores."
Comparing recent visitation trends for Aldi, Harveys, Winn-Dixie, and other competing grocery banners (below), two things become evident. One, consumers remain fixated on value, as those chains emphasizing value to their customers continue to outperform conventional grocery chains. Two, Harveys and Winn-Dixie have been slightly outperforming visitation trends versus the rest of the industry. For context, Harveys has shed roughly half of its footprint from 2019 to now--almost 50 units to 25 today--perhaps indicating that it has already shed a number of its underperforming locations. The visitation trendline also implies that there is a natural base of visitors that Aldi can build off of as it evaluates rebranding stores and making merchandise assortment adjustments. For a refresher on the typical profile for an Aldi visitor, please refer to our November 2022 update.
The acquisition is expected to close in the first half of 2024. One additional consideration from a commercial real estate perspective is that Winn-Dixie locations tend to be substantially larger at 40-60K square feet than the typical Aldi location at 15-20K. Will they adapt a larger footprint? Do they sublet half the box to another retailer? Are the non-converted locations sold to another operator? We'll offer more analysis as the deal is finalized and Aldi formalizes its plans for the acquired banners.
