US grocery competition ramps up as Aldi adds record number of stores

German discount grocer Aldi is turbocharging its U.S. expansion this year with plans to add more than 250 stores, a record for the chain, as competition among supermarkets gets more heated.

Those new Aldi locations will reflect "organic growth" as well as the conversion of some Winn-Dixie and Harvey Supermarkets stores to the Aldi format, according to the company. In total, Aldi plans to convert about 220 of those supermarkets to its own format through 2027. Aldi, with its U.S. headquarters in Batavia, Illinois, said the new members of its store fleet will mark the most additions it has had in one year in its nearly 50-year U.S. history.

Last year Aldi closed on a deal to acquire Jacksonville, Florida-based Southeastern Grocers and its roughly 400 Winn-Dixie and Harveys stores to transform some to its own banner, while it's now divesting about half of them. Aldi said it has sold roughly 170 Winn-Dixie and Harveys stores that are not part of its conversion plan to a group that includes Southeastern Grocers senior leadership, C&S Wholesale Grocers and private investors.

"This transaction allows Aldi to create a focused conversion portfolio in the Southeast as it progresses its expansion plans across the country," the chain said in a statement.

In addition to its Southeast growth, Aldi said it will expand its established footprint in the Northeast and Midwest; increase its presence in the West with more stores in Southern California and Arizona; and enter new markets such as Las Vegas.

Aldi is trying to bolster its presence in the Southeast in the face of growing competition that includes another German discount grocer, Lidl. The U.S. supermarket arena nationwide now has many big and aggressive players, both in brick-and-mortar and online. The legion of companies seeking a piece of the grocery pie includes Walmart, Target, Costco, Amazon Prime, Amazon Fresh and Whole Foods Market, which the e-commerce giant bought in 2017 for $13.7 billion.

Aldi, the self-described fastest-growing grocer in the United States, said its 2025 rollouts are part of the next phase of its five-year national growth strategy. In March last year, Aldi announced it planned to add 800 stores across the United States in a $9 billion expansion. The grocer said it opened nearly 120 stores last year, bringing its total store count to over 2,400 and making it the third-largest grocery chain by store count in the country.

"After all that negative news about store closures, it’s good to share more positive news," Neil Saunders, retail analyst and managing director at analytics firm GlobalData, said on LinkedIn. "It comes from Aldi. ... In the U.S., Aldi is a bit like the grocery version of Primark. It has much lower prices than some of its rivals, but it also offers a better experience. ... And the final bill is also cheaper! That's a win-win for shoppers."

The nation's two largest pure-play supermarket chains, Cincinnati-based Kroger and Boise, Idaho-based Albertsons Cos., tried to merge in a $24.6 billion deal, claiming they needed to gain scale to compete in the increasingly challenging grocery marketplace. But in December a judge blocked the sale, saying it would thwart competition. The next day, Albertsons sued Kroger alleging breach of contract for the derailed deal.

Kroger's attempt to get a bigger foothold in the Southeast, in Florida, stumbled. About three years ago, it opened three highly automated online fulfillment centers in Texas and the Sunshine State where it doesn't have stores. It shuttered those facilities in March last year.

Grand openings for the first several converted Southeastern Grocers stores are underway, according to Aldi, with roughly 100 converted locations reopening as Aldi stores by the end of the year.

"When we announced our acquisition of Southeastern Grocers, we shared that we intended for a meaningful number of Winn-Dixie and Harveys Supermarkets to continue to operate, and we're delivering on that promise while also supporting Aldi growth," Jason Hart, Aldi CEO, said in a statement. "Converting the remaining locations to the Aldi format is critically important to our nationwide commitment to help shoppers fill their carts with quality groceries for less."

If the Kroger-Albertsons deal had been consummated, Keene, New Hampshire-based C&S Wholesale would have acquired 579 of the Kroger-Albertsons stores for $2.9 billion in an effort to appease regulators. With the merger blocked, C&S Wholesale didn't get those stores. But it is acquiring supermarkets now as a part of the group buying Winn-Dixie and Harveys markets from Aldi.

The group's agreement with Aldi includes about 170 Winn-Dixie and Harveys grocery stores in Alabama, Georgia, Louisiana, Mississippi and Florida, as well as the existing Winn-Dixie liquor-store business.

"Throughout this transformational journey, our commitment to thoughtful, purpose-driven growth remains strong and propels us forward with renewed momentum," Anthony Hucker, CEO and president of Southeastern Grocers, said in a statement. "As we reinvest in the store fleet, we are inspired by listening loudly to the voices of our customers, to elevate and revolutionize our customer experience and store offerings, so that each step we take will reflect our dedication to our people and our communities.”

Southeastern Grocers said it and Aldi's leadership will continue to work together closely to ensure a smooth transition. Southeastern Grocers will continue to operate the remaining stores identified for conversion in the normal course of business, "with the same level of care and focus on quality and service, up to and until each respective store is closed for conversion," according to the company.

RBC Capital Markets served as financial adviser to the group, while Foley & Lardner and Sullivan & Cromwell served as legal counsel. Deutsche Bank served as financial adviser to Aldi, while Skadden, Arps, Slate, Meagher & Flom was transaction counsel and Kayne Law Group served as co-real estate counsel.