Aldi Expands in Southeast by Acquiring 400 Winn-Dixie Stores

ALDI continued its store growth this week with the announcement it has an agreement to acquire hundreds of Winn-Dixie and Harveys Supermarket.

It’s part of ALDI’s plan to add 120 new stores nationwide this year to reach a total of more than 2,400 stores by year-end, according to its CEO Jason Hart.

The Southeast-focused acquisition includes approximately 400 Winn-Dixie and Harveys Supermarket locations across Alabama, Florida, Georgia, Louisiana, and Mississippi. The transaction is expected to close in the first half of 2024.

Deutsche Bank served as financial advisor to ALDI. Baker & McKenzie LLP was transaction counsel to ALDI and Kayne Law Group served as real estate counsel to ALDI.

Some of the Winn-Dixie locations Aldi is acquiring will retain their familiar red-and-white Winn-Dixie branding and traditional store layout, CNN reported.

Hart told CNN that Aldi will be converting a “significant amount” of Winn-Dixie and Harveys stores to its bare-bones store format over the coming years.

Henry Breaux, principal, The Providence Group, tells GlobeSt.com that the deal makes sense for Aldi, given the high cost of construction for markets like Florida.

“It’s an efficient way for Aldi to expand into markets dominated by Publix where they don’t have the market penetration they desire, Breaux said.

“Organically growing these markets, as Aldi has traditionally done, can be slow and more expensive. South Florida is known for higher grocery margins. The supply shortage of quality retail anchor space means Aldi should be able to offload any properties within the portfolio that do not fit their model.”

Eric Hochman, Chief Investment Officer at PEBB Enterprises, tells GlobeSt.com the acquisition is aimed at securing a significant market share, particularly in the Florida region.

“Notably, while the majority of the acquired stores operate under traditional leasehold agreements, Aldi has predominantly expanded through ground leases in recent times,” Hochman said.

“For the stores earmarked for conversion, this presents Aldi with the opportunity to collaborate with landlords to optimize and create value by right-sizing their stores. Additionally, this expansion is poised to enhance Aldi’s market penetration, which should subsequently result in logistical and distribution cost savings for the company.”

Hochman said that given the scale and nature of this proposed 2024 transaction, this deal is not expected to encounter the same level of regulatory scrutiny as the proposed Kroger-Albertson merger.

Christopher Maling, principal-retail capital markets, Avison Young, tells GlobeSt.com Aldi’s growth process is accelerated in a fraction of the time versus if they were to find new sites to get to the 400 units.

“This trend is successful to create a scale that further enhances Aldi’s brand in markets that have had barriers to entry,” Maling said.

Daniel Gielchinsky, Partner and Co-founder, DGIM Law, tells GlobeSt.com the acquisitions of these locations represent a shift in mindset that has quietly been underway in the broader commercial real estate market.

“Although the properties will continue to operate under their existing banners at the outset, many of the stores will eventually be converted to the ALDI format,” Gielchinsky said.

“The smaller footprint of an ALDI store means that the portions of these properties that will no longer be used as a supermarket will become available for other leasing opportunities. A property that once featured a Winn Dixie supermarket as an anchor tenant of a shopping center with 10 to 15 smaller specialty stores may now be home to an ALDI, a fitness center, or a movie theater alongside the preexisting smaller stores.

“It is hoped that this type of diversification of the tenant mix will enhance the customer experience for the property, which is vital to the survival of retail centers.”

Gielchinsky said when retail customers can easily purchase everyday retail products online, commercial properties will need an attraction other than the typical big box store to incentivize customers to visit those locations.

Replacing a large Winn Dixie with a smaller ALDI store will allow those locations to feature an attraction that is worth visiting in person.

Brandon Svec, national director of U.S. retail analytics at CoStar Group, tells GlobeSt.com, “The grocery sector is highly competitive with low margins and favors larger players that can make the necessary (and often expensive) investments in technology, supply chains, store networks, and delivery capabilities to meet consumer expectations.

“As such, we should expect to see more deals like this within the sector and while a potential Albertson’s/Kroger marriage steals the headlines, smaller local and regional names will be the primary drivers of consolidation.”

He said, from a real estate perspective, this acquisition likely has a very minimal impact on fundamentals as Aldi intends to maintain the current store fleet.

​Damon M. Juha, Partner and Real Estate Practice Vice Chair for Saul Ewing, tells GlobeSt.com that by adding 400 stores, Aldi continues to cement itself as a “megastore,” giving it a greater share of not just customers but of real estate situated within the Southeast.

“Given the recent struggles of Southeastern Grocers (parent of Winn-Dixie and Harveys Supermarket), including filing for bankruptcy in 2018, landlords may celebrate the potential increase in credit resulting from the merger, but they will likely face an 800-pound gorilla come time to discuss lease terms/renewals.”

Aldi is well known for cost-cutting, Juha said, so “it would not surprise me if it took a hard look at its new locations and decided to scale back its footprint (leaving all or portions of existing stores dark) and/or drove a hard bargain on future rental rates given its megastore leverage.”

Tommy Szarvas, co-founder and managing partner of Boutique National, tells GlobeSt.com that valuations have been a moving target in the retail sector for many years.

“With online purchasing, and third-party logistics, emerging retail has suffered,” Szarvas said. “That said, grocery-anchored centers typically outperform many other asset classes.

“With regards to consolidations in the retail sector, specifically for grocers, we believe this is a strategic move for Aldi to gain a strong foothold and increase the presence of their portfolio. This will address many voids in the marketplace. We expect limited consolidation efforts since Aldi now has multiple brands and options to rebrand its under-performing assets.”