Aldi pursues Rainbow customers with credit cards, coupons

Aldi's no-frills supermarkets have added a "frill": its 37 Minnesota stores now accept Visa, MasterCard, Discover and American Express credit cards.

Matt Lilla, divisional vice president of Aldi in Faribault, Minn., said the company is testing credit cards in Minnesota, Hudson, Wis., and a few stores in Syracuse, N.Y. Both customers and cashiers have welcomed credit cards enthusiastically, Lilla said.

Martha Dunn of Minneapolis, who previously used a debit card at Aldi, said she no longer has to wonder if her bank account has enough money to cover her purchases.

"Now I only use my credit card and I get 1 percent back," she said Monday while shopping at Aldi on Lake Street in Minneapolis.

Aldi's test with credit cards surprised Milwaukee-based supermarket analyst David Livingston.

"This goes against a lot of what Aldi stands for. If customers see prices going up, they might be annoyed," he said.

The scope of the effort also was unexpected, Livingston said. He thought that Aldi would align itself with just one credit card, as Costco did with American Express, and arrange a lower transaction fee for such exclusivity.

With the test, Aldi's cashiers no longer have to explain to customers why credit cards aren't allowed. In the past Aldi accepted only a limited number of debit cards to keep its prices low. Credit card transactions typically add 2 percent to a merchant's costs, and supermarket profit margins are already wafer thin at less than 5 percent. And credit cards can slow down checkout lines in a store not known for short waits.

The Twin Cities is a good market for Aldi, Livingston said, so he doubts that credit cards have anything to do with trying to boost sales in an underperforming area. In Milwaukee, Aldi tried to boost sales in its lower-volume stores with a $5 coupon off a $30 purchase, but the coupon could be used in only a few locations, he said.

Aldi shoppers in Minnesota also benefited from a $5 off coupon promotion at Thanksgiving and a repeat promotion this past weekend.

"We're hoping to attract shoppers who may be looking for a new grocery store after Rainbow closed," Lilla said.

German-owned Aldi opened its first U.S. store in 1976 and its first Twin Cities stores in 2004. It now operates 1,350 locations in 32 states.

Its small stores stock only about 1,400 items compared to 40,000 at larger stores. Its prices are 15 to 20 percent less than Wal-Mart, but customers see a trade-off in service. They pay a quarter to "rent" a cart, pay extra for bags to carry their purchases, and often wait in line because only one or two cashiers are available.

John Ewoldt • 612-673-7633