Small Supermarkets Like Aldi Are the Latest Front in the Grocery Wars

For supermarkets, less is increasingly more.

Chains such as Aldi and Grocery Outlet, which have fine-tuned selling food in small-format stores, plan to open hundreds more locations in the US over the next few years. Other companies, such as Amazon’s Whole Foods, are also getting in on the action with their own compact supermarkets.

Many of these new stores are half the size of a traditional supermarket. Albertsons says most of its stores take up more than 50,000 square feet, for example. Meanwhile, Aldi lists size requirements of about 22,000 square feet for new stores, and Grocery Outlet says its locations are between 15,000 and 20,00 square feet.

In each case, though, the stores’ small sizes mean that they have to be more selective about which products they stock, said Phil Lempert, a food industry analyst and editor of the website Supermarket Guru.

That can also make for a faster shopping experience — something that appeals to many customers.

“They’re curating these offers for you so you don’t have to spend as much time shopping,” Lempert said.

Traditional supermarkets often have dozens of versions of a single product — consider all the brands of seltzer or ketchup you can find at Kroger. Small grocers, by contrast, have no more than a few options.

“That’s a much better model,” Lempert said. “We’ve gotten carried away with the size of our stores.”

Small supermarkets like Grocery Outlet gain traction

A few decades ago, the idea of smaller supermarkets didn’t appeal as much to shoppers.

Grocery Outlet, which started in San Francisco in 1946 by selling excess military rations, was nicknamed “Gross Out” by some shoppers who didn’t like its selection of mostly processed foods.

The chain’s business model has evolved around its small-format stores, however. It now buys closeout merchandise and other items that food distributors and its retail rivals can’t sell, like discontinued products. That leads to inventory that can change a lot week-to-week, which the company calls “a treasure hunt shopping experience” and has earned the chain a better reputation.

Consumer shopping behavior is also different. Many Americans are dividing their weekly grocery spending between multiple trips to multiple stores instead of making one big trip. “It’s more like the European model, where you shop every day,” Lempert said.

Though food inflation isn’t as intense as it was a few years ago, many consumers are still feeling the pinch of high grocery prices.

Those two factors have favored chains with smaller stores, which operate more efficiently than big supermarkets, focus on low prices, and offer a few quirky products to keep customers interested. Grocery Outlet had 533 stores at the end of 2024 and plans to add 42 more stores to that total by the end of 2025.

Ellen Khalifa, a health coach in Berkeley, California, who said she’s been shopping at Grocery Outlet since the early 2000s, told Business Insider that she used to hear other customers laugh at the chain because of its strange product selection. Now, it’s usually the first stop on her grocery runs.

Though eclectic, she said that she often likes the products, from Italian pasta sauce to wine. The quick turnover of inventory leads her to buy strategically, she said. “If I do like something, I tend to try and stock up on it,” Khalifa said.

While Khalifa said that she also shops at stores like Costco, she’s met other people who do much more of their food shopping at Grocery Outlet, despite its small size.

“It really seems like a place where anybody can shop,” she said. “There will be people there for the wine sale, and then there are people who are on SNAP.”

Aldi helped fine-tune the small-store strategy

Aldi has also grown up, Lempert said. The chain had about 2,400 US stores at the end of 2024 and plans to add 200 more by the end of this year.

Aldi spent the years after its 1976 entry into the US fine-tuning its approach. Its first-ever American store, located in Iowa, closed the year after it opened. The chain’s focus on store-brand groceries helped it save money and space in its small stores, but they often scared away customers who saw the products as inferior to equivalents from big brands like Kraft, Heinz, and Nestlé, Lempert said.

Like Grocery Outlet, Aldi keeps its product selection slim enough to fit in its small stores. Many of Aldi’s products, such as specialty cheeses and cold foam for your coffee, are now competitive with big brands when it comes to quality, Lempert said.

But there’s a more basic reason Aldi’s strategy works: Relying on store brands reduces shoppers’ choices, making the stores easier to navigate.

Many shoppers walk into traditional supermarkets with a list of a couple of dozen items that they need — often the same items as last week — and waste time looking through stuff that they’ll never buy, Lempert said.

“In order to acquire those, I’ve got to walk past 40,000 products,” he said. “That’s a little absurd.”

Whole Foods experiments with small stores

Not all of the small grocery stores are as focused on low prices.

Whole Foods is also making another attempt to open small stores. The chain previously operated small stores under the name Whole Foods 365.

Last year, the Amazon-owned grocer started opening stores between 7,000 and 14,000 square feet in New York City under a new name: Whole Foods Daily Shop. In addition to a curated selection of groceries, the stores also offer pre-packaged grab-and-go meals.

Daily Shop shows another reason some small-format stores have caught on, Elizabeth Lafontaine, the director of research at Placer.ai, told Business Insider: They’re easy places for city-dwellers to pick up a few groceries or a full weeknight meal in a pinch.

“Consumers can come in after work, just grab dinner for that night, and then go home and enjoy it,” she said.

Foot traffic data for the first half of 2025 compiled by Placer.ai showed that visits to such fresh-format stores grew faster than at value-focused chains such as Aldi and rival German discounter Lidl.

“Value can come in different forms when we think about the service elements or convenience,” Lafontaine said.

Do you have a story idea to share about Aldi, Grocery Outlet, or another retailer? Contact this reporter at abitter@businessinsider.com.