Family feud hurting German supermarket chain Aldi

London

THE German supermarket chain Aldi revels in austerity, with stores reminiscent of fluorescent-lit bunkers, shelves packed with one-euro (S$1.50) cans of sliced pork and 39-US-cent "River Cola", and cashiers who only started taking credit cards last summer. That hasn't stopped a widening scandal about, of all things, extravagant spending.

The heirs to co-founder Theo Albrecht's fortune - US$15 billion, according to the Bloomberg Billionaires Index - are battling for control of Aldi Nord, which owns the chain in northern Germany and eight other European countries. Mr Albrecht's elder son, Theo Jr, has publicly attacked his widowed sister-in-law Babette Albrecht for her purchases of art and vintage cars, and withdrawals from one of the company's controlling trusts. He's using the dispute to try to wrest influence from Babette and her five children, a move she's fighting in court. The company is a rich prize: Last year it had 12.3 billion euros of net revenue in Germany alone.

The feud has upended decades of obsessive discretion at Aldi, whose owners are so secretive that the only widely published photo of Theo Jr is a grainy, decades-old paparazzi snap. The given names and exact ages of Babette's children - quadruplets who are about 26 and a sister who's about 24 - are so closely guarded that they were never revealed until last year, and the family won an injunction against a magazine that published them.

"It's totally natural that the younger generation would react against the excessive thriftiness," says Eberhard Fedtke, a former Aldi Nord manager and author of a 2011 company history called Aldi Stories. "The parsimony was so extreme, it was unsustainable."

The battle has been lapped up by a German public that's long had a love-hate relationship with Aldi. For a post-war generation whose culinary compass was oriented towards cheap food in vast quantities rather than eating as a refined indulgence, Aldi was the obvious destination for staples such as sugar and flour. Ultra-low prices, combined with a resistance to anything resembling an uplifting consumer experience, have given the supermarket a quasi-masochistic cult following. Its stores are social melting pots, and it's not unusual to find Aldi milk, cheese, or juice in the fridges of Germans of all incomes.

At its core, the dispute is about control of a pair of trusts named after saints - Markus and Jakobus, a reflection of the family's Catholic roots - set up by Mr Albrecht to ensure long-term control. The conflict could affect company strategy. Babette's camp is pushing Aldi Nord, which also runs the US chain Trader Joe's, to more quickly spruce up stores and products, according to a person with direct knowledge of the matter.

The Albrecht family's parsimony is legendary. The conflict heated up in 2013 after Babette's husband Berthold died of cancer. His heirs sought to remove long-time Aldi lawyer Emil Huber from the board of the Jakobus trust, which had been revamped to reduce the children's influence. They maintained Mr Huber was backing Theo Jr in an attempt to cut them out of decision making, and that their father had been too ill to make a competent judgement when he agreed to the changes in 2010.

In a 2014 letter to Babette, Theo Jr wrote that she was "a burden on our company" by refusing to "subordinate your private lifestyle to the interest of our group". Theo Jr and his mother, Caecilie, also said that the 25 million euros Babette and her children receive from the trust annually is excessive. Babette's response: Her spending is her own business. Around that time, Theo Jr tried to buy her out - at what she considered a lowball price - then offered to pay Babette's side 25 million euros a year if they would pledge to follow his lead on trust votes regarding Aldi. She declined.

"It's grotesque that Theo Albrecht is attacking his sister-in-law invoking the company's reputation," says Stephan Holzinger, a Munich litigation adviser who isn't involved in the dispute. "Aldi's reputation has been more damaged by the mudslinging."

As the retail environment gets more crowded and complex, Aldi Nord must adapt by going more upscale, says Boris Planer, chief economist at consultancy Planet Retail in Frankfurt. "You have aggressive challenges from mainstream supermarkets as well as online shopping," Mr Planer says.

Aldi Nord is taking tentative steps in that direction. In 2012, it began buffing up stores with softer lighting, wider aisles, and popular brands such as Coca-Cola in addition to house products, boosting revenue an average of 19 per cent in renovated locations over three years. Long-stemmed roses, Champagne, and giant prawns - at bottom-feeder prices - have joined the selection.

An ongoing feud could slow those initiatives. The trusts representing the Albrecht heirs need to sign off on major investment plans, and Theo Jr and his mother aren't on speaking terms with Babette's side of the family, according to the person familiar with the matter. If the revamp stalls, Aldi risks falling farther behind rivals such as Lidl, which for years has sold branded goods, fresh fruit and a luxury selection that many shoppers wouldn't hesitate to serve for Christmas dinner.

"Aldi's principle of austerity is outdated," says Martin Kuhna, author of The Albrechts, a 2015 book about Aldi. "If I were Theo Jr's adviser, I would tell him to relax a bit, especially since he himself defied the family's vow of silence." BLOOMBERG