They may have been in Europe for decades but here in Australia ALDI is seen as an upstart which is succeeding, by providing value to the customer. The customer no longer has to settle for high margin established grocery retailers that effectively live off an incumbent dominance of convenient retail leases. In other words, Woolworths and Coles have a dominance in convenience that consumers demand, where they have historically had few alternatives. Large retailers have big ad budgets, and corresponding gross profit margins. It was a great business for many decades, but it wasn't providing significant value to the customer. No one ever felt like they were getting a deal when they walked out with a $200 basket of family groceries.
If incumbent supermarkets think they will return to the gross margins they once had, "tell 'em they're dreaming"
ALDI has found a better way to deliver value to the customer, as they took market share from the incumbent grocery retailers. Woolies and Coles continue to cut their prices in an attempt to stem the market share losses, but likely it is "too little, too late" as slimmer margin retailers open more stores. However, as an aside I have seen info that Woolies and Coles report higher earnings when ALDI opens in the same shopping centre!
via Saber Capital Management
So the point is this: Value to the customer is one of the most important things to consider when analysing companies. No longer can companies use a distribution advantage, a regulatory advantage, market share dominance, or some other barrier to entry that insulates them from competition. Those advantages can still be significant moats, but only if the end-customer is getting a good deal. If not, a competitor will spring up, gain scale in a quick manner, and figure out a way to meet the needs of that end-customer. There are very few places to hide in today's business world, and that's why it's so important to focus on variables that will impact the long-term value of the company (not the short-term quarterly profit margins). Long-term focus with an emphasis on customer value is imperative to ensuring the long-term value for business owners (which is what we are as shareholders).