Divided it flourished, but Aldi may stand better chance if reunited

Babette Albrecht strode into Essen regional court wearing a white ruffled blouse, a navy jacket and a toothy smile. Sunglasses poking out of her curly mane, she surprised the packed gallery with a cheery "Guten Morgen!"

She turned serious when she began her testimony against art dealer Helge Achenbach, the man who had sold her and her late husband Berthold a dozen vintage cars and nearly twice as many valuable paintings. The Albrecht couple were known for their love of fast cars but why, the court wanted to know, did they buy art. It was an investment strategy by her late husband, Albrecht said.

“Shares are shares, but at least you can look at pictures,” she said. “We already had some art, but a few walls were still free.”

Only after her husband died three years ago aged 58 did Babette Albrecht smell a rat, hire an investigator and discover Achenbach had overcharged them by around €23 million. The court found the dealer guilty of fraud and ordered him to repay €19 million. Albrecht, reportedly Germany’s third richest woman, went home happy. Her in-laws less so.

For decades the Albrechts, the billionaire dynasty behind the Aldi retail empire, have lived by two golden rules: live modestly and avoid publicity.

Aldi founders Karl and Theo Albrecht were as obsessive about thrift as privacy. Over seven decades they built their chain of discount food stores into a global phenomenon (see panel below) by avoiding the spotlight like vampires avoid the sun. Long-time regulars at the top of the Forbes rich list, only a handful of fuzzy, dated pictures existed when they died: Theo aged 88 in 2010, Karl aged 94 in 2013.

Little was known about the family and their fortune until the art fraud case. While the tabloid press delighted on the decadent details of Berthold and Babette Albrecht, the rest of the family suffered in silence.

The court case may be over, but it has heightened unrest in and around the Aldi empire. The discount retailer is reaching new heights of success in Britain and Ireland, but faces crucial decisions at home. The patriarchs who built the business are gone and have left behind a pressing question: will the next generation of Albrechts build on – or squander – their inheritance? Long-time watchers of the German company are already asking the previously taboo question: have we have reached Peak Aldi?

Two Aldi s

As anyone who lives in Germany knows, Aldi is not always Aldi. To misquote François Mitterrand, Germany loves Aldi so much it has two of them. Northern Germany is colonised by Theo Albrecht’s Aldi-Nord, while in the south shoppers flock to Karl Albrecht’s Aldi-Süd (see panel). Though they don’t compete directly, for years Aldi-Süd has wiped the floor with its northern brother.

Visit their respective stores and you soon see why: Aldi-Süd has been consistently quicker to innovate and move with the times. It expanded its product range and stores beyond their spartan origins in line with changing customer expectations because, analysts say, owner Karl Albrecht had a more open-minded approach to the discount dogma than his brother Theo.

This greater readiness to move with the times is reflected in sales figures: in the five years to 2013 Aldi-Süd turnover grew by 7.8 per cent, according to Germany's Manager magazine, while Aldi-Nord turnover grew 2.9 per cent. Aldi-Süd continues to thrive and expand – to Britain, Ireland, Switzerland and the US. Innovations from these markets have fed back into the stores in Germany.

Aldi-Nord is forever playing catchup with Aldi-Süd: its stores and product range have been slower to modernise and remain closer to the retailer’s austere origins and owner, Theo Albrecht’s legendary meanness. After he was kidnapped in 1971, he first haggled down the ransom and then, on his release, went to court for the right to declare the money a tax-deductible business expense. He won.

Outside expertise

Aldi watchers see another crucial difference in how the two companies are structured. Though both are controlled through nebulous, tax-saving foundations, Aldi-Süd has brought in more outside expertise. The

Markus Foundation

, ultimate owner of Aldi-Nord, meanwhile, is still controlled closely by Theo’s widow Cäcilie or “Cilly” and son Theo jnr.

Since the death of his brother Berthold, Theo junior is the dominant figure on Aldi-Nord’s executive board. But insiders say neither he nor the company has fully stepped out of the shadow of the late founder.

The succession stakes are also less clear. Theo jnr has no children while his late brother’s five children are still in their 20s and still considered too young to take on responsibility. Theo is estranged from his sister-in-law Babette, widow of Berthold. She has no interest in the company, preferring to party with Düsseldorf’s “schikeria” set and race cars in Italy.

In Aldi-Süd, the second generation has also struggled with their inheritance. The founder’s son, Karl Albrecht jnr, worked for the company until three successive cancer diagnoses prompted his withdrawal in 2004. Karl the younger invoked the displeasure of his strict Catholic father by marrying a second time. Neither marriage produced any heirs.

Karl jnr’s sister Beate inherited her father’s tough business streak and gave him six grandchildren. Reportedly the third oldest grandchild, a lawyer, was anointed successor by Karl snr. For now though, the company’s day-to-day operations are in the hands of outside managers.

With the Aldi founding brothers gone, the lack of clarity over succession has been the subject of plenty of rumours about the retailer’s future. Can the Aldi heirs retain the single-mindedness – and discretion – established by the firm patriarchs? Or is the Babette Albrecht court case a taste of more decadent things to come?

The founders were known for running the tightest corporate ship in Germany. Now leaks, previously unthinkable, are becoming more common. Leaked minutes of a recent board meeting, for instance, suggest Aldi-Süd is anxious to follow up its success in the UK, US and Ireland by expanding into China.

Such a step is crucial given Aldi’s saturated domestic market where, according to GfK retail analysts, turnover was down year-on-year to November 2014: 1.4 per cent at Aldi-Süd and 2.5 per cent at Aldi-Nord. Another leak suggests that, to secure the Albrecht empire, even more drastic steps may be imminent. In a memo Aldi-Süd executives cast doubt on whether Aldi-Nord can keep its end of the company going.

Their proposal: Aldi-Nord agree to a takeover by Aldi-Süd within five years or be cut off from its stronger sibling.

After six decades of co-existence, abolishing the so-called "Aldi-Equator" through Germany to merge the two Aldis into one would be a cultural and retail revolution. But it would consolidate control and prevent shares being diluted by second- and third-generation Albrechts with no interest in the business. And so, in death, founding Aldi brothers Theo and Karl Albrecht would be back in business together. Big brothers: How a family business divided and conquered the German retail market Aldi is one of the world's largest retailers, employing 170,000 people around the globe in more than 10,000 branches. Entirely family-owned, Aldi's total annual turnover is estimated at €67 billion.

The controlling Albrecht clan have accrued an estimated fortune of €35 billion and are one of Germany’s richest families.

Of the many rumours that cling to the Aldi name, the most persistent is that Aldi and rival Lidl were once one company. Wrong: it was Aldi that was once one company – Albrecht Discount – until the brothers (pictured)divided it in 1960.

Theo Albrecht, the younger brother, took the northern half of Germany, Karl the south. Opinions diverge over why they parted company: some say they disagreed over whether or not to sell cigarettes; others blame a row over whether to borrow money to expand. Since then each company has stuck to its own turf with its own management. However, both sides meet regularly to co-ordinate activities, products, prices and expansion territories. The Albrechts revolutionised retailing with self-service discount stores selling high quality products at low prices, a reflection of their no-frills, no-nonsense lifestyles in post-war Germany.