(Bloomberg) -- The German supermarket chain Aldi revels in austerity, with stores reminiscent of fluorescent-lit bunkers, shelves packed with 1-euro cans of sliced pork and 39-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—$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. Theo’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 toward cheap food in vast quantities rather than eating as a refined indulgence, Aldi was the obvious destination for staples like 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 Theo Sr. to ensure long-term control. The conflict could affect company strategy. Babette’s camp is pushing Aldi Nord, which also runs the U.S. chain Trader Joe’s, to more quickly spruce up stores and products, according to a person with direct knowledge of the matter. Company representatives declined to comment or make Theo available. Babette’s team declined to comment.
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 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 judgment 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 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.”
In January, Babette and her children won a court ruling striking down the 2010 changes to the board structure. In response, Theo Jr. did the unthinkable for a man who, in Holzinger’s words, had spent decades “sealed like an oyster”: He went to the press. He told the daily Handelsblatt that Babette’s spending, and a widely publicized case in which an art dealer from whom she and Berthold had bought works was jailed for fraud, had tarnished the company’s image. “The Albrecht name requires a modest lifestyle,” he said in Stern magazine.
While Babette’s lifestyle isn’t particularly lavish by billionaire standards—her home is a modest, two-story stucco in the suburbs of the industrial city of Essen—it stands out when compared to Aldi’s obsessive penny-pinching. She and Berthold met in the 1980s at a nightclub on the island of Sylt, a summer getaway in the North Sea favored by Germany’s jetset. They shared a love of fine wines, haute cuisine and golf, with Babette’s outgoing personality a stark contrast to the traditional Albrecht reticence, a friend says.
“Aldi’s principle of austerity is outdated” —Martin Kuhna
According to German media reports, Berthold spent more than 100 million euros on art and a dozen or so classic cars, such as a 1939 Mercedes roadster and a 1960s Ferrari. Last year Babette was photographed in the front row of a Dusseldorf fashion show draped in pearls with a black pencil skirt and a jewel-encrusted watch.
Aldi, a contraction of “Albrecht Diskont,” emerged out of the rubble of World War II, when Theo Sr. and his brother Karl took over their parents’ grocery. From a single store about eight miles from where Babette now lives, they started undercutting rivals with a product range that was basic in the extreme: mostly canned food sold on wooden pallets. Over the years, the mix has been broadened, but even today Aldi stores exhibit a fierce devotion to frugality and carry less than 10 percent as many products as a typical supermarket.
In a dispute that in some ways mirrors the current internecine strife, the brothers parted ways in 1961 after a series of strategy spats. They split the business along a border dubbed the “Aldi-equator” slicing through the center of Germany, with Karl getting everything south of the line, Aldi Sued, and Theo Sr. taking Aldi Nord.
While the two sides share a brand name and some purchasing, they’re run as separate companies. Aldi-Sued, controlled by Karl Albrecht’s descendants, has a reputation for somewhat snazzier stores with more fresh produce and major brands. The dispute between Babette and Theo Jr. only affects Aldi Nord, which has stayed closer to the traditional austere formula.
The Albrecht family’s parsimony is legendary. After Theo Sr. was briefly kidnapped in the early 1970s, he fought successfully to deduct the 7-million-deutschmark ransom from his taxes as a business expense. Until the early 2000s, his cashiers typed in product codes by hand, to avoid the cost of barcode scanners.
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,” 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 like Coca-Cola in addition to house products, boosting revenue an average of 19 percent 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.”
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