Dadgumit, Aldi. Must you torture the retailers at the high end as well as the low end?

I saw today that Aldi in the United Kingdom is expanding their organic line, and the U.S. Aldi website also advertises “locally grown” and “organic” on their website.

The Daily Mail quotes one Aldi exec:

‘At Aldi we believe it’s important for organic produce to be available to everyone. Our customers know we continuously work towards exciting them with our new offerings and that now, more than ever, they can buy their entire weekly shop at Aldi, safe in the knowledge they are purchasing the best quality products at everyday low prices. ‘

This is on the heels of news Aldi and fellow discounter Lidl cut into the market share and profits of UK retailer Tesco .

Okay, consumers must frame the upmarket organic produce with the vision of scrounging for a cardboard box at the store to put your bag of organic veggies in. Still, Aldi’s attempt to stake out space for premium goods seems unfair. For example, the local Aldi store in Olathe had a three-pound mesh bag of Honeycrisp apples for $3-something. That is delightfully cheap, and not helping stem the retail deflation now going on in the apple f.o.b. market.

Speculating about the changing retail market is precarious perhaps, but it is safe to say the produce department (except at Aldi?) will be increasingly complex. This chart illustrates the growth of items in the produce department over time and today retail observers say that it is not uncommon for high end retailers to have between 850 to 1,000 SKUs.

PMA’s Anthony Barbieri said the growth can be attributed to explosion of value added categories, new varieties such as in the apple category (close to 30 SKUs in apples, says one apple marketer), new pack sizes both large and small, the growth of the organic category, and expansion of counter season produce imports.

Beyond the increasing complexity of the well stocked produce department, the future will bring more consolidation in the U.S. produce market in the years ahead.

While local food demand has created new supplier options for retailers, consolidation on the supply side - in regions like Florida citrus, Texas citrus, California stone fruit, Washington tree fruit for suppliers – also has been occurring. Only a handful of suppliers dominate the bulk of volume in many of those growing regions.

Consolidation will likely increase in the next five years on the supply side, depending on the economic stress put on any particular sector. Shippers may also consolidate to bring market power and volume to their position, as they see retailers growing in strength.

Data on retail consolidation and market power is more accessible. The USDA reports changes in the concentration of retail market share on the USDA ERS website.

Briefly, the USDA said that although shares held by the largest 4, 8, and 20 supermarket and supercenter retailers have decreased slightly since 2008, the longer-term trend shows an increasing concentration of sales among the Nation’s largest grocery retailers. In particular, the USDA said Wal-Mart’s steady growth has been a factor in that increasing concentration.

Of course, the growth of Wal-Mart over the past 20 years headlines this reality.

A recent Forbes article reports that Wal-Mart now has 25% of America’s grocery budget, up from about 4% in the late 1990s. Grocery sales within Wal-Mart account for about 55% of sales for the chain.

Wal-Mart’s U.S. stores number about 4,000, compared with 2,400 locations for Kroger.

In fact, the Forbes piece said that an astounding 90% of Americans live within 15 minutes of a Wal-Mart. I live only about five minutes from a suburban Kansas City Wal-Mart, and my office is only about five minutes from another.

The Forbes article said that Wal-Mart’s revenue growth will likely remain about 5% in the U.S., while international growth could top 10% annually over the next several years. In 2012, international sales accounted for about 28% of revenues, up from 18% in 2002.

Online sales – now only about 2% of sales - represent a key area of growth potential for Wal-Mart, with each store representing a distribution center for its e-commerce sales.

The company recently announced it will build two massive new c-commerce distribution centers for online orders, adding to three that already are built.

Saying it is shifting away from building massive stores and pouring more money into e-commerce and smaller format stores , Wal-Mart also has indicated it will built 60 to 70 supercenters and 180 to 200 Neighborhood Markets in the next year. Wal-Mart now operates about 400 Neighborhood Markets and 3,400 supercenters.

One chink in Wal-Mart’s armor has been in fresh foods.

The USDA Economic Research Service said in a report that consumers spent proportionately less on fresh fruits and vegetables at supercenters than at supermarkets. Fruits and vegetables accounted for 6.6% and 7.3% of food spending, respectively, at supermarkets but 4.8% and 5%, respectively, at supercenters.

Nevertheless, if Wal-Mart will continue to grow its smaller format stores and continue to expand, where does that leave everyone else?

Circling back to Aldi, a story in the Wall Street Journal indicated that the German-based discounter is expected to open 650 new stores in the U.S. from 2014 through 2018.

Aldi opened its first store in the U.S. in 1976, and in recent years has been opening about 80 stores annually in the country. The new expansion plan would accelerate that pace to an average of 130 store openings a year.

The conventional wisdom is that the grocery growth in the next five years will come from hard discounters like Aldi, growth in small format fresh-oriented fresh sales, dollar stores, and the growth of natural and organic retailers.

The grocery category is increasingly fragmented, with a recent FMI/Hartman Group report stating that the number of people who have claim they have no primary store has risen from 2% in 2011 in 9% in 2014.

A recent report from Jones Lang LaSalle LLP said that the market share for traditional supermarkets will decline from 40.2% in 2013 to 37.2% in 2018.

By 2018, the report said sales in fresh format stores will increase by 92% from 2013 to 2018, compared to 3.6% sales growth predicted for traditional supermarkets.

That growth isn’t surprising, according to the Jones Lang study, because a whopping 75% of consumers surveyed say fresh produce is a major driver for where they shop.

In addition to organic, local produce and unbelievably low prices. Dadgumit, Aldi!