have you met Aldi's yet?

From Wendy Lee in the C-J, an article reporting an example of the "substitution effect"-- people switching to discount grocery stores as food prices have sky-rocketed.

We do about one-third of our shopping at Aldi's. It's a great place to buy staples-- ridiculous prices and good quality. If you have one locally, it's a no-brainer to work it into your shopping rotation if you have a family or are watching your budget. We enjoy their $2.49/gallon milk, $1.79 cereal, and a bunch of stuff under $1.50: waffles, peanut butter, syrup, etc.

As food prices have reached historic highs, a growing number of shoppers are flocking to discount grocery stores to buy basic staples such as milk and tomatoes and purchase more private-label items.

Stores such as Aldi, known in the industry as limited assortment stores, often sell items at about 40 percent below a traditional grocery store's price because of private labeling and competitive pricing, according to food and retail consulting firm Willard Bishop in Barrington, Ill.

And limited assortment stores are benefiting from the economic downturn, according to Willard Bishop. The nation's 2,789 limited assortment stores accounted for about $16.8 billion in sales in 2006, and that figure is expected to climb 9 percent over the next five years.

At the same time, traditional supermarkets declined in market share last year, because of increased competition from stores such as Wal-Mart and limited assortment stores. Traditional supermarkets are expected to drop in market share to 37.3 percent over the next five years, from 44.1 percent in 2006.

U.S. prices on all food soared 4 percent last year, the highest increase since 1990, according to the U.S. Department of Agriculture.

The culprits are higher commodity and energy costs. A larger demand for corn for ethanol production caused corn to rise to $3.34 per bushel last fall, up 83 percent from the fall of 2005, according to the U.S. Department of Agriculture. And the average price of milk was 13.3 percent higher than in March 2007, according to the March consumer price index.

More people are frequenting Aldi's stores for the first time, in part because of the economy, said David Hassen, a director of real estate for the mid-South region.

Capitalizing on the rising growing demand for food bargains, Aldi recently announced it would reduce prices of some of its groceries up to 27 percent, Hassen said.

"To really regain the consumer confidence, it's important to hold our prices and lower them if possible," Hassen said.

Competition has increased among all grocers as commodity prices continue to rise, said Jaime Powers, spokeswoman for another discount grocer, Save-A-Lot.

Save-A-Lot's parent company, Minneapolis-based Supervalu Inc., reported net earnings of $156 million for the three months ending Feb. 23, up 30 percent from a year earlier....

It's hard for traditional supermarkets to compete with stores like Aldi or Save-A-Lot on price alone, said Jim Hertel, Willard Bishop's managing partner. However, they can market themselves with fresh produce and meats, organic products, exotic offerings and service, he said.