If an Aldi opens up next door to you, you might curse your downmarket postcode.But have you been to an Aldi store recently? Not only will you find a few Mercedes and BMWs in the car park, but products which look and taste better than you might expect.

Since it arrived in the UK in 1990, Aldi has made its name as a hard discounter where shoppers are more likely to pick up dirt cheap basics than quality products.
But the retail wind is changing and now it seems Aldi doesn't just want the cheapest from its suppliers. It wants good quality, too. And it's also prepared to improve its shops to show them off.

Aldi stores look pretty smart nowadays - basic, but clean, functional, bright and spacious. A bit like an old-style Kwik Save, but a lot less cluttered.

And although it's hard to get the lowdown on the German chain, renowned for its obsessive secrecy, it's clear Aldi is gradually establishing a quality offer to rival many of its competitors.

It recently launched a range of healthy eating products called Balanced Lifestyle, which bears more than a passing resemblance to other multiples' low fat offerings. It's even snaring food prizes. Its Milfina Temptations premium honeycomb crunch ice cream, made by Richmond Foods, won best new ice cream product in the British Frozen Food Federation's 2002 awards. It's also won numerous awards at the International Wine Trade Fair.

Says Richmond's marketing director Kate Needham: "They were very stringent on both quality and the price point. It was difficult trying to hit both, but we did it. It's good they're repositioning themselves as a premium retailer. We'd like to do more with them in the future."

The retailer's got a stylish new web site which glows with praise from numerous newspaper and magazine reviews for its own label products in taste tests. And it's currently doing a store refurb programme.

Simon Baxter is sales and marketing manager of frozen vegetable supplier Ardo Shearway and has noticed that Aldi has started demanding better quality over the last couple of years.

"When you're in price negotiations they're not looking to be the cheapest on the market. They take grade A peas, which are sweeter and more tender, whereas Sainsbury and Tesco take B grade. Their peas are the best price for the best quality - the margins must be pretty tight."

Baxter says Aldi has developed a number of premium vegetable mixes, one of which is even called 'luxury vegetables'. "That's a far more upmarket product than they've ever had before," says Baxter.

A fellow supplier says the chain talks to him a lot more and is pushing him for better packaging and product. Unfortunately, he says it doesn't want to pay any more for it. He adds: "I know of at least one product which uses more expensive packaging than Marks and Spencer."

Verdict analyst Richard Hyman says Aldi's probably taken a view that it needs to provide a bit extra and widen its appeal in order to drive extra footfall.
He believes the chain is a little disappointed about its inability to find more sites, and has found the UK market tougher than it realised.

But if it wants to get more shoppers it's not going about it the conventional way.
The chain does very little food advertising and tends to use its big non-food offers as a way of getting people into stores to try out groceries. As a result, despite the tougher UK environment, 15% of sales are in non-food.

Reticence doesn't help. There is a common perception discount stores sell low quality products. And if you're refitting discount stores, as Aldi is, shoppers think you've put the prices up.

One ex-Aldi executive believes stores are looking more Germanic in style and content and that the chain is even selling more German products. He comments: "We were selling some excellent quality product years ago and spent a lot of time on it - that's always been the Aldi way.

"But it does seem Aldi has shifted its position even more down a sort of quality route to get away from the head-to-head conflict on price."

This is even more of an issue in the Republic of Ireland, where Aldi has a 3% market share with prices so sharply honed it has earned an official reminder about the below-cost regulation. But Irish shoppers love it. It has opened just 10 stores there, but is so confident, it aims to increase this to 35 in the next three years, rising to 60-70 by the end of the decade.

But most discounters here know that just selling tins of cheap baked beans won't do.

Hyman says, despite any changes the chain might be making, the Aldi model isn't particularly flexible.

However he reckons that's a benefit. "Its strength is its narrow focus. It's the original limited line discount operation which everybody copied."

Mintel's director of European research, Hayley Myers, believes it's found a place in the market, but because it uses generic brands, it will take a long time for consumers to accept and trust them. "They're in it for the long term."

Aldi may have a good concept with an improving food offer, but it needs to get suppliers on side and, most importantly, get that message across to the public.
Its recent move to decentralise buying means it's up to Aldi's five depots around the country to order products. This saves cash, as each is its own cost centre.
However, one supplier moans: "It's really confusing. I sell to two of the depots but the others won't touch me. They all seem to want different things. It makes life very difficult."

Our ex-Aldi guy agrees the chain will find it hard to emulate its extraordinary success in Germany where it has become almost a trendy destination: "The UK market is difficult - it takes time for an offer to materialise, especially as the competition has intensified here."

But he's convinced that although the format will take time to settle in, the chain should persevere. "It may take longer than the Aldi management originally thought to achieve the sales levels they were after - but they will create a uniqueness if they get it right."