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Lidl’s Arrival Marks New Front In US Price War

Published on Jun 27 2017 2:25 PM in Features tagged: Trending Posts / Lidl / Aldi / USA

Lidl’s Arrival Marks New Front In US Price War

The front line of the new war for the American supermarket runs through the aisles of Winston-Salem, North Carolina. It’s a battle over a few pennies on the price of milk, mustard, detergent, and barbecue sauce – and perhaps the future of groceries.

Winston-Salem is home to one of ten new supermarkets opened last month in the Carolinas and Virginia by German discount chain Lidl, known for its low prices on private-label items.

Competition

The new store is a short drive from a Whole Foods Market, the upscale grocery chain in the middle of a proposed $13.7 billion takeover by Amazon.com, Inc. with the potential to upend the way Americans shop for food.

The city of about a quarter-million people is also home to Kroger-owned Harris Teeter and Walmart, well-established national competitors that survive on razor-thin profit margins, as well as a host of independent grocers. There's even another German discount grocer. Aldi Süd, which operates 1,600 US stores under the name Aldi, has an outpost just down the road from the new Lidl.

A recent visit to three of the new Lidl stores made it clear that a price war had already started. Melinda Rahymer, a 52-year-old pet-sitter from Winston-Salem who lives on a tight budget, is accustomed to searching for deals at Publix Super Markets, Harris Teeter, Aldi, Walmart, and others. When Lidl opened across the street from a Walmart Supercenter – within a couple of miles from at least five other grocery stores – Rahymer decided to stop by and check it out. She grabbed some pasta and paid $2.19 for a gallon of milk.

“I think Aldi can beat them,” Rahymer said.

She was right. Aldi was selling milk for $2.18 a gallon. At the nearby Walmart, the price was $2.20. Food Lion, down the block? It matched Lidl, at $2.19.

Major Announcement

Lidl’s US expansion, which began with store openings on 15 June, would have been the biggest event of the summer for American groceries had Amazon not announced a deal to acquire Whole Foods the following day. That merger, if it closes in the coming months, promises to challenge grocers with a fierce competitor known to slash prices and use technology to lower costs.

For now, however, the grocery industry is watching the Carolinas and Virginia to see how shoppers and established supermarkets will respond to a little-known German giant.

Lidl plans to have at least 100 locations here by next summer, and it could expand to more than 500 locations over the next five years, according to analyst estimates. Its initial stores are opening in competitive grocery markets, right on top of rivals' locations. Aldi recently announced plans to add an additional 900 stores over the next five years, and it's spending $1.6 billion to remodel 1,300 of its existing ones.

The German discounters have battled across Europe for years, stealing sales from traditional grocers as consumers get accustomed to their private-label products. (The German grocery giant Aldi Nord also runs Trader Joe's.) The rivalry reaches the US at a time of rampant food deflation, with falling prices already ravaging grocers’ earnings.

Analysts predict a rough road ahead, particularly for small chains, which will struggle to match prices.

No-Frills

Lidl and Aldi operate with roughly the same business model: small, no-frills stores, low overheads, low prices, and a limited assortment of private-label items. A Lidl store might carry two types of mustard, while the nearby Walmart has a dozen. Only about 10% of the products at the stores are recognisable national brands.

Lidl has 10,000 stores across Europe, and Aldi Süd operates another 3,500. Growth can be slow. It took about a decade after entering the UK for Aldi Süd and Lidl to control about 5% of sales by the early noughties, but the discounters have proven to be a threat to rivals’ profits, even with a small market share. Walmart and Kroger, the two largest grocers in the US, have the scale to fight the price war, but other chains could be in trouble.

News by Bloomberg, edited by ESM. Click subscribe to sign up to ESM: The European Supermarket Magazine.

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