Two highly competitive German grocery stores, Aldi and Lidl, are plotting to take over the US.
These “predators crossing the pond” will shake up the US grocery market by killing off weaker chains and stealing customers from larger players — most notably Walmart, Dollar General, and Whole Foods, according to Deutsche Bank analysts.
“All retailers need to treat Aldi (and at a later date Lidl) as a meaningful threat — and to be dismissive will likely prove to be a tactical/strategic error,” analysts wrote in a recent note.
Aldi and Lidl have upended the UK grocery market over the past several years by sending the nation’s largest supermarkets into a crippling price war that has dented profits and sent the companies’ share prices tumbling.
Aldi is now expanding rapidly in the US — it currently has about 1,500 stores and plans to open another 500 in the next two years — and Lidl is on the cusp of launching its own growth strategy. Lidl is expected to open roughly 100 stores in the US by 2018, according to Deutsche Bank.
The two chains’ biggest competitive advantage is their cheap prices.
Aldi’s prices are 24% cheaper than Walmart’s and 21% cheaper than Dollar General’s, according to a Deutsche Bank price check in Northern New Jersey. Aldi’s prices are also 10% lower than Save-A-Lot and 22% lower than Kroger’s, according to another pricing study in Nashville.
Lidl is expected to offer a similar price point when it launches in the US.
Aldi and Lidl also have a competitive advantage due to their small store size, which makes them convient for shopping. Aldi’s stores are 15 times smaller than Walmart’s supercenters, and they are about a quarter of the size of Walmart’s smaller-format Neighbourhood Market stores.
Aldi’s “attractive price points; compelling assortment of fresh food, staples, and organic and natural options; no-frills but clean and well organised presentation; and convenient locations [are] a powerful combination vs. WMT and the dollar stores,” analysts wrote.
Whole Foods might appear to be immune to any threat from Aldi since it skews toward higher-income shoppers. But Aldi’s recent decision to expand its healthy, natural, and organic foods could eat into Whole Foods’ market share, according to Deutsche Bank.
“The natural/organic/specialty players need to realise demographics might not matter,” analysts wrote.
Aldi and Lidl are poised to grow even more powerful over time, they wrote.
“Over time — and this is what all US retailers with a food focus should be concerned about — deep discounters will improve their assortments, making them more tailored and local,” analysts write. “The discounters continue to drive efficiencies and leverage, which allows them to continue to invest in lower prices, further strengthening their value/offer proposition.”
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