A highly competitive German grocery store called Lidl has taken over Europe, and now it’s planning to target the US.
Lidl, which will start opening stores in the US in 2018, is like a cross between Walmart and Trader Joe’s.
The chain offers deep discounts on groceries, household appliances, clothes, and furniture.
As Lidl expands into the US, “grocery retailers should definitely be concerned, especially those who are currently struggling or whose stores are more conventional,” Mike Paglia, director of retail insights for Kantar Retail, told Business Insider.
Walmart should be the most concerned, according to Paglia.
“Walmart’s Neighbourhood Market could feel the greatest pressure of all, as Lidl stores will be of similar size, highly price competitive, and highly fine tuned to offer a relevant, convenient store experience,” Paglia said.
Other retailers that will be particularly challenged by Lidl include Food Lion, Bi-Lo, Winn Dixie, and dollar stores such as Dollar General and Family Dollar, he said.
Many US retailers will be forced to lower their prices as Lidl expands, according to Neil Saunders, the CEO of retail consulting firm Conlumino.
“Lidl will provide a challenge — it will result in a number of retailers needing to reduce prices to stay competitive,” Saunders told Business Insider.
In the UK, Lidl and its rival discounter Aldi have completely upended the grocery market, forcing the nation’s largest supermarkets to drastically cut prices and lay off workers to stay competitive.
Lidl’s sales soared 16% in the three months ended September 13, according to Kantar Worldpanel.
Meanwhile, sales dropped for the period at Tesco, Morrisons, and Asda, three of the UK’s biggest supermarkets, the firm said.
The CEO of Asda, the UK’s second-largest grocery chain, has called the new competitive environment created by Aldi and Lidl “the worst storm in retail history.”
“When we set the plan, I don’t think anyone anticipated the market being in meltdown,” Asda CEO Andy Clarke said in August after the Walmart-owned company reported its worst ever quarterly sales drop.
Lidl is planning to open its first stores in the US in 2018. The chain has already broken ground on a US distribution facility and headquarters in Virginia, which will cost about $US200 million combined, and it has staked out four possible store locations in the Richmond, Virginia area.
“Lidl will have a unique offering that is unlike anything else in the market,” Lidl US spokesman John Froman told Business Insider. “Lidl will offer customers the highest quality products at the lowest possible prices in convenient locations.”
The chain, which has 10,000 stores in 26 European countries, is expected to generate about $US84 billion in sales in Europe in 2015, according to Kantar Retail.
Lidl has become a threat to the grocery industry because of its insanely cheap prices and emphasis on fresh food.
“Their stores are small, easy to shop, well located, and emphasise key categories such as fresh produce and prepared foods,” Paglia said. “An offer like that is well aligned to what shoppers want these days; the appeal of the traditional big-box store with overwhelming choice designed around the weekly stock-up trip has been waning for several years.”
Like its rival Aldi, Lidl keeps prices low by limiting inventory to a lean selection of private-label items, versus traditional supermarkets that tend to carry several different brands of a single product.
Lidl also invests far less in customer service and merchandising than traditional grocers.
Most of the store’s products are displayed in their shipping cartons to make restocking quick and easy. That means fewer workers are needed on the sales floor.
Lidl additionally saves money by requiring customers to bring their own shopping bags and bag their own groceries.
But Lidl is more than just a discount grocery store.
The chain also offers appliances, furniture, and last year made its first foray into fashion.
It debuted a women’s collection in August 2014 that sold out within the first three days. The collection included a faux leather jacket costing 14.99 euros and chiffon blouses.
Since then, the retailer has launched a men’s collection, a line of handbags, and a fitness brand.
Froman didn’t provide specifics on what the US stores would offer.
“We have not announced our full product assortment,” he said. “However, our markets will offer fresh meat, produce and bakery items, as well as a wide selection of household goods. We will carry Lidl’s own premium quality brands as well as familiar branded goods, available at the lowest possible prices.”
Lidl is known in Europe as a “rule breaker who is willing to try new things” and the chain tailors every one of its stores to the local market, Paglia said.
The stores in the US will likely be about 33,000 square feet, or about one-fifth the size of an average Walmart supercenter, according to Paglia’s estimates.
“Lidl has ton a tremendous amount of market research in the US already, has been hiring local talent, and its ability to localise its offer will be a huge asset in a market as fragmented as the US,” he said.
Lidl and Aldi still have a small share of the UK grocery market — about 4.2% and 5.6% respectively — but their share of the market is growing and forcing traditional supermarkets into a crippling price war.
Lidl is expected to generate about $US84 billion in sales in Europe in 2015, according to Kantar Retail.
It remains to be seen how the expansion of these discounters will impact American grocers.
But if Aldi’s success in the US so far is any indication, then Lidl will likely thrive, Saunders said.
The two brands are very similar and “they have grown hand-in-hand in the UK,” Saunders said.
Aldi recently revealed plans to open roughly 600 stores in the US over the next three years as part of a $US3 billion expansion, bringing its total number of stores to 2,000.
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