Aldi raises stakes in US price war with Wal-Mart
WHEATON, Ill.: German grocery chain Aldi Inc is trying to beat the world’s biggest retailer at its own game: low prices.
Already with 1,600 US stores, Aldi’s internal studies show its prices are 21 per cent lower than its lowest-priced rivals, including Wal-Mart Stores Inc, according to Chief Executive Jason Hart. He plans to maintain that gap going forward.
His strategy, previously unreported, centers on adding more private-label goods, which are a retailer’s in-house brands, to win over price-sensitive customers, and a massive expansion to further disrupt a US grocery sector that has seen 18 companies go bankrupt since 2014.
Hart’s plan calls for spending US$1.6 billion to expand and remodel 1,300 US stores, and open 400 new stores mainly in Florida, Texas and on both coasts by end of 2018.
He also pledged Aldi will be willing to change prices more frequently to respond to rivals if needed.
“We are re-merchandising, remodelling, enhancing our product range and are focused on gaining volume so more customers start their shopping at Aldi and we are able to complete their shopping lists more so than we have in the past,” said Hart, who added Aldi’s US sales have doubled in five years.
Though it only accounts for only about 1.5 per cent of the US grocery market, Aldi is growing at 15 per cent a year, whereas WalMart currently controls about 22 per cent of the market and its US sales are estimated to grow about 2 per cent this year, according to analysts.
Aldi’s growth potential has competitors taking notice. Reuters reported in February that Wal-Mart is running price tests in 11 states, pushing vendors to undercut Aldi and other rivals by 15 per cent and is expected to spend about US$6 billion to regain its title as the low-price leader.
Price wars are roiling the entire retail sector – from department stores to discount chains – but it is nowhere as intense as in the grocery sector. Beyond Wal-Mart’s move to match Aldi on price, German discount chain Lidl plans to open up to a 100 US stores in a year, and Amazon.com Inc is aggressively testing out various brick-and-mortar grocery formats along with growing Amazon Fresh, its grocery delivery service.
“We have not seen anything like this in the grocery sector in the United States before,” said Scott Mushkin, managing director of Wolfe Research and a leading pricing analyst.
Such heated competition risks a dangerous race to the bottom that could result in more retailers shutting their doors. — Reuters