Amazon gets the headlines, but Lidl is still the grocer to watch
THE PRICE war in the American grocery aisle is getting more intense. And believe it or not, the reason isn’t Amazon.com.
Amazon’s debut as a brickand-mortar grocery chain last year sent tremors through the supermarket industry, with Kroger Co. and other established players losing billions in market value. But with its plans for Whole Foods developing slowly, Amazon is looking like less of a short-term threat.
For now, Aldi and Lidl – two no-frills German discounters that are expanding quickly in the US – are putting more pressure on grocery giants such as Kroger and Wal-Mart Stores Inc.
“If it’s death by a thousand cuts, Aldi and Lidl are holding the blade,” said Mike Paglia, a grocery analyst at the research firm Kantar Retail. “It looks a lot like a price war, and you’re starting to see those ripple effects.”
Before Amazon.com jolted the food world with its US$ 13.7 billion deal to purchase Whole Foods in June, Lidl’s US expansion was the biggest story in the grocery industry. Lidl, which operates thousands of stores across Europe, opened its first 10 US locations on June 15, one day before Amazon announced its blockbuster acquisition.
Amazon still hasn’t said much publicly about its long-term plans for Whole Foods. And so far, the takeover hasn’t brought sweeping changes. While price cuts on a handful of items drew customers and boosted sales in the wake of the deal, store traffic has returned to where it was before Amazon took over – when Whole Food was struggling through a prolonged slump, in large part because it was perceived as overpriced.
Of the two European chains, Aldi is more established. It’s operated in America since 1976 and has doubled its US store count over the last 15 years, opening 150 locations in 2017 to push its total above 1,750.
The company has battled Lidl in Europe for decades, and bringing that rivalry to the US is creating a ripple effect for the whole industry.
As Lidl enters new markets, Wal-Mart is also cutting prices, which in turn puts pressure on Kroger and other conventional supermarkets.
In a recent price survey of low-priced items, Kantar found that a basket in Charlotte, North Carolina, was cheaper at Wal-Mart than it was at Lidl – a sign that the world’s largest retailer, which makes more than half of its revenue from the grocery business, has responded aggressively. It was the first time in seven years that Wal- Mart took the top spot in the study, displacing discount chain Dollar General Corp. Analysts say the steep price competition is evidence that retailers were trying to get the jump on Lidl.
“It’s created a lot of pressure to keep prices low,” said Jennifer Bartashus, an analyst at Bloomberg Intelligence.
Lidl currently has 47 stores in six states, with plans to reach open as many as 100 by this summer. Its expansion hasn’t been without missteps. The company replaced the executive overseeing the operation after three months, and it has rejiggered its real estate strategy.
Lidl also has backed out of opening a handful of planned stores. The chain now says it will lease locations as small at 15,000 square feet– only slightly larger than the average Trader Joe’s. This is a departure from its original strategy of building new stores more than double that size.
Will Harwood, a spokesman for the company, said Lidl wanted to “increase flexibility” for its real estate team. And he insisted that Lidl’s US launch had “exceeded expectations.” — WP-Bloomberg