Commentary

German Grocery Chains Ramp Up Their Mark-Down Strategy In U.S.

Two major European grocery chains based in Germany — Aldi and Lidl — are rolling out plans to give American supermarkets an added run for their discounts. 

“Aldi, known for low prices on its private-label items, plans to spend $3.4 billion over the next five years to open 900 supermarkets, the company said Monday. The investment comes as its European discount rival, Lidl, prepares to open its first U.S. stores this week, with plans for as many as 100 by the summer of 2018,” Craig Giammona reports for Bloomberg.

“The U.S. expansion by the German private-label giants could put more pressure on conventional retailers like Wal-Mart Stores Inc. and Kroger Co. to lower their prices. The new competition in the low-margin industry arrives during a deflationary spiral that has seen food prices drop for 17 straight months, the longest such streak in more than 60 years.”

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But executives at both of the U.S.-based chains “have been preparing for the growth of the discounters for years. Wal-Mart has been sprucing up its stores and slashing prices on some products in select markets, while Kroger continues to drive down costs to compete,” reports Heather Haddon for the Wall Street Journal

“Deep discount chains in the U.S. are expected to grow by up to 10% a year through 2020, five times the rate of traditional grocers, according to a recent report by consulting firm Bain & Co.,” Haddon continues.

“It should absolutely be more than scary to traditional grocers and retailers,” Mikey Vu, a partner in Bain’s retail practice, tells her.

“Time to say hallo!” proclaims the subhead on Lidl’s U.S. website, anticipating the opening of its first outlet at 9 a.m. Thursday. Its operations here are based in Arlington, Va. A store locator shows five stores in North Carolina, two in South Carolina and two in Virginia. 

“We opened the first modern Lidl store in 1973, and by the 1980s, Lidl was a household name in Germany. During the 1990s, we started branching out, opening stores across Europe — in fact, we’ve grown to more than 10,000 stores worldwide,” according to its About Us page, which promises “high quality at low prices.”

Lidl is currently planning on opening 100 stores in the U.S. and said last month that its prices would be up to 50% lower than rivals, Reuters’ Nandita Bose reports

“In May, Aldi chief executive Jason Hart told Reuters the chain intended to have prices at least 21% lower than rivals and would focus on adding in-house brands to win over price-sensitive customers,” Bose writes. “… The latest store expansion will create 25,000 U.S. jobs and make Aldi the third-largest grocery chain operator in the country behind Wal-Mart and Kroger, the German chain said in a statement. Aldi's 2,500 stores would equal about 53% of Wal-Mart's U.S. outlets.”

“As we continue to expand and grow, our purchasing power continues to increase and allows us to bring products at better prices for consumers,” Scott Patton, Aldi's head of corporate buying, tells Bose.

“The German company focuses on private-label goods like Trader Joe's does — so no Kraft macaroni and cheese — and [currently] has 1,650 stores in the United States. Aldi says it aims to give customers organic produce and meat raised without antibiotics,” an AP story in the New York Daily News points out. (Aldi Nord owns and operates Trader Joe’s, by the way, but that’s a whole other story.)

“One of Brevard [Fla.]’s favorite grocery chains is getting a major facelift this year. Aldi is undergoing a $1.6 billion nationwide expansion, revamping stores, adding more space and, ultimately, offering more products,” writes Jessica Saggio for Florida Today. “The changes call for expanded produce, meat, dairy and bakery sections as the company puts ‘a focus on fresh items,’ a release [dated Feb. 8 from Aldi’s U.S. HQ in Batavia, Ill.] stated."

Happily for Florida Today, Aldi’s marketing is a throwback to the days when beacons were pretty much confined to watch towers. “Our weekly ads are distributed only via local newspapers. However, you can click here to view our weekly ads online” is its response to a FAQ about whether its deals can be had through the similarly troubled USPS.

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