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2017-06-26 07:53:23
Lidl promises over 100 stores, Aldi will soon have 2,500
AMERICA S economy is enjoying its third-longest period of uninterrupted
expansion since the 1850s. So it is at first glance puzzling that Lidl, a
German deep-discount chain whose sales soar when times are hard, is entering
the market now. On June 15th Lidl opened nine stores in Virginia, North
Carolina and South Carolina. Up to 90 more stores across the country are to
follow within a year.
The move may be far-sighted, however. Lidl s arch-rival, fellow-German
discounter, Aldi, has been in America for four decades and has 1,600 stores
across 35 states. It has had success not just among poor Americans but,
increasingly, among the middle class, according to Bain, a consultancy. Aldi is
preparing for an expansion: on June 12th it said it would add 900 more in the
next five years, putting it third in the country by store count, behind Kroger
and Walmart, America s biggest retailer.
Unlike conventional supermarkets, which usually carry between 20,000 and 30,000
mostly branded products, a typical Aldi or Lidl store sells perhaps only a
tenth as many items, some 90% of which are private-label. This no-frills
approach both permits ultra-low prices and earns cash quickly, which is then
reinvested in new stores and offerings, luring more customers. Both
privately-owned discounters have carved out sizeable niches in practically
every country in which they operate. Lidl started in 1973; it rakes in a tenth
of all grocery spending in Germany and 5% in Britain (where it launched in
1994). Aldi began in 1961 and has enjoyed similar success at home and abroad.
Lidl promises that prices at its new American stores will be up to 50% lower
than those of comparable products at other grocers (Aldi excluded). It will
certainly require steep discounts for it to make a mark. The American groceries
market has not been kind to foreign interlopers. Other world-class European
chains, such as Carrefour from France and Tesco from Britain, have tried and
failed to get a foothold. Aldi s record is unusual.
Nor have private-label goods taken up much space on the shelves of conventional
American grocers. They account for only 18% of grocery sales, less than half
the average penetration at a western European grocer. This is partly because
the stigma that private-label products are only for poor people is more
firmly entrenched in America than in Europe, notes Simon Johnstone of Kantar
Retail, a consultancy.
Lidl has long eyed expansion into America, but plans are said to have been
repeatedly shelved, perhaps owing to past internal disputes. Its bungled
attempt to launch in Norway a few years back also left management cautious. It
must now reckon with Aldi. Liz Ruggles, head of marketing at Aldi s American
division, says that new retailers can t match our relationships with hundreds
of America-based suppliers.
Nevertheless, most onlookers expect Lidl s entrance to roil the American
grocery industry, posing yet another danger to companies already threatened by
investments from Walmart, online startups and Amazon. Market share is often on
offer at the low and premium ends of grocery. In Britain three of the
fastest-growing grocers by market share in 2016 were Lidl, Aldi and Waitrose,
an upmarket chain. In America, too, sales at conventional grocers such as
Kroger are stagnant. Bain expects deep discounters to grow by 8-10% each year
between now and 2020, five times as fast as traditional grocers.
As incumbents mull their response, some hope the European interlopers ambition
will be their undoing. Lidl s American stores will offer posh Italian and
French cheeses and wines, for example. Aldi is already adding more organic
products to its American stores. For conventional grocers, such as Wayne
Denningham, chief operating officer of Albertsons, another big grocery chain,
who is watching Lidl s entry (he is concerned, but not unduly worried ), the
ideal scenario would be for the Germans to nudge each other upmarket.