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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.