Lidl Speeds Up U.S. Invasion Plans — Supermarket Chains Should Be Afraid

Earlier than originally planned, Lidl will open its first store this summer in Fredericksburg, Virginia, and will have a total of 20 stores operating by the end of the year in that state, North Carolina and South Carolina. By mid-2018 the company plans to have 100 stores up and running. The secretive, privately held, German company (Schwarz Gruppe) has aggressive plans to expand in the Northeast as well as Texas and other states.

I am worried about this new competition, because the invasion of Aldi and Lidl in England proved to be very difficult competition for established leaders like Sainsbury, Tesco and Morrison, whose sales and profits tanked. Moreover Walmart’s Asda division reported lower sales in the last two years because shoppers switched to Lidl and Aldi, attracted by the sharp values of the German discounters.

However, Reuters reports that right now Walmart is running a price comparison test on groceries in about 1,200 stores to close the price gap with Aldi and other competitors like Kroger, Albertson, Publix. The test was launched in 11 Midwest and Southern States. Walmart is trying to find the right price point across a range of products that will attract more shoppers. According to the report Walmart is now offering lower prices than Aldi which is an improvement over recent estimates. Over the past few years Aldi prices were 20% lower than Walmart.

Walmart is enlisting vendors to make logistic improvements and is asking packaged goods vendors to help close the pricing gap. Since Walmart controls about 22% of the U.S. grocery market the expansion of Aldi and the energetic entry of Lidl is a very competitive challenge

Here is what I know now about the U.S. entry of Lidl:

    1. The company established its headquarter in Arlington, Va. in 2015 and now employing about 1,400 associates to develop the onslaught into the United States. Its main competitor will be Aldi that has grown to 1600 units and plans to have 2000 units by 2020. One could guess that Lidl wants to match the Aldi stores. However, it will also affect Walmart and Target stores who will have to compete with these newcomers.
  1. To staff the first 100 stores, it is estimated that Lidl would have to hire more than 4000 associates.
  2. The company has built three major distribution centers in Spotsylvania, Va., Alamance, N.C., and Cecil County, Md. It is estimated that the company invested about $100 Million in constructing the three buildings. One can easily guess that major expansion will be in concentric circles around these distribution centers.
  3. Lidl’s targeted states are along the East Coast from New York State to Florida and Texas. Aldi Süd is already well represented in these states – there are 98 stores in New York State, 37 in New Jersey, 113 in Pennsylvania, 36 in Maryland, 32 in Virginia, 61 in North Carolina, 28 in South Carolina, 54 in Georgia and 90 in Florida. There are 90 Aldi stores in Texas. This list does not include the Trader Joe’s location which reports to Aldi Nord.
  4. Lidl stores are projected to have about 21,000 square feet selling space. The stores are said to be more efficient with less back storage space.
  5. It is likely that Lidl will try to match Aldi by having 2,000 stores by 2020. The German food publication Lebensmittel Zeitung speculates that a rapid expansion of Lidl could be expected and that the company could acquire units from Kmart, Food Lion, Sav-A-Lot, Dollar Tree, and others. The publication suggests that acquisition of Dollar Tree would make Lidl quickly a “middleweight in the U.S. food retailing industry.
  6. Several retailers are preparing for the new competition. Notably Whole Foods opened a new, aggressive division called 365.

We are entering a period of fierce price competition. It will not be very notable in the first few month, but the effect will be felt throughout the food and discount industry as these new stores grow in number. Both Lidl and Aldi have the resources to grow in the United States. It will be interesting to watch. Everyone must have initiatives to preserve their share of the market – even to gain at the expense of others.

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