Why is Walmart so concerned about Aldi and Lidl?

Discussion
Photo: Aldi
May 17, 2017
George Anderson

Walmart knows a thing or two about Aldi and Lidl occupying the same market based on its experience in the U.K. and Europe. Perhaps that’s why The Wall Street Journal reports the world’s largest retailer is “bracing” for an increased level of competition in the U.S.

Aldi and Lidl have proven to be disruptive forces in the U.K. where the two hard discounters account for 11 percent of the grocery market combined.

In the U.S., Aldi has been aggressively expanding into new markets, such as California, while ramping up store counts in important states including Florida and Texas. The chain, which expects to have 2,000 stores nationwide by next year, is investing $1.6 billion to expand and remodel 1,300 existing stores.

Aldi, according to Reuters, currently accounts for just 1.5 percent of the U.S. grocery market, but has seen its sales double over the past five years..

“We are re-merchandising, remodeling, enhancing our product range and are focused on gaining volume so more customers start their shopping at Aldi and we are able to complete their shopping lists more so than we have in the past,” Aldi CEO Josh Hart told Reuters.

A separate report by the news service in February disclosed that Walmart had conducted a price test covering 1,200 stores in states across the Midwest and Southeast. Market basket checks in Illinois and Iowa found Walmart had “consistently” lower prices than Aldi. Previous analyst findings put Aldi’s prices about 20 percent lower than Walmart’s.

Lidl plans to open 20 stores this summer in the Carolinas and Virginia. The chain, which plans to open 100 stores in East Coast states during its first year in the U.S., was not expected to begin opening locations until next year. Reports by The Dallas Morning News and The Plain Dealer have Lidl eyeing locations in Texas and Ohio, as well.

Kantar Retail projects Lidl’s store count will reach 630 with total sales of $8.8 billion by 2023. That’s more than the $8.1 billion Wegmans will do this year.

DISCUSSION QUESTIONS: What does Walmart know about Aldi and Lidl that has management so concerned about their expansion plans in the U.S.? Do you think other grocery store competitors are similarly preparing for disruption of the market brought on by the two hard discount chains?

Braintrust
"Walmart is wisely cautious and protecting their turf but, deep down, they know they've got it covered."
"Walmart, on the other hand, has to wait and see what the potential competition does. This is never a good position for a retailer."
"I do not believe that Walmart has any reason to have any significant concerns about Aldi and Lidl at this early stage."

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24 Comments on "Why is Walmart so concerned about Aldi and Lidl?"

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Kim Garretson
BrainTrust

One reason is the very distinctive and, in my view, superior shopping experience at Aldi. The small stores facilitate quick trips and there are surprise discoveries in many areas of the store, not just the Hot Buys freezer cases. For instance, last night I discovered they’ve added grass-fed beef and lox, both at the lowest prices I’ve seen in any store. I don’t think Walmart can compete with this combination of speed and easy access to surprises.

Paula Rosenblum
BrainTrust

I can’t figure out why they’re worried about Aldi. I have been unimpressed with that chain. I have not seen a Lidl yet. All I can figure is that they’re worried about yet another type of retailer nibbling at the edges of their market basket, much like dollar stores have.

It’s worth mentioning that the dollar store format isn’t quite as popular in the U.K. I’m not sure it even exists. So the grocery market was riper for disruption than the U.S. market is.

I just don’t get it and look forward to what others have to say.

Carol Spieckerman
BrainTrust

I’m in Walmart’s back yard and can attest to the fact that Aldi enjoys industry-defying loyalty here. I know people who plan regular trips to the not-that-convenient local Aldi to pick up their favorite private-branded products, organics, and produce. Still others call out little-known details like Aldi’s selection of authentic products from Europe, the oddly compelling “treasure hunt” vibe in general merchandise and, of course, the quick check-out process with cashiers that tend to be just a bit friendlier. (Aldi pays them well.)

A lot going on in that little box and none of it is lost on Walmart.

JJ Kallergis
Guest
Walmart is concerned about Aldi and Lidl because they are a threat to Walmart’s main competitive advantage, EDLP. If Walmart is dethroned as the king of EDLP, all of a sudden they have to start diversifying their focus on other things and creating more reasons for customers to visit their stores and shop online with them and Jet.com. It seems they have already started down this path with the recent acquisition spree spearheaded by Marc Lore, but I would venture to say that they will fight tooth and nail against Aldi and Lidl to keep their prices lowest. And as they arguably have the most efficient supply chain and operations in the industry, there will likely be pricing concessions made by their suppliers to do so. Other grocery store competitors that have a more robust approach to selling groceries are likely not preparing in the same way and I would argue that they should not need to if they have strengths outside low prices. For example Wegmans, which perennially receives top scores on customer satisfaction, is competing on another level. So is Trader Joe’s which leverages its quirkiness and unique shopping experience. But any grocer that touts lowest prices and… Read more »
Lee Peterson
BrainTrust

Walmart is wisely cautious and protecting their turf but, deep down, they know they’ve got it covered. Does anyone remember Fresh & Easy? If Tesco can’t get it done here in the U.S., what makes us think for a second that Lidl can? C’mon. Trader Joe’s is probably a bigger threat, but they can’t figure out how to expand — so, just another speck on the Walmart windshield.

Again, it’s smart to gear up for battle but in the end it’ll be like watching the Warriors play San Antonio: a wipe out.

Dr. Stephen Needel
BrainTrust

The conditions may be reversed — Aldi and Lidl are the new players in the U.S. whereas Walmart was the new player in Europe. Walmart should be worried about the price shopper — and needs to communicate its price comparability/advantage clearly. Add to that the availability of national brands at their stores and they should be in good shape.

Kai Clarke
BrainTrust

Walmart should be concerned. Aldi is a proven low-price leader and they minimize their offerings to limit selection but further decrease prices. This has proven to be a successful formula (think Costco and the other wholesale clubs). Aldi and Lidl are aggressively pursuing this space knowing what Walmart is offering. Walmart, on the other hand, has to wait and see what the potential competition does. This is never a good position for a retailer.

David Livingston
Guest
4 months 4 days ago

Aldi and Walmart have coexisted for years with Aldi usually being in Walmart’s parking lot or across the street. Lidl has still failed to get a store open in the U.S. I think it’s all hype. Lidl has not been choosing the best locations but pretty much just any location. Walmart is surely doing their due diligence however I think this is mostly just hype created by the press.

Shawn Harris
BrainTrust

Reliably-available, value-priced goods + conveniently-located, well-maintained stores + well-paid employees = a winning formula.

Adrian Weidmann
BrainTrust

It’s the shopping experience! Aldi’s shopping experience is simply far better than that found in Walmart — cleaner, quicker, more focused, great pricing, adequate selection, better customer service and you can discover something new and unique. These all are important components of a great shopping experience and, outside of pricing, are not found at Walmart.

Don’t be surprised when Tesco makes another run at the U.S. market. The lines defining grocery and foodservice are blurring and the combined value of these categories are simply too attractive to avoid.

Paula Rosenblum
BrainTrust

God, I found the Aldi shopping experience completely awful. I must have a bad one near me.

Tom Redd
Guest

Right on Paula and the down thumbs who think grass fed beef is only at Aldi are missing details. All retailers along with Walmart offer what most cattle (good cattle/beef) are fed — grass. In winter seasons, grass fed beef are fed big grass called HAY — a form of grass. But do not smoke it….

Brandon Rael
BrainTrust

I do not believe that Walmart has any reason to have any significant concerns about Aldi and Lidl at this early stage. They are not well-known nationally recognized brands at this point and will need to achieve recognition in the marketplace by creating a distinctive experience that Walmart is unable to offer at this stage. That is a monumental task in itself and many other brands have yet to make a dent into Walmart’s dominance.

In my mind it’s a two-way race between Amazon and Walmart for retail and market dominance.

Peter Charness
BrainTrust

Aldi and Lidl do a great job at the lowest possible prices. They are going to get some percentage of the Walmart shoppers for whom price is the key driver. For Walmart it’s not just a lost grocery visit, it’s potentially a lost store visit and all the other stuff that they might sell over the lifetime of that customer.

Tom Redd
Guest

Key is — potentially. Lidl is the toughest player for Walmart on national level. Local or regional grocers/general merchandise retailers are the largest challenge Walmart deals with. Lidl will have a whiz, gee, Walmart is gone media barrage, but when the dust settles Walmart will still win. Their new training programs are changing the way their stores run and the peoples attitudes — from employees to the shoppers.

The press treats Walmart like they do Trump — any chance of finding a negative near their name they race to beat them with words. Even the press cannot stop the retailer centered on the core of retail success — satisfy their shoppers!

Amen and GO WALMART GO (but I still like Kroger, Meijer’s , Aldi, and Lidl — Whole Foods will fade out by 2020 — their trend and crowd is shifting and they will miss the next wave … stuck in the waters of retail with no current to ride).

Double Retail Amen!

Gene Detroyer
BrainTrust

The ones who should be concerned are the traditional grocery retailers. The brick-and-mortar grocery business is flat and will stay flat (or decline) for the foreseeable future. Any sales taken by a new entrant will be from the old players. The traditional grocery retailers have nowhere to go in terms of their business. At best they just lose margin, at worst they lose customers.

While there may be some loss at Walmart in specific products or categories, Walmart recognized a long time ago the maturity of their business. If they really want to take on Aldi and Lidl, the answer is not to have a quake in the Supercenters but to open a similar store (I don’t recommend that). Walmart’s answer, of course, is the correct one — make a major push into online and expand internationally. Fighting for market share in a mature market is a lose-lose-lose for everyone!

Ed Rosenbaum
BrainTrust

Walmart has little to fear from either Aldi or Lidl. While Aldi does have a presence in the U.S. Lidl has little to show other than hype. I agree Walmart is smart to be doing their due diligence and insuring they protect their turf. But when all is said and done, Walmart’s competition will come from chains like Publix and Target. Trader Joe’s will have a little impact, but their footprint is too small to be customers’ every-week shopping store.

Richard J. George, Ph.D.
BrainTrust

Walmart understands that Aldi is no longer the silent killer in the market. It’s simply a killer that provides value, quantity and quality that the extreme value retailers (think dollar stores) cannot. Similarly, Lidl has been described as “Aldi on steroids.” It will have Aldi-like pricing in more attractive stores with a wider range of recognized CPG products.

Plus the U.K. lesson cannot be ignored. It is not that history repeats itself, instead it is the failure to learn from history that repeats itself. Finally, Walmart recognizes that it is cheaper to defend market share than it is to try and win it back. Its preemptive pricing and other preemptive and defensive tactics should be seriously considered by other retailers competing with these German giants.

Carol Spieckerman
BrainTrust

Walmart is (rightfully) concerned about Aldi and Lidl for several reasons:

  1. The combined, efficient, small-format scale;
  2. The just-different-enough propositions of Aldi and Lidl cover a lot of important ground (private and national brand strength, easy-to-shop and easy-to-operate formats, convenience and more);
  3. Lidl beta testing click-and-collect in Europe (with potential to parlay in the U.S.) — something U.S. dollar stores haven’t prioritized;
  4. Aldi’s ongoing format refinements and doubling down on organics. Aldi isn’t standing still;
  5. Lidl isn’t just putting a toe in the water, they will roll out aggressively.

I’m sure there is more but that’s enough to keep folks awake at night for now.

Tom Redd
Guest

Good points Carol, but just press noise for NA. Many shoppers like, enjoy and depend on Walmart, especially in the small town I live in up in Michigan. There is an Aldi 10 miles away, but MANY people near the Aldi all shop the Walmart. In small towns the Walmart is also a social center. It is amazing to see the difference between the Scottsdale Walmart and the Fremont MI Walmart. Besides, no Audis or Jags in Michigan; the Fremont store has so many groups of people socializing in the aisles — amazing difference!

Glenn Cantor
Guest
4 months 3 days ago

In my township of Howell, New Jersey, Aldi is moving about 1 1/2 miles from their current location to build a new, modern store directly across the street from Walmart. They will compete for the same shoppers, who will buy the same products currently purchased in Walmart. The shopping experience will be easier than navigating through Walmart. Most of all, Aldi will pull away grocery and food shoppers, who might have otherwise also purchased something else if they had been shopping in Walmart.

Ecommerce and other advanced capabilities are not relevant to this dynamic. These are the people who are merely seeking to buy their household groceries as inexpensively as possible.

How many of these disruptions can Walmart tolerate?

Craig Sundstrom
Guest

Why are they concerned? Ummm … because they’re competitors?

On a more numeric level, the grocery market here is mature and saturated, so growth for someone means decline for someone else … in short, every grocer should ultimately be concerned by new entrants, though as a strong player I’m not sure Walmart is the one who should be most worried.

Dave Nixon
Guest
Dave Nixon
4 months 3 days ago

Aldi and Lidl both have the discount prices but have coupled them with a good shopping experience. The stores are efficient, well designed and allow for quick trips in an environment that Walmart doesn’t have. Of course they are concerned, but they can also fix the issue and provide a better shopper experience if they so choose. The days of cheap and nothing else are over. Costco even beats Sam’s Club because they integrate low prices with a better “warehouse” experience. Time to get moving Walmart.

Frank Poole
Guest
4 months 3 days ago

Walmart presumably knows their store’s environmentals are terrible and would no doubt be horrifically expensive to fix. I shop there regularly and every few months they hive-off a portion of the selling floor behind plywood construction barriers. I wait with anticipation to see what improvements will be rolled out but, invariably, when the walls come down I’m hard pressed to tell what has changed. (How do you spruce up what is, essentially, an aircraft hangar?)

So I’m intrigued that Aldi is focusing on improvements to the physical shopping experience and environmental factors. If they get that equation right, they could end up drawing customers from both directions: trading-up from Walmart and trading-down from Publix.

wpDiscuz
Braintrust
"Walmart is wisely cautious and protecting their turf but, deep down, they know they've got it covered."
"Walmart, on the other hand, has to wait and see what the potential competition does. This is never a good position for a retailer."
"I do not believe that Walmart has any reason to have any significant concerns about Aldi and Lidl at this early stage."

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