Have Aldi and Lidl started a grocery price war in the U.S.?

Discussion
Photo: Aldi
Jan 04, 2018

The German hard discount grocery chain Aldi has been in the U.S. since 1976. Lidl, another German import, began opening its first American stores last June. The two chains, which operate relatively small stores, are having an oversized impact on the U.S. grocery market as their low prices put pressure on rivals from Albertsons to Walmart.

A recent article by Bloomberg asks whether the growth of Aldi and Lidl is leading to a full-blown price war in the U.S. grocery industry. The news service points to a recent Kantar Retail study in Charlotte, NC, which showed Walmart had displaced Dollar General in offering the lowest grocery prices in the market. The explanation was that Walmart and others were lowering prices to get ahead of an eventual entry by Lidl in the market.

“If it’s death by a thousand cuts, Aldi and Lidl are holding the blade,” Mike Paglia, a grocery analyst at Kantar, told Bloomberg. “It looks a lot like a price war, and you’re starting to see those ripple effects.”

As previously reported on RetailWire, Lidl has faced stumbling blocks in its American launch. The chain, which has opened 47 stores since June and initially planned to have at least 100 open in its first year, has pulled back on some planned openings as it faces challenges cracking local markets. A report by InMarket found that Lidl’s market share at stores in the Carolinas and Virginia slipped from three percent in June to two percent in August.

Aldi has been aggressively adding stores in the U.S., particularly in California, Florida and Texas, and plans to have over 2,000 stores operating in the country by the end of this year. The grocer, which currently holds a 1.5 percent national share of the U.S. grocery market, has seen its sales double over the past five years.

DISCUSSION QUESTIONS: Do you see a full-scale grocery price war breaking out in the U.S.? What would price competition of this kind ultimately do to the grocery retail landscape? How would manufacturers be affected?

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"If there’s a price war in place it would have been started by dollar stores, who have been moving more and more into groceries."

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19 Comments on "Have Aldi and Lidl started a grocery price war in the U.S.?"


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Art Suriano
Guest
Not everyone makes buying decisions based on price alone. If Aldi and Lidl are going to go head-to-head on price and price alone, they will appeal to those customers who are interested in the cheapest items. However when it comes to food, there are many customers who are interested in quality, service and other conveniences. And that’s what each grocer has to decide on; what market do they wish to penetrate? If a grocer is going to be a price-driven organization then they have to cut their prices until they can’t cut anymore. But that will affect quality, vendor selection and relationships and customer service. And if a grocer wishes to be known for superior food quality and service, they have to make sure that they are the best. When it comes to food it will never be only about the price, so Aldi and Lidl can capture the price-conscious customer but the more they strip away the frills, the less they will appeal to customers who are not choosing cost as their most crucial… Read more »
David Livingston
Guest
3 years 8 months ago

I think Lidl will eventually pull out and find some kind of scapegoat, such as that the economy is too good or providing health care is too expensive. Anything but the competition.

Seth Nagle
Guest

You’ve got to love the world of competitive pricing. I think the war has already begun. In Texas, we’ve seen H-E-B and Walmart battle it out for years now to be the EDLP leader. Unfortunately for Aldi and Lidl they lost the element of surprise with their low prices as many grocers as mentioned were anticipating their arrival and beat them to the punch.

After talking to a handful of pricing analysts, one of the big questions is how the manufacturers will adjust to Aldi and Lidl pushing out loss leaders such as milk and eggs constantly. Because of this, we’ve heard a number of retailers pushing back on manufacturers’ pricing and expect this to continue as more stores try to undercut their competitors.

Paula Rosenblum
BrainTrust

I do not see a full-scale grocery price war breaking out in the U.S. When I hear the phrase, “Have Aldi and Lidl started a full-scale price war?” I think to myself “Suppose they gave a war and nobody came?”

As far as I can tell, Aldi is not exactly knocking the doors off in its new markets and, as you noted, I also haven’t heard anything positive about Lidl’s results here. If there’s a price war in place it would have been started by dollar stores, who have been moving more and more into groceries.

I may be a minority of one, but I don’t see much impact in the U.S.

Max Goldberg
Guest

There is constant pressure on grocery prices. The emergence of Walmart as the nation’s leading grocer, followed by the great recession and the rise of dollar stores, all put pressure on traditional grocers. Aldi and Lidl are the latest competitors to enter the market with the mantra of lower prices. As price competition increases, manufacturers will be forced to look for ways to squeeze costs out of their products. The only winners will be consumers who will enjoy lower prices while retailers battle for market share.

Neil Saunders
BrainTrust

While I think the impact of Aldi and Lidl is over-hyped, there is no doubt that they are increasing competition in an already competitive environment. That said, the idea that they have been the only catalyst for price competition is nonsense; there are a whole host of factors from dollar stores to bulk-selling which are creating price pressures.

In terms of responding to Aldi and Lidl, mainstream grocers need to be cautious about focusing just on price. Like the dollar stores, part of Aldi and Lidl’s success is that they have simple operations that allow for very low prices, which they offer universally across the proposition. However, this is also an inherent weakness; many shoppers dislike the narrow ranges, lack of brands, smaller stores, lack of customer service and so forth. Those are the things other retailers need to focus on as well as price if they are to create strong value propositions.

Stuart Jackson
Guest

Aldi and Lidl have been waging a price war in the U.K. and all across Europe for many years, the result of which is that food prices have been slashed at the established grocery chains.

Both brands started out as upstarts in the U.K. and many retail analysts thought they could never survive or break through into the mainstream. But both brands have used aggressive, clever marketing to position themselves and they’ve managed to attract not just budget-conscious shoppers but the middle classes too.

Aldi and Lidl both play on the quality of their food, not just the low price, and they’re right to because they regularly win blind taste experiments. They’re utterly unafraid of any competition and are quick to create low-cost versions of favorite product lines including alcohol.

If I were a U.S. food giant like Walmart right now, I’d be very worried indeed.

David Livingston
Guest
3 years 8 months ago

The big difference in Europe is Lidl has good locations. In the USA, they just took what was available, relying on poor site selection. Aldi scooped up the best sites across the street from Walmart a long time ago.

Ben Ball
BrainTrust

Core grocery has been in a price war in the U.S. since the ’80s; Aldi and Lidl scrapping won’t make it much worse. Granted, their operating system and the psychological aspect of punching/defending a beachhead in the U.S. market does give them room to make some noise. But the margin just isn’t there for traditional grocers to join in for long.

Ryan Mathews
BrainTrust

Ah, Brother Ben, starting the New Year off with a dose of sobering market reality. I fear the retail analysts have forgotten their history. Didn’t major U.S. chains launch price wars against each other for much of the 1970s and all of the 1980s? Wasn’t combatting predatory chain pricing against independents the raison d’etre that drove the National Grocers Association — and NARGUS before it? Wasn’t the rise of Walmart proclaimed by a Greek chorus of retail mourners protesting what they saw as unfair pricing while they themselves hastily engaged in a barrage of senseless and margin-numbing price smashing of their own? So … what’s new here beside the names of the newest combatants in a war that has waged on for at least 40 years?

One of these days the industry is going to wake up and figure out pricing isn’t the problem … but I wouldn’t hold my breath waiting for that day to come.

Tom Dougherty
Guest

From the shopper’s point of view Lidl and Aldi are great news. Competition breeds competitiveness and grocers have become complacent.

In retail, the rule is adapt and survive or go extinct. There has always been a pricing war. But, it was a war within the Gentleman’s Club. Watch out aristocracy. The Plebeians have arrived.

Tony Orlando
Guest

After more than 50 years in this business, it amazes me that these huge companies keep coming in and thinking they will take over the country. It’s not going to happen. Walmart is already the king of brick-and-mortar. Add in all the new Dollar General stores and you have over-saturated retail in every city, with a few exceptions.

I play to both ends of the consumer base, which means deep-discounted crazy deals and gourmet award-winning homemade deli and meats (again at great prices). The middle is nowhere for me, as center store is shrinking for me.

Profits are slim, and yet milk and eggs are sold well below wholesale in all of these price wars, with millions being lost in profits but little in sales gains. As said a million times; retail ain’t for sissies, but if you can not find ways to stay competitive you will perish.

Shep Hyken
BrainTrust

The grocery industry sells a commodity. Consumers are typically price-sensitive to commodity products, knowing that there are places to get the exact same products for different prices (lower or higher). However, many consumers still want customer service and convenience, and are willing to pay a little more for it. So is there a major price war happening in the U.S.? Yes. Does that mean the lowest price always wins? No! It is the combination of competitive pricing and value in the form of service and convenience that will win over and keep customers loyal to the retailer.

Kai Clarke
BrainTrust

Yes. This is more than just a price war. Aldi and Lidl have come into the Carolinas with both guns shooting. This is also a promotional war as each seeks to gain market share and shoot for the basic necessities of everyday shopping like eggs, milk, butter, etc. Any mother or household shopper sees immediate savings from shopping for these alone, add to this weekly discounts up to 50 percent on advertised items and an additional $5 discount (Lidl) on purchases of $30 or more and you have a true retail slugfest going on.

The consumer is the winner here and the retail marketplace will continue to adapt to these global competitors as Walmart and others price match, while attempting to retain their market share. Full disclosure — we live in the Carolinas and just bought 18 extra-large eggs last week for 50 cents!

Bill Meyer
Guest
3 years 8 months ago
I have chimed in on Lidl stories when they come up. I am also in the Carolinas where our Lidl seems to be doing well. They got the real estate right in that their high traffic location is comfortable and accessible to the broad market — I see a little bit of everyone in there. We are very pleased with the quality of their generic staples (especially the organics), the upscale specialty items and their beer and wine. What I don’t like is their constant supply chain issues. We are trying to use this as our regular store since it is just blocks away from home, but they are frequently out of eggs, bacon, certain types of milk, half and half, chicken broth, and even more esoteric items like confectioners sugar and cocktail sauce (which they do carry). Employees tell us they ask for stock but it is a crap-shoot if it will arrive. They suggest that we call corporate to complain because they feel powerless. I understand and enjoy the “treasure hunt” aspect of… Read more »
Harley Feldman
BrainTrust

I am not sure about a full-scale price war on groceries in the U.S., but there is clearly pressure being placed on the market by Aldi, Lidl and other specialty grocers like Trader Joe’s. The grocery market is evolving like the department store market. Many years ago, department stores carried a complete selection of apparel and other merchandise. Since then specialty retailers popped up to sell specific items. Now there are many specialty retailers putting pressure on department stores. Specialty grocers will have the same effect on the major grocers like Walmart. The large grocer response will be to lower prices, carry unique items and to provide better customer service just like department stores are required to do to stay competitive.

Manufacturers will be pressured to lower costs to the grocers as the competition in the grocery industry continues to heat up. Manufacturers will also create unique products that they will offer to grocers on an exclusive basis for a higher margin.

Ed Rosenbaum
Guest

Grocery price wars can happen in the foreseeable future. But when that will happen is not going to be next year. From a consumer point of view, I would not be disappointed. Neither would my wallet. But the reality is there is a lot of ground to be covered by the new entries in the marketplace before that will happen. Publix in my area does not seem to be concerned about the current competitors. Their prices remain the highest, or close to it, in the Florida market at least.

Richard J. George, Ph.D.
BrainTrust

Call it whatever you want, but food retailers have been touting low prices since King Kullen opened the first US supermarket almost a century ago. It’s no wonder that the most sought after attribute by food shoppers is low price. In 1988 Walmart “doubled down” on low prices when it opened its first supercenter. As noted in the article, dollar stores and other extreme value retailers continue to use low prices as their primary point of differentiation.

My advice to other more traditional retailers considering a rush to the bottom is remember that unless you have a competitive price advantage, beware. Anyone can give product away; it takes brains to sell it.

Craig Sundstrom
Guest

Maybe I’m missing something here, but how much of a “full scale” price war can a retailer with fewer than 50 stores nationwide wage? As for Aldi, Dollar General, et al, and to some extent (even) Walmart, since their very “raison d’etre” is low prices, I would say there’s ALREADY a price war in the U.S … perpetually.

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Braintrust
"If there’s a price war in place it would have been started by dollar stores, who have been moving more and more into groceries."

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