Global food fights to be fought locally

Global food fights to be fought locally

Some skirmishes in the global grocery battle will be fought in the Crossroads area soon.

Lidl, a German-based discount grocery chain, is coming to Hagerstown, Md., according to planning documents.

“We believe Hagerstown is a two-store strategy, and we are confident in both locations,” Cameron Setian, acquisitions manager for Lidl, told Herald-Mail Media in August.

Lidl is seen as a major competitor to Aldi, another German-based, private-brand discount chain. Aldi has established stores in the Crossroads area and a distribution center in Frederick, Md.

“This is not just a Mid-Atlantic or an East Coast play. This is a national play,” George Faigen, partner in the Retail and Consumer Goods practice of Oliver Wyman, a global consulting firm, said of Lidl’s arrival in the United States.

Lidl opened its first U.S. stores in June. It plans to establish 100 stores in the country by the summer of 2018.

Aldi already operates more than 1,600 stores in 35 states. This summer it announced a $3.4 billion capital investment to expand to 2,500 stores by the end of 2022. That’s on top of a previously announced $1.6 billion program to remodel 1,300 stores by 2020.

“Incumbent grocers need to take notice. The threat from Lidl is real and will only get clearer as their stores generate trial and repeat sales. Grocers who believe, ‘My customers would not shop at Aldi or Lidl’ will likely be surprised,” Faigen said.

“The U.S. and European trends we have measured over the past five years tell a clear story of consumers moving portions of their weekly shopping from incumbent grocers to these private-brand retailers.”

Others are firing back. In some places where Lidl and Walmart compete, Walmart already is cutting prices and making other moves.

“Walmart is being really aggressive in terms of watching what Lidl, and presumably Aldi, are doing, and you can tell they are in a fight and are not willing to give up customers,” Rupesh Parikh, an analyst at Oppenheimer and Co., said in a recent issue of Supermarket News.

Not all of the skirmishes are about prices. Aldi has joined with Instacart to debut to-your-home delivery service in Atlanta, Dallas and Los Angeles. Delivery could take as little as an hour. And analysts predict Amazon’s recent acquisition of Whole Foods will bring other changes to the industry.

‘More than just the food’

In the low-margin, high-volume grocery business, Faigen said “the winds are blowing favorably” for Aldi and Lidl.

Both made their reputations as discounters, he said. Both take a no-frills approach to buying, presenting and selling. They don’t offer some services, such as a deli, that might be a feature in other stores.

The techniques keep their labor costs low compared to other groceries, he said.

An average Lidl store tends to be a little larger than its Aldi’s counterpart, he said. A Lidl also might have a bakery, for example, where Aldi does not.

Many stores offer some private label products alongside national brands, Faigen said. Aldi and Lidl rely heavily on offering high-quality private label products, sometimes working with local food producers.

For example, Aldi and Lidl both can boast of their award-winning wines, offered at their deep discount prices.

“It’s more than just the food,” Faigen said. “It’s the story behind the food.”

Because Aldi and Lidl control their private-label products, they can control that story, he said. It also makes them more nimble than if they were relying on traditional brand-name food suppliers.

The story is resonating with some consumers. Oliver Wyman surveyed more than 500 consumers earlier this year about Lidl stores coming to their areas. Among the findings:

  • “Even though none of the survey respondents had ever been to a Lidl store in the U.S., 67 percent said it is (very) likely that they will try shopping at Lidl, and 52 percent are (very) excited about shopping there.”
  • “Contrary to commonly held industry wisdom, households at all ends of the income spectrum are excited about Lidl’s store openings. In fact, 49 percent of households with an annual income over $75,000 are excited about Lidl compared with an almost identical 48 percent of households earning less than $25,000 per year.”
  • “Concerns around fewer services for consumers and no deli or other service counters at Lidl were less of an issue for consumers.”
  • “Whether consumers shopped at traditional, specialty or regional grocers in the past, there is a very high interest in shopping at Lidl in the future.”
  • “Consumers who already shop at Aldi, another hard discount grocer, are overall more excited and likely to try Lidl than non-Aldi shoppers.”
  • ‘Going to be disrupted’

For many consumers, Faigen said, grocery shopping is something of a ritual that varies little from week to week or month to month. He said business leaders will have to consider how much of their business might shift to discounters, where they can effectively compete and how they can best adjust to the changes in the industry.

“These are the types of questions grocers should be concerned about because the status quo is going to be disrupted,” he said.

Some grocers with relatively high fixed costs or in areas of declining consumer traffic could find themselves at risk, he said.

Part of the concern is not just a loss of food sales, but also revenue from other items that consumers add to their cart while their marking items off their grocery lists, Faigen said.

“Consumers are more in control of what’s going on and what will happen going forward,” he said.

Aldi v. Lidl

Aldi
  • Headquarters: Essen, Germany, for Aldi Nord; Mülheim, Germany, for Aldi Süd
  • Parent company: ALDI Einkauf GmbH & Co. oHG
  • Worldwide: About 10,000 locations in 18 countries
  • U.S. debut: In 1976 in southeastern Iowa; Aldi Süd operates Aldi’s; Aldi Nord operates Trader Joe’s
  • U.S. expansion plan: 2,500 stores by the end of 2022.
Lidl
  • Headquarters: Neckarsulm, Germany
  • Parent company: Schwarz Gruppe
  • Worldwide: About 10,000 locations in 27 countries
  • U.S. debut: In 2017 in the southeastern United States
  • U.S. expansion plan: Up to 100 stores across the East Coast by the summer of 2018