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Aldi and Lidl US Expansion: US grocery retailers should be worried
Aldi and Lidl have been responsible for a huge shift in the grocery market across Europe. This has been particularly evident in the UK with the discounters growing their collective share of the market from 2.8% in 2000 to 12% in mid-2017. In a market that was previously dominated by four big retailers, this has been an impressive growth. The low prices offered by Aldi and Lidl, along with clever marketing campaigns and a growing reputation for quality produce, have enabled the discounters to erode the market share of the big four supermarkets in the UK. This is something both retailers are looking to replicate in the US.
Aldi has actually been present in the US market for a number of years, with its first store being established in Iowa in 1976. Much like the story goes in the UK, Aldi’s visibility grew in the US during the 2008 recession. With stagnant real incomes, low consumer confidence and economic downturn, people became less loyal to branding and more price elastic in their preferences. While other retailers felt the impact of this, Aldi actually benefitted. Aldi now has 1,600 stores across 35 states and retail sales of around $13.7bn in 2016.
On June 15, 2017 Lidl began its US infiltration with the opening of 10 stores across three states, with 90 more stores anticipated to be in operation by mid-2018. The company is unlikely to stop there, with further expansion expected. The presence of Aldi will only serve as an advantage to Lidl. Both retailers operate similar business models with store layouts and product ranges being comparable. In the UK these two discounters operate in harmony, with people willing to shop in either, with preferences largely dependent on location. The situation is likely to be similar in the US.
In the US market, grocery stores are highly competitive, particularly in terms of prices. The expansion of Aldi and Lidl will only incite further competition. While Walmart is well protected from such rivalry, other US retailers are likely to be highly disrupted.