German grocery chains, such as Aldi and Lidl are set to expand their U.S. footprint despite Wal-Mart and Amazon’s dominance in the grocery sector.
In a significant development, German grocery chain Aldi Inc is aiming to beat Wal-Mart, the world’s biggest retailer, at its own game – selling economically priced products.
Equipped with 1,600 stores in the United States, the company’s internal studies reveal that its prices are 21% lower than its nearest competitor, including Wal-Mart Stores Inc.
Aldi’s Chief Executive, Jason Hart now plans to widen that gap even further.
The key, earlier unreported, element to his strategy lies in increasing the number of private-label goods, including its own in-house brands, to win over price-sensitive consumers.
It is also set to expand the number of its grocery outlets in the U.S., a setor which has seen bankruptcy of 18 companies since 2014.
Hart’s strategy calls for sinking in $1.6 billion to remodel and expand 1,300 stores in the U.S. as well as open 400 new ones in Texas and Florida by the end of 2018.
He has also stated that Aldi will pursue a dynamic pricing strategy and revise its prices in response to its rival’s pricings.
“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,” said Hart.
Significantly, Aldi’s U.S. sales have surged by 100% in the last 5 years.
With a market share of 1.5% in the U.S., Aldi is growing at a rate of 15% year-on-year. In comparison, Wal-Mart has a market share of 22%, but has a growth rate of just 2% a year, said analysts.
As you might imagine, Aldi’s growth has forced competitors to take notice. Price wars have begun roiling the grocery sector with another German discount chain Lidl joining the fight.
Lidl plans on opening 100 stores in the U.S. this year. Amazon.com is also aggressively testing out various brick-and-mortar grocery formats with its Amazon Fresh, a grocery delivery service.
“We have not seen anything like this in the grocery sector in the United States before,” said Scott Mushkin, managing director of Wolfe Research and a leading pricing analyst.
The fierceness and intensity of the competition risks shutting down smaller retailers who can’t afford the cash burn.
“Given Aldi’s expansion, Lidl’s entry, Wal-Mart’s response and Amazon’s growing ambitions in this space, it is fair to expect a significant acceleration in the bankruptcy and liquidation cycle in this sector over the next few years,” said Burt Flickinger, managing director at retail consultancy Strategic Resource Group.