An industry embroiled in a deflation-fueled price war saw competitive pressure added to it as a decades-long supermarket battle in Europe is now set to move to the U.S.
Aldi said on Monday that in order to open 900 supermarkets over the next five years, $3.4 billion is being planned to be spent by the company which is known for low prices on its private-label items. And with plans for as many as 100 by the summer of 2018, its European discount rival, Lidl, prepares to open its first U.S. stores this week, and the announcement of the investment comes in the face of that rival knowledge.
More pressure to lower their prices could be put on conventional retailers like Wal-Mart Stores Inc. and Kroger Co. by the U.S. expansion by the German private-label giants. With the longest such streak in more than 60 years, a deflationary spiral is ongoing in the industry that has seen food prices drop for 17 straight months, and the new competition in the low-margin industry arrives during such a period.
“There’s a tremendous amount of value at stake that will shift to Lidl and Aldi,” said Ken Knudson, a Bain & Co. partner. “Traditional grocers can’t afford to lose sales right now given how competitive it is — it will be very disruptive.”
As much as 10 percent annually through 2020, five times higher than for traditional stores, is expected to be seen the sales in the so-called “deep discount segment” of the grocery business, which includes Aldi and Lidl, Bain predicts.
On Thursday, when Lidl opens nine stores in three states, the battle between the two closely held grocers will intensify. As many as 600 U.S. locations over the next five years is estimated to be opened up by it according to analysts. According to Aldi, it could become the third-largest supermarket chain in the U.S. after it manages to open up 2,500 stores nationwide by 2022, says Aldi. Kroger and Albertsons Cos., which also owns Safeway, would only have more stores.
In recent years, as it tries to appeal to more mainstream shoppers, Aldi has added more produce and boosted its organic and gluten-free offerings. In what is part of a bid to shed its image as strictly a low-brow discounter, offering fresh fish, improved its meat selection and increased its selection of national brands, have also been started by the company. $1.6 billion in remodeling 1,300 of its U.S. stores has been announced to be spent by the company, Alsi said earlier this year.
When Anna Albrecht opened a small store in Essen, Germany, Bottom of Form
Aldi was founded more than a century ago. The company quickly expanded after her sons, Karl and Theo, took over the company in 1948. Shortened from Albrecht Discount, the name became Aldi in 1962. And following a dispute about whether to sell cigarettes, the brothers split the chain into two companies –Aldi Süd and Aldi Nord, that same year. While Aldi Nord runs the popular private-label grocer Trader Joe’s, Aldi Süd oversees the U.S. operations.
But according to Liz Ruggles, a spokeswoman, how Aldi does business in the U.S. would not be changed by the arrival of Lidl this week.
“We’re doing what we’ve been doing to ensure we’re the low-cost leader,” Ruggles said. “We’ll continue to maintain that — we’re very diligent.”
(Adapted from Bloomberg)