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Discounters Aldi And Lidl Put Big U.S. Brands On Notice

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German discount supermarket chains Aldi and Lidl are aiming at U.S. market expansion, a strategy that is keeping top brands such as Walmart, Dollar General and Kroger on watch. But these retailers’ U.S. plans should attract the attention — and perhaps the concern — of all retailers offering both food and general merchandise.

In a recent webinar, titled: Preparing for the Rise of U.S. Discounters, Doug Koontz, Head of Content at Retail Net Group (RNG), and David Gordon, Research Director at Planet Retail, discussed the disruptive impact the two chains have had in Europe and what this means for potential competitors in the U.S.

Although Lidl does not yet operate in the U.S., the supermarket is eyeing various locations on the East Coast, having already established a headquarters and a distribution center in Virginia and another DC in North Carolina. But Aldi’s U.S. presence shows what Lidl may be capable of: the supermarket chain has achieved strong sales of $662 per square foot, outdoing Walmart and Dollar General’s averages of $418 and $223 respectively, according to RNG research. These stats are even more impressive when taking into account that Aldi carries an average of 800 SKUs per store, far less than the 10,000 at Dollar General and the 140,000 at Walmart.

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Expanding Globally, Merchandising Locally

Koontz indicated that the Aldi/Lidl brands have stood out and continued their growth in Europe due to various fundamentals that build urgency to pull shoppers into the store:

  • Limited fresh assortment, with a focus on private label and seasonal goods;

  • Limited store investment, with limited labor and minimal assistance required;

  • An expanding customer base, one that isn’t exclusively comprised of low-income shoppers; and

  • An assortment containing more than generic staples, such as culinary-led, health-focused, local or premium goods.

“Some of the discount stores in Germany were the first stores to ever continually carry vegan lines,” said Koontz during the webinar. “You see more natural and organic products entering the assortment. Of course, local is a bit related to that, in the sense that you get to see local adaptations to the market or even the region that it’s operating in. In the UK, you will see all sorts of British branding that emphasize the British products that this particular Lidl store was carrying. If you went to Spain or Germany, you would see those things emphasized in those local markets.”

Closing The Value Gap With Top Discounters

Gordon shared his thoughts on how global retailers can compete in this growing discount sector, first recommending that these brands close the value gap by renewing a focus on market share rather than margins, and simplifying pricing and promotions.

“In terms of promotions, multi-buys have been incredibly popular over the last decade,” Gordon said. “But really, that’s asking quite a lot from potentially cash-strapped consumers. That’s a big purchase for people with tighter disposable incomes. Discounters don’t do that, and they differentiate in that way. So now we need to see retailers put themselves more on a level playing field by simplifying their promotions.”

Since similarities in price are often a recurring theme within retail, Gordon suggests these brands must differentiate through enhanced assortments and services that answer to a broad scale of “shopper missions.” Additional recommendations include:

  • Personalization through targeted incentives and loyalty experiences;

  • Driving down operational efficiency/labor costs, either in-store or through the back office; and

  • Online solutions to provide ease and convenience such as buy online/pick up in-store.

“These online solutions are a little bit harder for discounters to replicate,” Gordon stated. “Discounters trying to replicate them ramp up their cost base and start to impact their economic model.”

 

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