Brief

Wal-Mart sparks grocery price war to compete with Aldi

Dive Brief:

  • Wal-Mart is testing a pricing policy in some 1,200 U.S. stores in 11 Midwestern and Southeastern states in an effort to compete with German grocery retailer Aldi, Reuters reports.

  • The retail giant is working with vendors to help move prices downward, on both food and consumer product goods, according to the report.

  • Wal-Mart's brand proposition to consumers has long been “always low prices,” but, according to Reuters, several of its categories feature prices as much as 20% higher than the no-frills, store-brand offerings from Aldi, Trader Joe’s and Lidl, all German-owned companies.

Dive Insight:

Redoubled competition from no-frills grocery companies hailing from Germany — fast-growing Aldi, sibling Trader Joe’s and U.S. newcomer Lidl — poses a dramatic threat to Wal-Mart's grocery sales, which account for more than half of its revenues.

Nick Egelanian, president of retail real estate consulting firm SiteWorks, says Wal-Mart is distracted by Amazon in particular and digital sales more generally, and doesn’t seem to realize there’s another, more dangerous shark in the water. “If I ran Wal-Mart, I would be much more concerned about [Lidl coming to America] than about Amazon,” Egelanian told Retail Dive last year.

Aldi is in the midst of what it calls an accelerated expansion plan that will expand its U.S. footprint to nearly 2,000 stores by the end of 2018, an increase of almost 50% in five years. Trader Joe's, which is especially tight-lipped about new store openings, did not respond to a request for comment for a story by Retail Dive last year, but runs a web page to invite recommendations about where to establish new stores, and another page features a slew of new store announcements.

Both Lidl and Aldi run their stores with limited merchandising and bottom-barrel prices: For example, you may only find one type of peanut butter in their stores, offered in just one size, and it’ll be a store-label unbrand at that. But with prices as much as a third lower than many rivals, the approach defies the common notion that the U.S. consumer wants choice. Lidl also sells merchandise like apparel and home goods, further boosting its consumer appeal.

It looks like Wal-Mart is indeed turning its attention to the competition, but it hasn’t fared well with a similar effort by its Asda grocery unit in the United Kingdom. Experts last year repeatedly told Retail Dive to look at Britain’s grocery wars to understand the devastation that could be wrought by Aldi and Lidl.

”[Asda] was the greatest division a few years ago,” Howard Davidowitz, chairman of New York retail consulting and investment banking firm Davidowitz & Associates, told Retail Dive. “Then Aldi and Lidl went across England, and now Asda is doing very badly.”

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Filed Under: Logistics