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Walmart deftly defends against Lidl threat: analyst

Observations in Southeast show Walmart — and others — responding decisively, particularly in private label

Walmart is reacting quickly and aggressively to Lidl’s entry to the U.S., according to an analyst who recently conducted in-depth tours of some markets in the Southeast where the two chains compete.

“Walmart is being really aggressive in terms of watching what Lidl, and presumably Aldi, are doing, and you can tell they are in a fight and are not willing to give up customers,” said Rupesh Parikh, an analyst at Oppenheimer & Co.

Oppenheimer initiated coverage of Bentonville, Ark.-based Walmart with a report issued on Tuesday.

“We found Walmart prices on like-for-like items were very competitive with both Lidl and Aldi,” said Parikh.

An Oppenheimer price comparison on a basket of 47 similar items in the Winston-Salem, N.C., market found that Lidl edged Walmart by only 2% overall on the total basket price.  Compared with Aldi, there was no difference between Aldi and Lidl in price for the total basket measured.

By comparison, the research showed a 17% differential in favor of Lidl on a basket of similar items at a Kroger-owned Harris Teeter store, which Parikh noted was not in close proximity to Lidl.

Lidl, a Germany-based discounter, entered the U.S. market in June and plans to have 100 store open by next summer.

Among Walmart’s strategies in the Winston-Salem market has been an increase in endcaps highlighting the company’s Great Value private label line. The company also featured sharp pricing on endcaps in bakery and floral, such as flower bouquets priced at $3.97, Parikh wrote in a report.

“The execution in every market is different, but the company's response in this market could prove effective in mitigating the threat,” he said.

As an example of Walmart’s attentiveness to pricing and swift response to competition, Parikh said he saw milk priced at $2.08 per gallon one afternoon at a Walmart, only to return that evening to see it priced at $1.95.

He also said he observed aggressive price positioning by several other retailers in the market that operate in proximity to Lidl, including Food Lion, Family Dollar, Dollar General and Target. Minneapolis-based Target, for example, reduced prices on several items, many of them in its Market Pantry private label line, in the 10% to 20% range or more.

“Throughout our time in Winston-Salem, it was very clear that almost all the players we visited are keenly focused on private label,” Parikh said in the report. “These efforts are clearly not only in response to Lidl, but potentially greater internet competition down the road from Amazon.”

He said he saw a similarly aggressive stance in private label taken by Kroger Co. in the Atlanta market. Lidl recently unveiled plans for a Georgia distribution center.

“I think Kroger is already making adjustments,” Parikh said.

The aggressive pricing on private label could lead some retailers to seek higher margins on other products in order to protect profitability, he noted.

Better execution overall

Meanwhile Parikh said that in addition to its decisive pricing moves in the markets where it competes with Lidl, he believes Walmart has also followed through on efforts to improve its in-store execution overall.

“I spend a lot of time visiting stores throughout the country, and they really are operating better grocery stores,” he said. “I think the produce quality is better, the presentation is better, the stores are cleaner and they have faster checkouts.”

Last week, Walmart realigned some key executives in its food operations, which some observers saw as a response to the increasingly competitive grocery marketplace, both physical and online.

Parikh said he has also been impressed with Walmart’s efforts in e-commerce, where the company continues to experiment with last-mile home delivery options but is aggressively rolling out click-and-collect for grocery items and making online ordering of center store products easier with free two-day shipping of orders of $35 or more.

“That’s another powerful tool that helps to make sure they have an offering where consumer buying preferences are evolving over time,” he said.

Oppenheimer & Co. said its grocery and hardlines and ec-ommerce research teams have combined forces to initiate Walmart coverage at “outperform,” with a $90 per share price target.

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