Compounding the competitive crunch experienced by supermarkets is the continued U.S. market incursion of German hard-discount grocers Aldi and Lidl, agreed panelists in the 23rd annual SN Financial Analysts Roundtable. A range of research studies have shown that both chains get high marks from consumers — particularly Millennials — and tend to lower overall grocery prices when entering a new market.
“It’s a convenient, value-focused concept that appeals to many different income demographics,” said Christopher Mandeville, equity analyst at Jefferies.
A major product expansion is underway at Aldi, including enhancing the selection of fresh food by 40%.
Aldi, especially, has expanded swiftly. Now with about 1,800 locations in 35 states, the chain is over a year into a $5.3 billion, five-year expansion program that will enlarge its store base by almost 50% and upgrade most of its stores. By the end of 2022, Aldi aims to have 2,500 stores. “Aldi is growing like a weed,” said Scott Mushkin, managing director of consumer research at Wolfe Research.
A major product expansion also is underway that will make 20% of items in every Aldi store new versus a year ago and augment the selection of fresh food by 40%.
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“The middle-income consumer, or even an individual who is well-off, you'll find them actually shopping at Aldi because they appreciate the value that's provided,” Mandeville said. “They feel as though they've won something.”
Lidl is also making moves, having reset its expansion plans and retooled its real estate strategy. After its first U.S. store openings in June 2017, Lidl said it aimed to have 100 stores in the next year but ended up scaling back its growth plans. But in that short time span, the chain made a strong impression on American grocery shoppers and holds a high growth potential. Currently, Lidl has more than 50 stores in Virginia, North Carolina, South Carolina, Georgia, Delaware and New Jersey.
“I think the jury is still out on Lidl. There are some things that consumers like about Lidl, and there are some things that the consumer is not accepting,” said Karen Short, managing director for equity research at Barclays Capital.
“But if you look at where Lidl is going from a footprint perspective,” she noted, “it’s obvious that their focus is the wasteland of the Eastern seaboard that is an entire segment of poorly run conventionals. So it seems to me that it should be pretty easy to take share in the footprint that they’ve currently identified.”
