Produce industry will be battle ground in years to come
Discount retailers will change the landscape of the US retail market
In Europe, discount retailers like Aldi and Lidl have triggered an ongoing price war at the retail level. “I definitely believe these two retailers are going to change the US retail landscape,” says Anne-Marie Roerink, Principal of 210 Analytics. “In fact, they already have,” she added. Aldi’s level of investment in both remodels and new store openings has made the chain a formidable competitor in a mere few years. The retailer’s motto as a hard discounter is all about the ‘art of leaving out’. Average supermarkets in the US carry 45,000 SKUs while Aldi carries 1,000 - 1,500. The average store in the US is some 40,000 - 50,000 square foot, but the average Aldi store measures about 10,000-15,000 sq. ft. Aldi’s minimalistic look means half the investment costs and low overhead, including labor. “Combined with above-average private brand margins at a massive purchasing power, Aldi’s gross margin is one few retailers can match,” shared Roerink. “Lidl’s arrival will be the classic one-two punch. In Germany, discounters have a combined market share of 45 percent, versus 29 percent for supermarkets.”
Competition in produce segment
Roerink is convinced consumers will see their grocery bills going down. “Immediately following Lidl’s announcement of crossing the pond, both Target and Walmart announced they will go toe to toe on price and start dropping prices to keep shoppers,” Roerink mentioned. “Longer-term, inflation/deflation and supply/demand will have its say, but is very likely that retailers will choose to compete in important areas such as produce to drive shopper trips and spending. Competition typically means more promotions and sharper prices.” Brian Numainville, Principal at Retail Feedback Group also believes battles in the price arena will take place as Aldi and Lidl are positioning themselves up against traditional retailers and Walmart Supercenters. “This could be good for consumers in those market,” he shared.
Discounters set the price
“In markets with established discount retailers, discounters are the ones setting the price for the rest of the field,” commented Roerink. “In Germany for instance, Aldi defines product prices for the rest of the market, typically dipping 5-7 percent below supermarket averages and more on key items. On Saturday’s weekly trip, that adds up. Therefore, in Europe many grocery shoppers will start at Aldi or Lidl and have a two-store strategy for items they can’t or don’t wish to buy there.”
Discounters may increase produce consumption
According to Roerink, Lidl is typically very strong in produce; sharp prices and good quality. Aldi has built up a strong reputation in organic offerings. “With a little luck, discounters may actually increase produce consumption in the US by making it more affordable,” she said. “Produce is the second highest reason why shoppers pick one store over another, so the produce industry will be quite the battle ground in years to come.”
Will American consumer fall for discounter with smaller selection?
“One of the core experience factors that traditional supermarkets usually score high on is variety and selection,” said Numainville. Given the strong private label concentration in Aldi and Lidl, shoppers will have to love the items offered and be willing to sacrifice their national brands for the private label products offered. Numainville believes Lidl’s intention to offer higher quality private label brands, and in general a higher quality shopping experience, will attract consumers. In fact, many consumers have been loyal shoppers of Aldi and Trader Joe’s, for example, with their heavy emphasis on private label so no reason that this strategy can’t work for Lidl. And, Lidl offers a “Love it! Guarantee" that should help to foster trial and satisfaction.
Brian Numainville, PRC
Retail Feedback Group
Tel: 516-829-4200 x115
Publication date: 8/7/2017
Author: Marieke Hemmes
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