Using its own game – low prices, the world’s biggest retailer is being attempted to be beaten by German grocery chain Aldi Inc.
According to Chief Executive Jason Hart, Aldi’s internal studies show its prices are 21 percent lower than its lowest-priced rivals, including Wal-Mart Stores Inc. Aldi has 1,600 U.S. stores.
A massive expansion to further disrupt a U.S. grocery sector that has seen 18 companies go bankrupt since 2014 and adding more private-label goods, which are a retailer’s in-house brands, to win over price-sensitive customers, are among his strategy that were previously unreported.
Opening of 400 new stores mainly in Florida, Texas and on both coasts by end of 2018 and spending $1.6 billion to expand and remodel 1,300 U.S. stores, are among Hart’s plan. In order to respond to rivals if needed, Aldi will be willing to change prices more frequently, he also pledged.
“We are re-merchandising, remodeling, enhancing our product range and are focused on gaining volume so more customers start their shopping at Aldi and we are able to complete their shopping lists moreso than we have in the past,” said Hart, who added Aldi’s U.S. sales have doubled in five years.
According to analysts, while Wal-Mart currently controls about 22 percent of the market and its U.S. sales are estimated to grow about 2 percent this year Aldi is growing at 15 percent a year, although it only accounts for only about 1.5 percent of the U.S. grocery market.
Price wars are nowhere as intense as in the grocery sector even though it is roiling the entire retail sector – from department stores to discount chains.
Amazon.com Inc is aggressively testing out various brick-and-mortar grocery formats along with growing Amazon Fresh, its grocery delivery service, German discount chain Lidl plans to open up to a 100 U.S. stores in a year, beyond Wal-Mart’s move to match Aldi on price.
“We have not seen anything like this in the grocery sector in the United States before,” said Scott Mushkin, managing director of Wolfe Research and a leading pricing analyst.
Such heated competition could result in more retailers shutting their doors and risks a dangerous race to the bottom.
“Given Aldi’s expansion, Lidl’s entry, Wal-Mart’s response and Amazon’s growing ambitions in this space, it is fair to expect a significant acceleration in the bankruptcy and liquidation cycle in this sector over the next few years,” said Burt Flickinger, managing director at retail consultancy Strategic Resource Group.
According to Hart – everyday low pricing, is the simple strategy that Aldi follows to win more customers.
“We don’t confuse our customers with yo-yo discounts, sales, coupons and loyalty cards that require membership fees,” he said.
Although analysts say that Wal-Mart is gaining ground in the states they are conducting price tests they also confirmed that Aldi now offers the lowest prices in private label consumer products in the states it operates.
Analysts said that Aldi’s prices are cheaper than most rivals’ private label items and even most branded items, depending on the product. By monitoring competition on a basket of groceries, calculations for the 21 percent difference in price is done, Hart said.
(Adapted from Reuters)