supermarket wars A Plot to Disrupt US Grocery Market

Europe's largest discount retailer Lidl plans to offer an alternative to Americans tired of box stores like Walmart – but it will first have to take on German rival Aldi.
A new Lidl branch in Fredericksburg, Virginia.

Lawrence Ramos has heard of Lidl, though he has never shopped at one of its stores. A resident of Chicago, he has never had the opportunity – this here is Aldi country.

Over the course of nearly 40 years, Aldi has slowly and deliberately conquered the US from its headquarters in Batavia, Illinois, just 35 miles outside of America’s Windy City and logistics hub. Today, it has 1,600 locations in 35 states.

Germany's original discount supermarket chain has carved out a niche in the hyper-charged US consumer market, offering an affordable, no-frills shopping experience in a country dominated by labyrinth-like box stores.

Aldi, however, is no longer alone. It will soon face competition from a familiar rival. Lidl, Europe's largest discount retailer, is set to establish a beachhead on the US' East Coast this summer with ambitious plans for expansion.

Lidl will generate €5.2 billion, or $5.7 billion, in revenue and operate 550 stores across the US' East Coast by 2022.

It has taken two years and nearly a half billion euros, but Lidl is set to open its first 20 US stores in Virgina, North Carolina and South Carolina on June 15, and the discount supermarket is not stopping there. Plans call for a rapid expansion next year, with another 80 stores opening up and down the east coast from New York to Georgia.

According to forecasts by Planet Retail, a market analysis firm, Lidl will generate €5.2 billion, or $5.7 billion, in revenue and operate 550 stores across the US East Coast by 2022. By way of comparison, it took Aldi 30 years to achieve revenues that high.

Lidl’s arrival in the US is one of the biggest events in US retail, said Mike Pagila, an analyst with the consulting firm Kantar Retail. It comes at a time when familiar US brands like Whole Foods and Safeway are in a state of turmoil, slashing costs in the face of falling prices and increased competition.

Lidl sees this as an opportunity and plans to turn up the heat in the US market. The discount supermarket said it will offer prices 50 percent below the competition, according to Reuters news agency. Prices that low could attract Aldi loyalists like Mr. Ramos, who shops for “good, cheap food.” Aldi is aiming to undercut prices of US competitors by 21 percent, Reuters said.

A retired police district administrator, Mr. Ramos was turned on to Aldi two years ago by his aunt. He described her as a "fruit and vegetable person" who is particular about what she eats. Mr. Ramos, on the other hand, not so much. Today, he has dropped by Aldi on a quick ice cream run.

“The ice cream is good here. I’m getting the same value and taste that I would normally pay more for at Jewel or Mariano's,” he said, referring to two Chicago chains.

Lidl and Aldi - Food retail U.S.

While price and quality play an important role for consumers like Mr. Ramos, many US shoppers have also simply grown fed up with the ever-expanding box stores that have come to dominate the retail landscape.

"Aldi has a narrower range of products, I don’t buy as much stuff, so I find that it’s more cost effective, because they don’t have 10 different brands of the same product,” said Heather Fitch, a 33-year-old shipping manager.

And Mr. Ramos says he likes Aldi's European quirks. For example, there are no baggers, a traditional hallmark of the US grocery store. Mr. Ramos finds bagging his own groceries more convenient - it makes the shopping experience quicker.

With Lidl focused on the East Coast, Aldi does not have to worry about losing shoppers like Mr. Ramos on its US home turf for now. But it clearly is concerned about the broader impact of Lidl's entry into the North American market. Aldi is gearing up for battle with plans to spend more than €4.3 billion to revamp its 1,600 supermarkets and expand to 2,000 stores by the end of 2019. Heather Fitch has noticed the difference.

"Discount retailers like Aldi have really revamped their selection of products, so I can’t justify going to a place like Whole Foods and spending twice as much money to get essentially the same stuff,” she said.

Which goes to show that even in the United States, where the consumer is king, sometimes less is more. Lidl, for its part, hopes to tap into this growing demand for a simpler shopping experience come June.

Spencer Kimball is an editor with Handelsbaltt Global based in Chicago. Thomas Jahn is Handelsblatt's New York bureau chief. Florian Kolf leads a team of reporters covering the retail, consumer goods, luxury and fashion markets. To contact the authors: [email protected], [email protected], [email protected]