North America is far from unexplored territory for European grocers. The likes of Food Lion, Giant Food, Stop & Shop and Hannaford are owned by the Dutch Ahold Delhaize company, which bought-in in the mid-70s. Despite their non-domestic corporate roots, these stores help define the quintessential American grocery shopping experience: huge store footprints with a seemingly endless list of SKUs; carefully maintained mountains of gleaming produce, regardless of the season; and brightly lit aisles wide enough to drive through in a full-size SUV. Who would want anything different?
As it turns out, American shoppers are starting to develop an appetite for something different—and it has a distinctly European flavor. German grocers Aldi (which opened its first U.S. store in 1976) and Lidl (which entered the market in 2017) are engaged in a grocery store arms race, rapidly expanding their limited-assortment stores throughout the country and snapping up market share in what has been described as an invasion. Even America’s biggest retailer, Wal-Mart, saw reason to worry when Lidl entered the fray.
So why does America’s grocery hierarchy feel threatened by the latest European grocers to test the U.S. waters, when the last international entrant, Tesco, failed so spectacularly and abandoned the market after only five years? It’s about customer enthusiasm. Here’s why Aldi and Lidl are primed to continue taking a bite out of the U.S. grocery market in the years to come.
Their prices are amazing
The most profitable grocery retailers are accustomed to surviving on thin margins, even in boom times. So how can the likes of Aldi and Lidl manage to sell their products for so little, while remaining profitable enough to expand internationally? For Aldi, which regularly tops lists of the cheapest grocers in America, the answer relies on a strategy of deliberate scarcity, according to an analysis by the Wall Street Journal. Fewer items—approximately 1,700 SKUs, compared to an average of around 35,000 at a typical supermarket—means smaller footprints, lower rent and utility costs and fewer store associates required to handle inventory.
Less overhead means there’s less to recoup on every sale. And with more than 10,000 locations in 18 countries, Aldi has massive purchasing power, enough to negotiate rock-bottom prices from its suppliers, and pass those savings on to the customers—while still pocketing annual revenues of more than $80 billion. If the idea of smaller store footprints and a limited selection of mostly private-label goods sounds a bit like shopping at Trader Joe’s, there’s good reason: TJ’s and Aldi have a lot of the same DNA.
Speaking of private label, their house goods are on-point
Major brands aren’t totally unheard of at Aldi or Lidl, but they make up a small fraction of the overall offerings. Instead, both European grocers rely on their own high-quality private label goods to differentiate from the competition and keep costs down. At Lidl, which typically carries more than twice the number of SKUs as Aldi, private label goods make up nearly 80 percent of the total inventory, including a high number of imported goods thanks to Lidl’s strong international footprint. Lidl also earns high marks for its in-house bakery—known for its all-butter croissants and French baguettes—which are deliberately placed front-and-center at most stores.
But competition for private-label supremacy is fierce between Aldi and Lidl: Aldi’s highly secretive test kitchen reportedly samples a product a minimum of 30 times before it’s considered for inventory—and re-samples a product whenever a competitor (who might that be?) introduces a similar item. These painstaking standards are important for Aldi’s brand perception, elevating quality over straight-up parsimony, and appealing to customers of all socioeconomic backgrounds the way Target does retail.
They’re popping up everywhere
Aldi already operates nearly 2,000 U.S. stores, riding the wave of a five-year growth strategy launched in 2017 that includes plans to max out at 2,500 stores by the start of 2023. And as Americans continue to flock to grocery stores in droves during the pandemic, that target seems more attainable than ever before. And at the same time, the increased presence of a low-cost grocery option is especially welcome at a time of stagnating household incomes and rising food prices.
Lidl, meanwhile, is doing everything it can to keep pace with Aldi’s rapid expansion. After a bumpy start, Lidl has opened more than 100 stores in a handful of key East Coast markets in just under four years, with another 50 or so to come by the end of 2021.
The shopping experience is simple
These are not your typical American grocery stores. From the size of the store—around 10,000 square feet for Aldi, and up to about 20,000 for Lidl—to the reduced number of products on the shelves, everything is stripped down to its necessities. “Nobody needs 50 different types of toilet paper,” a former Aldi executive once said. Instead of being meticulously placed and faced, on-shelf products are displayed in the boxes they were shipped in, or placed in utilitarian bins and baskets, which reduces both time spent on restocking and manpower needs. And don’t expect the perpetual fluorescent glow found in stores like Kroger or Wal-Mart: Lidl relies more on natural light.
The overall approach is to move everyday products as quickly as possible, which drives up gross profits and reduces inventory costs. But a simple shopping experience doesn’t mean there aren’t a few frills to help attract customers. Both Aldi and Lidl pride themselves on their wine selection. So while it may be harder to find a wide variety of certain common products, it’s nice to be able to grab an $8.99 bottle of award-winning prosecco.
Checkout is a breeze
Loyal shoppers of European grocers like Aldi and Lidl have shown a willingness to sacrifice some in-store frills in exchange for bottom of the barrel prices. But one way to sour an otherwise efficient in-store experience is with slow checkout. As the last interaction a customer has, a long line to pay for groceries can seriously dent customer loyalty—not to mention customer throughput. Many customers cite it as their No. 1 pet peeve. Aldi and Lidl figured out a long time ago that moving customers through the checkout line, fast, has benefits not only for the overall shopping experience, but for labor productivity. And they came up with an extremely efficient packaging hack to ensure smooth sailing.
Look at products at either Aldi or Lidl and you’ll notice barcodes slapped across virtually every flat surface, whether on a cereal box or a bag of frozen peas. The easy to scan products make it easier for store associates to scan products efficiently: one often-cited figure says Aldi’s checkouts move up to 40 percent faster than other grocers. It’s so noticeable that the speed of Aldi cashiers has become the stuff of legend—and how-to guides. Another clever tweak to speed up the checkout process: conveyor belts long enough to contain an entire cart’s worth of groceries, enabling every shopper to fully unload without having to wait for the cashier to move the belt along and create more space—like that would ever happen.
What’s next for Aldi and Lidl
Before the pandemic, limited assortment stores like Aldi and Lidl were poised to outgrow traditional supermarkets by a factor of more than 10 by 2023, according to one analyst’s forecast. And with household budgets tightening under the strain of the pandemic, combined with rising food costs, the desire for savings at the grocery store is only likely to increase, playing into the hands of these low-cost European grocer’s plans for continued North American expansion. But it’s about more than low prices. Shoppers in the U.S. have shown that they have plenty of room in the grocery routine for the idiosyncratic, low-frills, super-efficient charms of these imports—and they might even grab an extra bottle of prosecco while they’re at it.
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