A decades-long supermarket battle in Europe is moving to the US, exacerbating competitive pressure in an industry already embroiled in a deflation-fuelled price war.
Aldi, known for low prices on its private-label items, plans to spend $3.4bn (approximately £2.7bn) over the next five years to open 900 supermarkets, the company said on Monday. The investment comes as its European discount rival, Lidl, prepares to open its first US stores this week, with plans for as many as 100 by the summer of 2018.
The US expansion by the German private-label giants could put more pressure on conventional retailers like Wal-Mart and Kroger to lower their prices. The new competition in the low-margin industry arrives during a deflationary spiral that has seen food prices drop for 17 straight months, the longest such streak in more than 60 years.
“There’s a tremendous amount of value at stake that will shift to Lidl and Aldi,” said Ken Knudson, a Bain & Co. partner. “Traditional grocers can’t afford to lose sales right now given how competitive it is — it will be very disruptive.”
Bain predicts that sales in the so-called “deep-discount segment” of the grocery business, which includes Aldi and Lidl, will grow as much as 10 per cent annually through 2020, five times higher than for traditional stores.
The battle between the two grocers will intensify on Thursday, when Lidl opens nine stores in three states. Analysts have estimated that it could roll out as many as 600 US locations over the next five years.
Aldi says it will have 2,500 stores nationwide by 2022, which would make it the third-largest supermarket chain in the US, according to the company. Only Kroger and Albertsons, which also owns Safeway, would have more.
Aldi has added more produce and boosted its organic and gluten-free offerings in recent years, as it tries to appeal to more mainstream shoppers.
The company has also started offering fresh fish, improved its meat selection and increased its selection of national brands, part of a bid to shed its image as strictly a low-brow discounter. Earlier this year, the company announced plans to spend $1.6bn remodelling 1,300 of its U.S. stores.
Least ethical supermarkets
Least ethical supermarkets
1/11 11) The Co-operative
With an 11.0 rating, the Co-op comes out as the most ethical supermarket
2/11 10) M&S
At 10, Marks and Spencer is relatively high
3/11 9) Ocado
Delivery service Ocado's motto is "quality food that doesn't cost the earth"
4/11 8) Waitrose
Waitrose was the 4th most ethical on the list
5/11 7) Aldi
Aldi surprisingly beat some of its up-market rivals
6/11 6) Sainsburys
Sainsburys received a score of 9 for environmental ethics
7/11 5) Morrisons
Morrisons is the 5th least ethical supermarket in Britian
Tesco was the 4th least ethical, with an environmental score of 7
9/11 3) Iceland
Iceland was the third least ethical
10/11 2) Lidl
Lidl was Britain's second most unethical supermarket for its impact on the environment and its reputation for throwing away unused food.
11/11 1) Asda
Asda is the least ethical, Ethical Consumer added: "In most cases your local independent grocery or wholefood shop will be the most ethical place to shop."
Aldi was founded more than a century ago when Anna Albrecht opened a small store in Essen, Germany. Her sons, Karl and Theo, took over in 1948 and quickly expanded. In 1962, the name became Aldi, shortened from Albrecht Discount.
That same year, the brothers split the chain into two companies —Aldi Süd and Aldi Nord — following a dispute about whether to sell cigarettes. Aldi Süd oversees the US operations, while Aldi Nord runs the popular private-label grocer Trader Joe’s.
The arrival of Lidl this week won’t change how Aldi does business in the US, according to spokeswoman Liz Ruggles. “We’re doing what we’ve been doing to ensure we’re the low-cost leader. We’ll continue to maintain that — we’re very diligent.”