German discount grocer Lidl’s entry in the US officially begins Thursday with its inaugural store opening, and it has already generated plenty of buzz and anxiety in the grocery sector.
A flyer on its web site gives some hints as to why Lidl is likely to be a formidable competitor: It offers a large seedless watermelon at half off for $2.49; four black angus beef patties at 22% off for $3.49 a pound; and a 22- inch kettle grill for $19.99. Lidl has said it will sell goods at up to 50% less than other US supermarkets.
That has raised fears that Lidl will spur even more price competition in the grocery sector. Walmart CFO Brett Biggs said at a recent conference that the company is “very mindful” of Lidl.
Lidl sits at a sweet spot of the market, the so-called deep discount sector where grocers including Trader Joe's and Lidl's German rival Aldi use store brands to keep prices low and win price-conscious shoppers. Lidl says some 90% of the groceries it sells will be exclusive brand products.Deep discounters have outpaced other grocery formats.
Deep discounters have seen the biggest increase in consumer grocery shopping visits over the past year, outpacing conventional grocery stores, supercenters, warehouse clubs and mass merchandisers, according to Nielsen data released on Wednesday. While consumer trips across all physical sales channels inched up 0.5%, trips to deep discounters rose 2.8%.
Getting more traffic is crucial at a time when many retailers and malls are struggling to get shoppers to their stores in the first place.
Nielsen data also suggested that there’s also plenty of room for growth for the deep discounters: only about 40% of households shop there, compared to the 97% of households that shop at traditional supermarket chains or the 75% that buy at supercenters.
Lidl, which operates about 10,000 stores in 27 countries throughout Europe, plans to open a total of 20 stores this summer in Virginia, North Carolina and South Carolina. By next summer, it said it plans to open up to 100 stores across the US East Coast.
Fung Global Retail & Technology has estimated that Lidl will generate about $1 billion in sales in the US in 2018 and $4 billion in 2020, assuming that it opens under 100 stores each year. To be sure, that’s still small. Kroger, for instance, generated sales of $115.3 billion last year.