Walmart is running price tests in 11 states, pushing vendors to undercut Aldi and other rivals by 15 per cent and is expected to spend about $6 billion to regain its title as the low-price leader
ILLINOIS: German grocery chain Aldi Inc is trying to beat the world’s biggest retailer at its own game: low prices.
Already with 1,600 US stores, Aldi has set a minimum target of selling groceries at a 21 per cent discount to its US rivals, including Walmart Stores Inc, Chief Executive Jason Hart said.
His strategy, previously unreported, centres on adding more private-label goods, which are a retailer’s in-house brands, to win over price-sensitive customers, and a massive expansion to further disrupt a US grocery sector that has seen 18 companies go bankrupt since 2014.
Hart’s plan calls for spending $1.6 billion to expand and remodel 1,300 US stores, and open 400 new stores mainly in Florida, Texas and on both coasts by end of 2018.
He also pledged Aldi will be willing to change prices more frequently to respond to rivals if needed.
“We are re-merchandising, remodelling, 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 more so than we have in the past,” said Hart, who added Aldi’s US sales have doubled in five years.
Though it only accounts for only about 1.5 per cent of the US grocery market, Aldi is growing at 15 per cent a year, whereas Walmart currently controls about 22 per cent of the market and its US sales are estimated to grow about 2 per cent this year, according to analysts.
Aldi’s growth potential has competitors taking notice.
Reuters reported in February that Walmart is running price tests in 11 states, pushing vendors to undercut Aldi and other rivals by 15 per cent and is expected to spend about $6 billion to regain its title as the low-price leader.
Price wars are roiling the entire retail industry — from department stores to discount chains — but it is nowhere as intense as in the grocery sector.
Beyond Walmart’s move to match Aldi on price, German discount chain Lidl plans to open up to a 100 US stores in a year, and Amazon.com Inc is aggressively testing out various brick-and-mortar grocery formats along with growing Amazon Fresh, its grocery delivery service.
“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 risks a dangerous race to the bottom that could result in more retailers shutting their doors.
“Given Aldi’s expansion, Lidl’s entry, Walmart’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.
Aldi, has a simple strategy to win more customers: everyday low pricing, according to Hart.
“We don’t confuse our customers with yo-yo discounts, sales, coupons and loyalty cards that require membership fees,” he said.
Four analysts and consultants confirmed Aldi now offers the lowest prices in private label consumer products in the states it operates, although they did say Walmart is gaining ground in the states they are conducting price tests.
Hart said Aldi’s internal studies show its prices are 21 per cent lower than its lowest-priced rivals and the discount retailer intends to keep the advantage at least that strong going forward. — Reuters