Five things you need to know so you can compete with Aldi & Lidl (Infocast)

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Outline of the 7-minute webcast above

Intro: We expect that over the next five years that Aldi and Lidl are poised to capture between $50 and $65 billion in sales from the US grocery market. US retailers aren’t used to competing with these hard discounters, and they will have to learn quickly or experience significant losses. Here is some key information that will help you climb the learning curve.

Aldi and Lidl are intense competitors that have made each other better over the years.

They operate with a completely different business model than the traditional supermarket.

• The model is based on simplicity, execution, and an integrated supply chain.
• The model gives them the distinct low-cost advantage in grocery.

Aldi has operated pretty much under the radar since 1976; i.e. 40+ years.  That changed this year with announcements that they:

• Are remodeling 1300 of their current 1650 stores.
• Will be adding another 850 stores, so will have a total of 2,500.
• They expect to be serving 100 million North American customers per month by the end of 2022.

Aldi is working to improve the shopping experience by making stores larger, brighter, and including more organic items and other “clean label” products.

• Aldi is also expanding fresh and now carries almost 100 produce items displayed in expanded refrigerated cases.  The increased fresh offering drives more frequent trips to the store.
• Aldi is still mainly private label, but they’ve added more “must have” national brands that help to increase selection appeal.

As of today June 15, Lidl has now opened their first North American stores and expects to have 1,000 stores operating over the next 5 years.

These new Lidl stores offer an experience that’s a lot like shopping a US supermarket.

Lidl is emphasizing fresh.

• A bakery where warm bread and croissants are available throughout the day.

• Expanded selection of meat and produce items.

Expanded general merchandise too

• Turns over about once every several weeks.
• Own designer line of women’s apparel.

Here's what you need to know so you can compete.

#1 Find a way to blunt the hard discounter’s price reputation

• Perceived price advantage 50%
• Actual price advantage 30% - 40%

Not easy to do - since they run a weekly promo ad and have a solid base of everyday low prices

#2. They have significantly evolved from the limited assortment stores that they used to be.

• They carry 1,500 – 2,000 items vs. the 30,000+ in supermarkets, but they handle variety in a way that gives them a strong variety reputation as well.
• Half of their items are the same every week, the other half change with the introduction of many new and unique products – many imported.

#3. Low prices don’t mean that hard discounters aren’t able to enhance their gross margin mix.

• They do this with a lot of sub-private label brands.
• Aldi’s Specialty Select upscale products typically have twice the penny profit per ounce as the standard product.

#4. Staff at these hard discounters is quite disciplined and has a high level of customer care.

• Everybody does all different kinds of work.
• Customer satisfaction with service is high.

#5. They build a profit plan for the store, not by the category or department, and merchandise in a different way.

• For example: Thanksgiving they had a very aggressive turkey price, but the price for a gallon of milk was higher.

This expansion of hard discounters signals that we’re entering a discount-driven era of retailing where:

• There’s more pressure to take costs out of the business, up & down the supply chain that don’t add value.

You should expect that hard discounters will:

• Leverage their strengths to change the way grocery is done in North America.
• Offer experiences that don’t simply rival, but in some cases surpass those offered by the supermarket.
• Lead the market in terms of "sensing and responding" to new trends.