Dive Brief:
- Research from equity research firm Jeffries finds that mass market retailers are lowering prices to compete with Lidl, reports Business Insider.
- Target and Walmart have lowered prices the most in Charlotte, North Carolina, where several Lidl stores are under construction.
- A recent price check found that Lidl’s prices were about 9% cheaper than leading U.S. grocer Walmart. Lidl claims to offer products for as much as 50% less than rival stores.
Dive Insight:
Lidl's high-quality, low-price private label assortment poses a significant threat to grocers, particularly conventional ones. But it's not the discounter's growth alone that's keeping everyone on edge.
Chalk it up to an incredibly intense and increasingly crowded marketplace that’s igniting price wars across the grocery sector. A big threat is online giant Amazon, which has pretty clear intentions to disrupt grocery. Lidl’s U.S. entry is just adding fuel to the fire. Many conventional grocers and mass market retailers positioned in the middle — neither at the premium nor at the extremely low end of the pricing spectrum — feel increasingly threatened. Target, whose prices have tended to be in that middle ground, recently promised sweeping price cuts across the grocery department.
Conventional retail grocery business models are not built to sustain round after round of price cuts. They already operate on razor-thin margins. Encumbered by huge and aging physical assets — stores, warehouses, trucking fleets, among them — there’s only so much cost-cutting to go around before things start taking a toll on the bottom line. Earlier this month, Walmart announced plans to streamline its U.S. brick-and-mortar operations, which includes a restructuring of business divisions and a reduction in staff.
Consumers indeed expect competitive prices. But it’s becoming increasingly obvious that retailers also need their own USP — unique selling proposition — aside from price. This is why some of the most successful regional grocers like H-E-B, Publix and Wegmans emphasize a host of non-price factors. They cater to customers seeking broad and deep selections, localized and specialty assortments, quality fresh foods, stellar customer service, click-and-collect, in-store restaurants and bars, and a host of other qualities.