Dive Brief:
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UK-based grocery retailer Tesco feels the financial crunch with its lowest sales growth in five months as Aldi and Lidl gain further ground, according to an article in Bloomberg.
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Tesco CEO Davis Lewis had been doing fairly well holding up against the upstarts. He cut prices and introduced a new “basic” fruits and vegetables range, according to Bloomberg. Aside from competitors, he also can't control the Brexit effect on property prices: Much of the property his stores are on have been hard hit as money has left the UK.
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Analysts say shareholders have not been focusing on Tesco's sales losses, but on the prospects of a potential deal to buy British wholesaler the Booker Group.
Dive Insight:
Are Tesco's financials a warning to U.S. grocery retailers? Do the advances of Aldi and Lidl in the U.S. spell more potential trouble than some anticipate?
Some U.S. stores are going to be in for the battle of their lives as the two German invaders — Lidl and Aldi — plus the big three dollar store chains — Dollar General, Dollar Tree, and Family Dollar — inch into almost every market sector traditionally owned by grocers.
It may sound like a small thing, but one of the ways Aldi makes money in the UK and the U.S. is by “renting” its shopping carts. Shoppers go to a designated place and deposit a coin in a device on the cart to use it as long as the customer needs it. When they are finished, they return it to the cart corral, and retrieve the coin. As the company's website says, “This helps to keep prices low because we don’t spend time retrieving carts.”
This is one simple thing, but it's part of a larger strategy. Retailers who are likely to be competing with either of the German companies should watch out: They're sharp, and the corners they've cut to get the margins they want, are alien to most Americans.
To prepare, more traditional retailers should read everything about them. Look at store layouts. Walk one, if it is within driving distance. Observe what they do — and don't do.