Dissecting Hard Discounters
They may nibble at sales for now, but they
could eventually take a hefty chunk of business akin to death by a thousand paper cuts.
Indeed, it’s not going to affect everyone
equally, and it’s not going to happen all at
once. But it’s inevitable: Tomorrow, hard
discount concepts such as Aldi and Lidl will
control just a tiny bit more share of the overall
grocery industry than they controlled today.
And just a little bit more the day after that.
And so on, and so forth...
Where will it end? According to some
researchers, between both, Aldi and Lidl
could account for about $70 billion in sales
by 2022, or about 10% of the total U.S.
food-at-home business. That’s up from estimates of around $13 billion—or about 2%,
all belonging to Aldi—in 2016. It’s a simple
matter of their combined plans to build new
stores—and, in Aldi’s case, expand the size of
the ones they have—while playing to broad
consumer trends to which their models are
suited: a combination of value and convenience, along with a growing acceptance of
private brands, and their increasing emphasis on fresh
and indulgent items.
While relatively small selections and tight geographic
draw tend to limit the amount of damage any one hard
discount store can inflict, the impact of these hard discounters could go well beyond the small bites they take
from sales, says Bill Bolton, a former Jewel CEO who
now leads the Chicago-based advisory firm Customers &
Guests. Their efficient approach to retailing, he says, will
also influence how supermarkets do business, and will
likely result in entirely new approaches to assortments
“With every cost from energy to store labor, they are
phenomenal at squeezing blood out of the turnip,” Bolton
says. “That’s going to affect how everyone is going to have
to adjust to them.”
Lidl, which opened its first stores in June, has met
with mixed reviews in the early going, with some casting
doubt as to the soundness of their real estate strategy, the
appropriateness of assortments—especially in general
merchandise—and the pace of its openings. In addition,
some reports suggested that a recent change in oversight
for the U.S. stores indicated there was some dissatisfac-
tion with at least some unit performance at its parent
home in Germany.
But none of that is necessarily going to interfere with
the multibillion-dollar commitment to the U.S. Lidl offi-
cials maintain they intend to meet stated goals of 100
stores in its first year, and its CEO, Brendan Proctor, has
pledged to adjust course as needed—a practice Lidl has
followed in other countries in which it has expanded.
Bolton says he anticipates Lidl could have about 1,500
stores by 2022. Aldi, in the meantime, is spending $5
billion on expansions and remodels: It plans to remodel
nearly all its existing stores by 2020—a $1.6 billion proj-
ect—while stepping up new store construction under a
$3.4 billion investment so as to operate 2,500 stores by
the end of 2022.
Mark Thompson, a managing director of Orlando,
Fla.-based real estate company Crossman & Co., says
fallout is inevitable, just by looking at the stores-to-pop-ulation ratios in markets such as North Carolina, where
Lidl is targeting its early growth; Food Lion, Aldi and
Wal-Mart Stores are responding with multimillion-dollar initiatives of their own; and Publix and Wegmans are
We all have to share in the
responsibility of getting our shoppers
off their couches and into our stores.”
—Judy Spires, Kings Food Markets and Balducci’s Food Lover’s Market
Aldi plans to spend
$5 billion on both
remodels by 2022.