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Low-Cost German Grocers Aim For America

us-expansion

Image source: Gary Perkin / Shutterstock.com

What's going on?

Given the recent struggles of the retail industry, it may be surprising that two major German low-cost grocery and retailing chains, Aldi and Lidl, have recently announced big US expansion plans!

What does this mean?

Lidl will open its first stores in the US this week with the aim of taking on the likes of Walmart and Target by selling Americans groceries and clothing (it’s even hired Heidi Klum to design an exclusive Lidl fashion label). Meanwhile, on Monday, rival Aldi announced that it will invest $3.4 billion to expand its US presence over the next five years. The discount chain already has 1,600 US stores and now plans to have 2,500 in the US by the end of 2022, which would make it America’s third biggest grocery chain by store count.

Why should I care?

For markets: Aldi and Lidl are a threat that the US grocery industry should take seriously.

The US expansion mirrors these companies’ aggressive push into the UK market, which began almost ten years ago. They now have a significant foothold in Britain. Competition from these low-cost entrants is widely blamed for hurting the profitability of British grocers over the past decade (and, by extension, their stock prices). The US market is a different beast – and there are plenty of examples of failed US expansions, including by the UK’s largest grocer, Tesco. So there is no guarantee of success. But for US retailers like Kroger and Walmart, the invasion of these well-funded, low-cost options is another threat on the horizon (in addition to, of course, Amazon’s continued growth).


The bigger picture: They are bucking the retail trend.

The retail industry in the US is, overall, having a very tough year. The increasing popularity of online shopping is hurting those with physical locations (as Aldi and Lidl will have) – and Amazon is about to launch its own grocery business. It’s curious that Aldi and Lidl see a big opportunity while others are struggling – it will be interesting to see if it works out.

Originally posted as part of the Finimize daily email.

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