US Grocers Under Seige

It would appear there’s a new competitor coming to the US. Beginning on June 20, the German-based grocer Lidl will be launching as many as 20 new stores to be located in the states of Virginia, North Carolina and South Carolina. Furthermore, the company is expecting to open another 100 or so stores along the east coast in the coming months.

With a reputation for low grocery pricing, Lidl currently operates more than 10,000 stores throughout Europe. Never one to back away from a pricing war, the company is also known to locate many of its store in close proximity to other low-cost grocers from one region to the next.

This could be troubling news for top low-priced US grocers such as Walmart and Kroger. Both companies have been engaging in an all out pricing war in recent years with a focus on privately branded food and household goods. While this pricing war is expected to continue, Lidl will also be focusing on providing customers with privately labelled groceries. Based on current analyst projections, American grocers had best be expecting Lidl’s prices to come in significantly below US discount prices. At this point, it’s not clear what type of branded pricing Lidl will be offering.

While both Walmart and Kroger have a loyal following, many of the folks who patron these chains are price sensitive. It’s reasonable to expect some impact to the bottom line for many American grocery chains as they try to compete at lower levels.

According to Oppenheimer analyst Rupesh Parikh related to the current slashing of US prices, “We suspect the price reductions we observed are here to stay and likely reflect proactive reductions ahead of Lidl’s entry and/or to Walmart. We do not believe Kroger management will let their pricing gaps erode vs. Walmart and others.” Some of the price changes “could be a move to lower everyday prices” as the reductions “on paper appear significant.”