Lidl’s Tactical Retreat In The US

Small but mighty, German discount grocer Lidl — a brand known for not only its low prices, but also its innovative store layouts and private labels, including clothing — has already gobbled up 3 percent of local market share since the chain came to Winston-Salem, North Carolina, in June 2017.

Lidl opened a total of 10 stores in North and South Carolina and Virginia on June 15 (one day before Amazon announced its $13.7 billion acquisition of organic grocer Whole Foods). By comparison, ALDI, another German discounter, put down roots in the U.S. in 1976 yet is only enjoying a slightly larger slice of the Winston-Salem pie at 6 percent of local market share.

That’s not to say that ALDI is flailing: It opened 150 stores last year and has doubled its U.S. store count over the past 15 years for a total of more than 1,750 stores. However, consumers’ willingness to switch over to Lidl in Winston-Salem would at least seem to indicate that Lidl is on a healthy growth trajectory.

Yet it seems that not every market has expressed the same interest as Winston-Salem, because Lidl is slowing its growth in other areas. In December, it halted construction on its second New Jersey store, citing “budgetary constraints.” It also reportedly curbed plans to build in Staunton, Virginia, having deemed the market too small to be of interest.

Now, Lidl has added Beavercreek, Ohio, to the list of cities snubbed.

Four acres on Lakeview Drive were to be developed — not far from the nearest ALDI store, also located on Lakeview Drive, which was constructed in December 2016. But last month, The Dayton Daily News reported that Lidl’s building application had been withdrawn without explanation.

Are these plan changes a sign that Lidl has bitten off more than it can chew, or are they tactical retreats that could lead to greater success? The company has shifted its real estate strategy since its U.S. debut and replaced the executive leading the expansion after only three months in the country.

According to its website, though, the chain is still looking to grow in Ohio, Texas, Virginia, Georgia, Pennsylvania, Maryland, New Jersey, Delaware and the Carolinas, with plans to open 100 East Coast stores and create more than 5,000 U.S. jobs in the next year.

It would appear, then, that these moves were deliberate and strategic. Lidl still plans to open stores; they just might be a little smaller (about the size of a Trader Joe’s) and in slightly different markets.

Bloomberg is still counting both German discounters among the greatest threats to traditional American grocers — greater threats, even, than new Whole Foods parent Amazon, whose slow and steady progress as a brick-and-mortar grocery chain does not appear poised to deliver any quick and decisive blows to competitors in the short term.

Meanwhile, low prices at discounters like Lidl and ALDI have driven grocery prices into a downward spiral, with Walmart slashing prices in order to compete (the big box retailer is now even cheaper to shop at than Dollar General).

The price wars can only go on for so long before no one’s making any money anymore.

“If it’s death by a thousand cuts, ALDI and Lidl are holding the blade,” Mike Paglia, a grocery analyst at the research firm Kantar Retail, told Bloomberg.