Small Grocer Gains Overshadow Amazon–Whole Foods Acquisition

Category: Commercial Real Estate

The commercial food retail real estate market is in the midst of an intensifying price war, reports Bloomberg. However, the recent acquisition of Whole Foods by Amazon isn’t a key part of the story. Instead, Aldi and Lidl, two “no-frills” German grocers, are said to be putting pressure on existing food retail giants, including Kroger and Wal-Mart.

“Price war” having “ripple effects”

“If it’s death by a thousand cuts, Aldi and Lidl are holding the blade,” Mike Paglia, grocery analyst for research firm Kantar Retail, told the news outlet. “It looks a lot like a price war, and you’re starting to see those ripple effects.”

The article reports that Lidl’s expansion into the U.S. market was the biggest story of the grocery industry in 2017 until Amazon announced its acquisition of Whole Foods a day after Lidl’s first 10 U.S. locations opened. Still, Lidl has reportedly taken three percent of the conventional supermarket market share from local competitors in the six months since. Aldi’s market share reportedly stands at six percent, while Whole Foods is at 16% – the third-largest name in the industry, behind Harris Teeter and Food Lion.

The article reports Aldi arrived in the U.S. in 1976 and has doubled its store count over the last 15 years to more than 1,750 stores. Lidl, which operates thousands of locations across Europe, has pursued a competitive strategy with Aldi in Europe for decades. That rivalry in the form of stiff price and market share competition has now crossed the Atlantic.

Lidl expanding, Wal-Mart slashing prices

Lidl has already expanded beyond its first 10 U.S. locations to a count of 47, and may reach 100 by summer. “It’s created a lot of pressure to keep prices low,” Jennifer Bartashus, a Bloomberg analyst, noted.

An analysis by Kantar found that Wal-Mart, which relies heavily on its grocery business, has been cutting prices and “responding aggressively” to the new competitor. Lidl is reportedly staying agile as it grows its U.S. operations, shifting from an earlier plan of building new 30,000-square-foot stores to leasing locations half that size, which is around the size of the average Trader Joe’s grocery store.

Uncertainty is new normal

The story reports that uncertainty may be the new normal for the grocery industry, as costs have crept up and the price war could impact profit margins. Changes to Whole Foods since the Amazon purchase have so far been slow, with little known about Amazon’s long-term plans. Still, an increase in digital grocer operations could further disrupt the industry.

Posted on: Wednesday, January 10, 2018