The Germans Are Coming... And Their Groceries Will Cost Up To 50% Less Than Wal-Mart

Tyler Durden's picture

Back in February we reported that as America's deflationary wave spread through the grocery store supply chain, the scramble for America's bottom dollar was on, and it prompted America's largest low-cost retailer Wal-Mart to not only cut prices, but to squeeze suppliers in a stealthy war for market share and maximizing profits, a scramble for market share which is oddly reminiscent of the OPEC 2014 price fiasco and is certain to unleash a deflationary shock across wide portions of the US economy.

As Reuters reported at the time, Wal-Mart had been running a "price-comparison" test in at least 1,200 U.S. stores and squeezing packaged goods suppliers in a bid to close a pricing gap with German-based discount grocery chain Aldi and domestic rivals like Kroger. Citing vendor sources, Reuters said that Wal-Mart launched the price test across 11 Midwest and Southeastern states such as Iowa, Illinois and Florida, focusing on price competition in the grocery business that accounts for 56% of the company's revenue.

Notably, while Wal-Mart was considering cutting prices to match its competition, the near-monopoly retailer was also seeking offseting cost cuts from its own vendors, in what could lead to a deflationary shock that would ripple across the entire US grocery store supply-chain, with dropping prices leading to margin collapse inside the entire industry, and eventually a default domino effect. 

And, as we also reported, as part of the relentless competition among the largest grocers Wal-Mart would have no choice but to proceed with even more aggressive price cuts in the future. The reason for this is that Germany-based discount grocer Aldi had emerged as one of the relatively new rivals quickly gaining market share in the hotly competitive US grocery sector, which already boasts Kroger, Albertsons Cos Inc and Publix Super Markets as stiff competitors on price.

A second Germany-based discount grocer, Lidl, was planning to enter the U.S. market this year, which together with German Aldi would pose a serious threat to Wal-Mart's U.S. grocery business.

Now, thanks to a follow up by Reuters, we can safely assume that the upcoming grocer price war is about to turn nuclear because the abovementioned German discount grocery chain Lidl, which is opening its first U.S. stores this summer and is eager to capture US market share at all costs, said its products would be up to 50% cheaper than competitors... which are already caught up in a margin-crushing price war.

"This is the right time for us to enter the United States," Brendan Proctor, chief executive officer for Lidl U.S., told Reuters at a media event in New York late on Tuesday. "We are confident in our model. We adapt quickly, so it's not about whether a market works for us but really about what we will do to make it work."

And as first order of business, what Lidl will do is generate huge losses by massively undercutting prices in hopes of capturing market share from established names like Walmart, Kroger and Albertsons. Think Uber but for grocery stores. 

There is already a case study of what happenes next, should the two German invaders prove successful. Lidl, which runs 10,000 stores in 27 countries, and German rival Aldi Inc have already upended Britain's grocery retail market, hurting incumbents like Tesco Plc and Wal-Mart Stores Inc's ASDA supermarket chain.

Looking ahead, Lidl said it would open its first 20 U.S. stores in North Carolina, South Carolina and Virginia, starting on June 15. Eighty more will follow in the United States within the first year, which Procter said would create 5,000 jobs. Analysts cited by Reuters estimate the company will have more than 330 U.S. stores by 2020.

The stores will be 20,000 square feet in size and have only six aisles. The retailer's in-house brands will account for 90 percent of the products.

And while the latest German invasion may lead to dramatic changes within the hierarchy of established US grocers, one thing is certain: the US consumer is about to be the biggest winner yet again, as prices for (subsidized) groceries are about to plunge across the nation.

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el buitre's picture

I no longer live in the USSA, but I wonder what the "organic - non-GMO" section of these two German transplants will look like.

nmewn's picture

"Hi! Welcome to VolksMart!"  

Chuck Walla's picture

Oy, Bubi, I'm schvitzing here already!

Haus-Targaryen's picture

Beware everyone, I can tell you its a trap.  Lidls and Aldis are actually secret portals to the Nazi underground bases in Antarctica and on the dark side of the moon.  They're coming to take over the world, and this time they mean it.

Nothing says "Blitzkrieg" more than one minute you're walking down the frozen food isle pondering whether to get tuna or salmon and the *BAM* the next second four armored panzer divisions are rolling by.

 

 

CRM114's picture

Don't be ridiculous..

 

..you'd never get a panzer thru Frozen; they'd use Grocery.

the_narrator's picture

It is kind of disconcerting seeing a Zerohedge article without an obvious conspiracy angle.  It's like going to Europe from America and trying to figure out where they are hiding all the obese people.

Haus-Targaryen's picture

Have you been to the UK?  No one hides them there. 

Wahooo's picture

They're over in aisle 7 next to the people with bad teeth.

nmewn's picture

Which is another thing.

Why is it that...fully half of the people who scream at me through my TeeeVeee, to call their 800 number to buy their worthless shit, within the next fives minutes to get another piece of worthless shit absolutely Faaarrreee! (just pay the shipping and handling)...ALL HAVE ENGLISH ACCENTS? ;-)

Déjà view's picture

What!
No shopping carts all over the place taking up parking spots or roll into parked cars...cashiers sitting down on the job...or stocking shelves...baggers...what happened to baggers?
Be afraid...VERY afraid...legacy supermarkets...
Should play out like airline industry...SW Airlines...Ryan Air...etc...

Twaddlefree's picture

Paying even a quarter for the use of a shopping cart (that is refunded when you return it to the cart bin) amazingly eliminates carts all over the lot (and paying an employee to gather them all up). Brilliant cost-saving idea! Of course, it also eliminates my buying much from the stores since I take my own bag and when it's full, I'm done. Oh well.

No bags is merely a ruse to pretend that the supposedly lower prices are a result of no bags or baggers. I haven't found prices to be less than my regular store, Kroger, on anything other than the one or two weekly sale items that I am unlikely to make a special trip to get.

Nothing to be afraid of, though. I see many customers at Aldi, here, with cart loads of groceries that they don't mind bagging themselves...and based on what I see, they would never have bagged their own groceries or even bothered to put the cart in a cart bin if they didn't think they were getting something for their efforts.

nmewn's picture

lol...for reelz. 

I guess the accent sounds "exotic" to a marketers ears or at least moar "honest" ;-)

New_Meat's picture

All have Brit or Oz accents.  Of course, it is to appeal to the inner desires of some to be ruled, pining for the old days and the old-old days.  After all, when the Robber Barons had too much money and too many daughters, it was all the rage in New Yawk and Main Line high society to marry them off to some poor (literally and figuratively) Brit who had one socially redeeming characteristic: he possessed a title.

- Ned

OverTheHedge's picture

It's because of the social.stereotyping: to Americans, brits are all better educated, higher social status, and scary. It doesn't have to be true, just part of the national psyche: it gets a bit tiresome when every evil supervillain is a brief, and th  plucky, brave yank overcome stupendous odds to throw the best off a tall building at the end of the film. Die Hard was a particular favourite of the genre.

Of course, it's great for British actors, who otherwise would never get any parts in Hollywood explosions, sorry - I meant movies.

 

king leon's picture

Don't blame the production of "worthless shit" on the British, we don't produce worthless shit, we don't produce anyFUCKINGthing!!!!

nmewn's picture

lmao!...well, misery love's company my brother  ;-)

GreatCaesar'sGhost's picture

You guys seem to be producing a lot of babies named Mohamed, though.

freedogger's picture

Can I live in my van in their parking lot?

Twaddlefree's picture

You mean aisle 3. There aren't seven aisles in Aldi or Lidl.

aurum4040's picture

Well actually Walmart owns Aldi's and Lidls through a little known subsidiary. It's just Walmart plan to squeeze more plasma out of suppliers and make local chains to tap out. Snyder mentioned this in a  secret podcast a few months ago. 

ParkAveFlasher's picture

Obesity isn't the problem in Europe.  The problem in Europe is skinny-little-shit-icity.

 

Chuck Walla's picture

Well, they don't bother to hide them in Ireland or Scotland.

sleigher's picture

I went to Aldi and didn't have a quarter to get a shopping cart.  They lost out on the $100 I probably would have spent over a lousy $0.25.  

keep the bastards honest's picture

yes  its called responsibiltiy or accountability or being grown up. I buy the 15 cent bags

NoPension's picture

Bullshit.
That quarter, to use a cart ( which you get back when you " park" the cart) is a big reason in keeping prices low.

It's simply brilliant.

zuuma's picture

Yup.

Even in the diversity, the quarter keeps the karts at the store, vs. half mile radius of the store in alleys, backyards, middle of the stret, etc.

Brilliant idea.

j0nx's picture

I'm pretty sure Shoppers Food Warehouse used this approach in the 80's and 90's and it didn't work out too well for them for more than 10 years.

Twaddlefree's picture

It wouldn't work for large grocery stores unless there were several areas of bins to park the carts. With a large area to travel to return carts, customers will give up the quarter and leave the cart in the lot, thus eliminating the cost savings to the store when an employee has to be paid to round up the carts. This model will only work for smaller stores. Aldi parking lot is one-fourth the size of any other regular store, everywhere.

Chuck Walla's picture

Aldis are/were usually located to the "less advantaged" populations. The quarter discouraged the homeless from stealing the carts. 

Twaddlefree's picture

Not true here....they're going up in the most expensive neighborhoods, now.

wwxx's picture

I can carry a $100 of walmart grocerices ~~~in one arm, just saying.

 

wwxx

LyLo's picture

That's the funny part.

At Aldi's, I don't think I've ever been able to spend $100 at once, and sometimes it looks like I'm trying.  By the time I hit $60, the cart is full and I have food for my family for two weeks minimum. 

But then again, I don't think most Americans run their house like I do, as everyone here seems overly concerned that Aldi's doesn't have 30 brands of cereal... (Pssst: ya'll really should reconsider a shift in lifestyles.  It's fantastic and actually really simple.  The ONLY person here that might eat better than my family is Hedgeless Horseman.  Highly recommend people read a few of his articles, since so many newbies seem to be among us...)

 

*edit*  Oh, forgot to add: the employees at Aldi's always keep a few carts up front just for that purpose, so if you ever forget your quarter just let them know and they'll lend you a cart. 

Twaddlefree's picture

And you were too lazy to go back to your car to fetch a quarter from your spare change slot or under the seat...or simply go into the store and get change...or even bring your own cart. You probably couldn't have found enough to spend $100 on in that store, anyway.

sleigher's picture

I, like most people, own my own shopping cart...

TheEndIsNear's picture

With all due respect to Pink Floyd, there is no "dark side of the moon". There is however, a far side.

Jubal Early's picture

During a recent Lidl visit I found myself being forced to retreat from the frozen goods section past the lamp shades and into to the bakery section where I found out they are washing the flour in zyklon b showers before they stuffed the loaves stacked 18 high into the ovens.  I was really astounded when I learned that full wheat breads caused blue smoke to come out of the chimneys while white bread caused green smoke to come out.  Later, in the parking lot, a big geyser of human blood shot up into the sky due to all the innocent bread loaves holocausted there.

As I was leaving the parking lot, I saw a new arch over the parking lot entry that said "Lidl Macht Frei".

New_Meat's picture

I deny that this ever happened at any Lidl ;-)

when the saxon began's picture

Brilliant!... who would downvote that?

therover's picture

There is no dark side of the moon really. Matter of fact, it's all dark. 

Nice Try Lao Che's picture

"Lidls and Aldis are actually secret portals to the Nazi underground bases in Antarctica and on the dark side of the moon"

 

He's right!

https://www.youtube.com/watch?v=Py_IndUbcxc

el buitre's picture

Please - there is no "dark side" of the moon, only a "far side" which never faces the earth.

wachtamrhein's picture

Deutschland, Deutschland über alles...

Boomberg's picture

Will their vegetables be half-rotten like Walmart or actually edible by human beings? You get what you pay for.

land_of_the_few's picture

Good stuff, and not expensive. Absolutely terrifying for the other retailers.

aurum4040's picture

Agreed. Aldi's has quality products and cheap prices. Quick easy shopping,  and very few 'first of the monthers' which is always nice. 

Twaddlefree's picture

You mean midnight-on-the-last-day-of-the-month shoppers...the ones that caused Kroger to lose a LOT of customers when it started catering to them with "midnight specials."