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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Got The Wrong No's picture

I've been shopping at Aldi for years. Their house brands are better than name brands in most cases and the prices are great. The stores are small and don't have a lot of room for bullshit you don't need. You get in and out fast. The only draw back is they don't bag your food. They put it back in a cart.  Bring your own bags and a quarter for the cart which you get back when you return the cart. 

joak's picture

Agreed, they have by far the best value for money and provide a quick shopping experience. In Europe they offer a limited range of basics so you need once and a while to go to a "normal" supermarket. And nobody bags anything here, so not an issue :)

NoPension's picture

I've been using them for years.
Best place for prepping stocks, too. Canned goods are top of the line quality, at the best price around.
Veggies are good and fresh, but they don't have twenty varieties of lettuce.
Absolutely can't be beat for "staples ". I can pile a cart high, and get out for about $200.
Coffee is 5.60 or so a can...I buy a case of six at a time. Can goods, just grab a case, and stack them in the cart. Give the checker one to scan, and tell her 12 times.
At any given time, I only see max 3 employees. If it's busy, two registers, and one stocker.

joak's picture

Veggies look great but they are quite fake where I live, for tasty veggies I rely on small markets selling local products.

keep the bastards honest's picture

Aldi is in Australia. its fantastic after the overpriced poor service rotten lettuce on floor of its local competitors. about 50% lower. Very fresh vegetables and fruit. grass fed beef with golds and trophy from the sydney show, very well priced wine local and french etc as buyer has a great palate. Clean.

Suppliers get PAID immediately and the trucks are there at dawn or  when agreed. No sending back unsold stuff or other antics of their competitors. Staff get free car parking. Interesting low priced specials every week. Lots of us love Aldi and I have met a better class of people there. Not asians, they share the views of zhedgers who think aldi is cheap and nasty. no its well priced ethical and good compared to what else we face here. Bought 4 german crystal large balloon red wine  glasses yesterday for 15$ yesterday. Germans have low wages, work hard and have good quality. 

j0nx's picture

I've been in an Aldi twice. The first time we didn't know you needed a quarter to get a cart so we walked around looking and weren't too impressed with the odd brands and lack of choices. The 2nd time the store had such an awful rotten meat smell to it that we walked in and walked out right away. I don't see myself ever going back personally.

Twaddlefree's picture

The first Aldi that opened in my area required you to walk down a full store-length aisle stocked with nothing but junk food...candy, chips, cookies, etc. There was no way to get to any other part of the store. I decided at that moment I'd never go again.

HOWEVER, one opened in a very pricey area that I passed frequently, so I gave it another try. Totally different. I could go to any aisle from the entrance and even the first aisle, though still mostly junk stuff, had freshly baked goods, nuts and on to the produce at the end. Big improvement.

Haven't gone back to the first store to see if it's arranged the same, but I suspect that the set-up has a LOT to do with the neighborhoods in which the stores are located.

Jethro Dull's picture

Aldi used to have the best Asperagus! Cheap too! The last few times I shopped there price was up, quality down.

Twaddlefree's picture

The quality of Aldi food is quite good. Everything I've bought has been good with the exception of one fruit that was bitter, and I actually returned it and was refunded, something most people won't do (it's a thing I have about stores peddling crappy produce that they can easily taste and know is not good, yet they sell it anyway because they know that 98% of customers won't return it). I have not purchased any of their store brand canned stuff, but I don't use much canned stuff of any brand.

EddieLomax's picture

I don't see where they can significantly undercut anyone else here?

Thanks to WTO tariffs there is no prospect of cheaper goods coming in from Europe (40% food tariffs even after its subsidised production), so Walmart or any other US retailer has access to the same or cheaper goods than Aldi.  I reckon this whole lot is debt fueled, just like Tesco here in the UK.

In that case they were initially successful, and then their competitors started to react at the same time that they started to massively expand.  This phase ended up with the company is trouble due to debts and tepid financial results coupled with massive debts, I think Aldi will go the same way.

sleigher's picture

What happened to the grocer who bought in bulk from the local farmer and sold to the towns people.  Oh right...  I need plums from Chile.  I forgot.  Natives lived how long never eating a plum?   

Twaddlefree's picture

Those were the times when you had only seasonal fresh fruits and veggies available. You can thank Bill Clinton for the vast imports from other countries (all of whose citizens want to be here and enter illegaly by the thousands each year...guess they miss their fruits and veggies). I generally buy ONLY fresh produce that is grown in the USA (most of it comes from my own garden). We old people were quite used to eating plums only in summer, apples in winter.

Danielvr's picture

ALDI is famously self-financed.

RedBaron616's picture

Most ALDI food products in their stores are from the US. Obviously, you have never been to an ALDI. I seriously doubt ALDI is debt fueled, as their stores and staff are small and they probably make money from the first day open.

. . . _ _ _ . . .'s picture

Isn't Monsanto German-owned now?

50% cheaper, sure. 50% less expensive, maybe.

The Power Vertical's picture

globalization is so ausum; we get fancy shmancy "ham" for 99c all the way from poland or latvia or ukraine whatever it's european! granted they cant sell that shit over there due to chernobyl and all, but hey, i figure cow meat has radiation from the grass, suhi meat has radiation from the ocean, what the hell, a little radiation (and glyophosphate) in my diet prolly makes me more american. #MAGA!

 

 

Joe A's picture

And if they push TTIP through everybody's throat then we in Europe can enjoy growth hormone and antibiotic infested yuuuuge American steaks. And glyphosate laden fruits and veggies! Make Europe more American. We will also experience an explosion of obesity, diabitis and what have you. No worry, big pharma and insurance companies will come to the rescue. At a price of course which will only allow you to shop at Aldi or Lidl. It comes full circle in a spiral going downwards. But hey, it will make shareholders happy.

The Power Vertical's picture

cow not supposed to eat corn! lol... cow supposed to eat grass!! then i eat that cow!! i dont want corncow!

sleigher's picture

Salad?  Food eats salad... (this is what happens when I am up all night upgrading 3PAR's.)

DaNuts's picture

Americans will love this cheap tacky low quality store full of tasteless, fat and sugar laden products the way they

gobble up cheap and badly made Chinese crap.

Got The Wrong No's picture

Obviously, you have never shopped at an Aldi.

DaNuts's picture

Twice. I cant work out how they take the taste of vegetables out before they hit the shelves.

I don't eat processed food so 95% of the products are useless to me.

I rarely venture past the vegetables but I can see that the store would be attractive to people with a high crap diet.

Omen IV's picture

i bought vegetables and fruit at Aldi's - no issues they represented 95% of my purchase!

Twaddlefree's picture

Kinda like all the other grocery stores who sell junk food of many different brands and have their own in-house brands they're happy to sell to anyone who wishes to purchase them. That doesn't make a store cheap or tacky. Now the customers....different matter.

Joe A's picture

So what is their business model then? How do they manage to be cheaper than Walmart? If they bring their own products into the US, there is the inssue of tariffs. So somewhere they manage to squeeze costs. I have heard of Aldi's or Lidl's in Europe where people working there wear diapers.

It is also no wonder that Merkel is one of the biggest proponents of TTIP in Europe while many Germans and other Europeans are against it.

Blitzkrieg77's picture

For one, Aldi doesn't require laborers to constantly stock shelves around the clock. Instead, Aldi brings out the boxes and containers the produced was originally shipped in and neatly places them on the shelves. That saves time, and time is money.

Other than that, nobody is going to do your homework for you. Google their model. Google is your friend, sometimes.

DeaconPews's picture

Aldi isn't so cheap anymore. I spend as much there for food as I do at Woodman's. They are a German store but the US operations are based in Illinois. All the Aldi store brand items cost as much as some of the name brand items. I will say the quality is way better than when they first came here.

Tarrel's picture

Far fewer big brands. Reduced number of ranges.  Multiple bar-codes on products, which speeds up check-out processes, leading to fewer staff required.  "WIGIG" (When It's Gone, It's Gone) offers on non-core ranges.  Smaller stores, so less real-estate required.  Good quality products.

RedBaron616's picture

US tariffs are dead. Besides, most of ALDI's foods come from the US. They contract with the big food companies and then label it with their own brand. Sometimes you can tell who made it by the same ingredients, type of food, look of package, etc.

ALDI saves money by:

- No grocery cart retrieval. You put a quarter in a cart to take it and get it back when you return it.

- No 24/7 hours. ALDI is only open during the busiest times and closed otherwise.

- ALDI doesn't carry everything, like spices. They carry the foods that have high turnover.

- ALDI doesn't even have anyone to answer the phone at the local store. No point in hiring someone to do that. Their staffing is minimum and those people move.

- Bring your own bags or buy theirs or do without. It all adds up.

sm0k4's picture

Just the crappy processed food will be fought over. People who actually eat healthy and prepare real food and buy meat will not see the price plunge. Yay for more diabetes!!!

Blitzkrieg77's picture

Aldi doesn't  sell low quality processed food. In Germany, and unlike in the United States, cheap prices does not mean low quality.

. . . _ _ _ . . .'s picture

"...cheap prices does not mean..."

...cheap prices DID not mean...

Germany is going the way of Bell & Howell. All of the west is.

Blitzkrieg77's picture

Germany isn't going anywhere anytime soon, so long as it remains export king of the world, as it has for decades.

sleigher's picture

Nothing personal but I would say Germany is long gone.  Died with Hitler...

Blitzkrieg77's picture

Nothing personal taken. I disagree, however.

Open your eyes to todays times and you will find Germany to be economic, social and political engine that runs Europe. Germany was one of the EU founding nations and they have the EU governing bodies (i.e. ECB, European Commission) stacked with their own. They've subverted nations like Greece and Cyprus, and are now working on Poland and Hungary. They're forcing nations to accept refugees or else it's economic warfare time. With Britain leaving there's not much to stop them from having their way in this capacity.

This time the playnig field is different and the 'Nazis' are businessmen and politicians. If you're looking for Nazis like in Nazi Germany, of course Germany is 'long gone'. You're 70 years late to the party and have failed to see their adaptation.

nodhannum's picture

I think you have it down Blitzkrieg77.  My wife and I were thinking of visiting greater Germany now but were are having trouble getting visas for the German provinces formally know as Greece, Italy, France (with their German Poodle Macron), and Portugal.  Do we contact the provinces directly or go through the embassy in Germania?

. . . _ _ _ . . .'s picture

Encouraging Americans to start shopping like Europeans?

There will be resistance to this globalist movement, as well there should be.

You can't find good chicken & waffles in Germany to save your life!

Already have the micro-condos in New York a la Scandinavia, the French style cafes everywhere... socialism is just around the corner.

It used to be that America Americanized the world so that Americans wouldn't feel so out of place when they traveled, now it seems to be the other way around. Bad bad bad bad omen.

Pretty soon it'll be a Euro America, a Turkic Europe, a Sino-Africa and a Russo-Middle-East. All the Pacific will be Japanese, and Latin America will just be one big bonfire.

 

sleigher's picture

People are way too serious on this site sometimes...  I really shouldn't have to tag everything /s

Blitzkrieg77's picture

This might shock you, but... When you post your questions/feedback as something that looks somewhat serious, you normally a mirrored response.

You can see my humor displayed in other posts that prove you to be dead wrong.

DaNuts's picture

They don't sell ammo either.

Blitzkrieg77's picture

That's actually sad. We should protest.

RedBaron616's picture

Some of it is processed food, the same as anywhere else in the US. Read the ingredients on the breads, soups, etc. They are there, because ALDI is buying from the big food manufacturers. With that said, ALDI has committed to getting rid of some things like artificial colors and they do carry a number of organic items as well. My point is that they do have some processed foods equivalent to regular grocery chains.

Blitzkrieg77's picture

This might shock you, but most food in any store is processed because that's what a food factory does... process foods.

Twaddlefree's picture

They sell grass-fed ground beef less than any other grocer, that is if you can even find it at any other grocer. It is not cheaper than what I pay by buying a side of beef and having it processed at a butcher, but for those with less storage space, it's the best price...and I have bought ONE package to try and it's quite good. Of course, I don't trust it being wholly grass-fed. I visit the farm from where I purchase my beef and know where it is, what it eats, how it's butchered, or I don't buy it.

LA_Goldbug's picture

"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. "

Saw this process expand exponentially starting in the late 60's. It was a "goodbye" for the neighborhood family stores.

NoWayJose's picture

What is important here is the use of store brands and off-brands. Thus the squeeze will be on the bloated name brands that advertise - so do you want Oreos (from Mexico) or generic chocolate sandwich cookies?

Conversely, while grocery prices squeeze downward, fast food prices get squeezed upward by minimum wage laws - meaning more people wil cook at home - a trend starting to show up now.

Fundies's picture

We have had Aldi in Australia for around 15 years now. The price and quality on nearly everything is very good. Oz retailers are feeling the competition, but I think Aldi will win out over them in the long run. See you don't need to win a world war to take over the planet.

c2nnib2l's picture

We've got ALDI's and LIDL all over europe

Aldi is a shoop for poor people and quality is just crap :/

 

lidl slightly better with bigger choice. Good for veg small choice of products