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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bluskyes's picture

For some reason I can't see the Germans being able to handle American retail.

Germans know everything, especially fresh immigrant Germans.

Global Douche's picture

But....but...but they're not making comparisons in Wal-Mart's home state of Arkansas? If the bottom line $$ is at stake, that alone is a mistake IMHO.

They can make it all good if they sell the Heinz curry ketchup. I admit I got hooked on that during my Germany visit years ago.

Apeon's picture

The concept of selling at a loss to gain market share sounds like one of the tactics of Monopolists---ie-ilegal

monoloco's picture

It's the Amazon/Uber business model.

 

silverman's picture

It's called competition.

barysenter's picture

Buy local, America first.

Hammer of Light's picture

Yeah sure... why do a little "homegrown research" and find out about the FORCED glyphosate in your wheat, ALL your GMO and grotesquely ultra huge pesticide douched grown foods here that are a chemical toxic soup added to your growing US 2 trillion per year health bills?

You want to know why America is the sickest country on the planet with only 1.75% of the entire global population with the most retarded ridiculous medical expenses... pssst... I'll give you a secret....

IT'S IN THE FUCKING FOOD!

How about fuck America's "food growers" to their deaths with a big fat homosexual government dick!

You want to know why these grocers will EXPLODE in market cap... because they're PUTTING AMERICANS FIRST in CLEAN FOODS!

I'm taking a scythe to American growers. They can run backwards naked through a field of fatted dicks for all I care!

Given the choice between a healthy NONE GMO / Glyphosate round-up diet of diseased CANCEROUS foods that will flat out TERMINATE your ass or a non gmo diet... do the math their skippy! These EU growers DO NOT ALLOW GMO's most of them now and returning to real food production that doesn't poison the population what eats their food stuffs.

barysenter's picture

Grow your own. I suggest you think about what you post. So far you seem like a belligerent troll who foists easily dismantled lies to prop up your overly simplified world view. You need to get out more.

silverman's picture

Conversely, you seem like a brainwashed, fluoridated TV addicted cheerleader for a dying corrupt empire circling the drain. Perhaps cutting back on the genetically modified carbs is in order. Couldn't hurt. Please dismantle the "lies" of the Hammer for us. As you emotionally claim, it should be easy. I failed to see any.

Mike Rotsch's picture

I've shopped at Lidl in Germany.  That place is ghetto-fabulous!  It has that, "communism is here" kinda feel to it.

Leotardo's picture

uhm, so, can you kinda bring me closer to this "communism is here" kinda feel to it."? Like, what? Lidl Marxes, Engelses and Lenins  at the checkout checking your party papers? 'Cause you see, all I have ever needed at the Lidls across Europe was my own bag to put the goodies in, which included some excellent wines for under 5 euros, which here in the US cannot be had for less than $20, great cheeses and cold cuts, nice fruits a veg, etc. So pleaaaaaaaase do tell.... how can I get that magic commi feeling, I really wanna know? Or is your

Aldi, upstate NY:

Excellent low cost, no frills store. You won't get the isle-blocking electric shopping dune buggies for the fat and lazy who come just for the ride or to buy the multicolored poisonous liquids with which they victimize their innocent children. No multitudes of useless staff that have NO CONCEPTION of decent public behavior or professional etiqutte whatsoever.

What I do get is the lowest prices around on many items that any "home cooking" households are dependent on, and those who cook and bake know exactly what they are. So- we have shopped Aldis for about 20 years. We get about 60% of our food stuffs there. Another 35% comes from PriceRight market. The remainder comes from Wegmans and our farmers market here. The Aldi staff are hard working women and men, all pleasant and friendly and helpful, many we know by name. Just don't go there  during the first week-10days of the month-the EBT army corps equipped with their transporters occupies that place. Otherwise, before 10AM and after 7PM.

Wallmart and other "supermarkets"  could easily be reduced by 99.9% by size and content as for my family needs ( I occassionally buy a bicycle inner tube there).

Anyway, Mike, what is up your ass with food and ideology? Commi kraut schlecht kraut?

Bemused Observer's picture

Production has been 'outsourcing', it was only a matter of time before consumption did the same. So now the products the producers made with all that cheaper overseas labor will start returning home in the form of the even cheaper goods that labor force produced, but at a fraction of the prices the US has become accustomed to. The producers and their race to the bottom in wages will return to kick them in the ass as a race to the bottom in prices.

silverman's picture

Aldi was spun off of Lidl as the two brothers who owned the Lidl chain settled their feud and went their separate ways. They now battle it out in Europe. I have a Lidl and an Aldi in the neighborhood. Aldi was the first on the organic movement, but Lidl is catching up. They are beating the French grocery chains (Intermarche, Casino, L'Eclerc, etc) on price, with equal or superior quality. The big boys are scrambling to catch up, but the French don't fully understand price competition yet since they seem to have an unspoken prix fixé among themselves. The brothers aren't really fighting for market share so much with the big stores as they are against one another. It looks like the battleground has moved to the states.