The supermarket price war is intensifying as German discount supermarkets expand their North American footprint. Lidl will open 10 stores in three states this week and aims to have 600 locations over the next five years, while rival Aldi already has more than 1,600 US stores and plans to open 900 more in the next five years. However, while these brands could put pressure on Walmart from a price standpoint, they may not be able to compete with the retail giant on digital – an area where they continue to underinvest.
In Europe, Aldi and Lidl’s aggressive discounting forced major supermarkets to cut prices. The same could happen in the US, increasing the pressure not only on retailers but also brands, which are already losing as Walmart and Amazon compete to bring prices downwards. However, while Aldi and Lidl’s rapid growth has decimated profit margins for their European competitors, these companies significantly lag their peers in digital. Both brands rank as Challenged or Feeble in L2’s Digital IQ Index: Retail Europe across most markets they operate in, with just a few exceptions.
In France, Aldi demonstrates less digital savvy than any other retailer in L2’s study. Likewise in Italy, where the brand’s digital investments fall behind other grocers. Aldi earns a rank of Average in the UK, but even there the brand lags grocery competitors in omnichannel and e-commerce, where its offerings are limited to wine and non-food “Specialbuys.” Similarly, Lidl ranks as Gifted only in its native Germany, where it recently launched a click-and-collect program, while lagging competitors in other markets. In the UK, for instance, Lidl is the bottom-performing Retail brand.
Given Amazon’s sway over the US market and Walmart’s aggressive efforts to counter it, can Aldi and Lidl represent a viable threat? If they focus as much on digital investments – particularly e-commerce – as they do on low prices, the supermarkets might have a chance.