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Aldi And Lidl: Let The Games Begin

As a pre-emptive strike against the pending opening of Lidl, Aldi announced that it will greatly accelerate its expansion in the U.S. with a goal of 2,500 stores by the end of 2022. This would be a staggering 900 or so new locations on top of the 1,300 stores that they are already planning to remodel and expand. In total, this would be $5 billion in capital expenditures at a time when most retailers are pulling back from physical store growth. This would give them the third highest store count in the U.S. and by my estimate, easily vault them into one of the top ten food retailers in the U.S. in terms of overall volume. While Aldi is privately held and doesn’t disclose revenue, I would estimate that they could exceed $25 billion in annual revenue if they meet their expansion goal.

Why is Aldi embarking on such an ambitious plan? Part can be attributed to outstanding performance over the past several years as Aldi has successfully expanded its business model. But, and it cannot be understated, the timing of this announcement comes on the eve of the opening of Lidl’s first stores in the U.S., Aldi’s closest global rival.

Lidl is opening Aldi-like stores with the first 20 locations set to open this month in the Southeast. Stores promise to be like Aldi but bigger (20,000 square feet) and presumably better…more selection and a stronger focus on fresh products.  And Lidl’s plans don’t stop with the initial stores—there are 100 additional expected to open by mid-2018, and rumored plans for 600 more.

And, Lidl has a secret weapon…a line of clothing designed by Heidi Klum is expected to hit shelves by this fall. Food retailers adding apparel is quite common in Europe—we’ll see how it takes with U.S. consumers.

Combined, the two discounters could begin to reshape the food retail landscape. If they both reach their numbers, I would estimate that they could capture 5-7% of the U.S. food market, up from what is likely less than 2% today. The repercussions move beyond simply market share, as they could also start price wars with competitors trying to mitigate their growth and potentially further slow national brand CPG growth through rapid expansion of private label.

Of course, we have seen this before. Alarm bells were soundly rung when Tesco opened its first Fresh & Easy stores a decade ago. These stores ultimately failed colossally as they didn’t connect with U.S. consumers. In the case of Lidl and Aldi, they will be expanding upon what is now a well-accepted formula.

Let the games begin.

Neil Stern for Forbes


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