Aldi announced on February 8 that it will invest about $1.6 billion more in the United States. This aggressive expansion by the German retailer puts it squarely against other American retailers and also its German rival Lidl. The latter has also made inroads into the American market. For the two German retailers, such competition is not new. Both of them disrupted the British market when they undercut their rivals on pricing.
Aldi and Lidl
Aldi now operates about 1,600 stores. According to the company, the fresh infusion pf $1.6 billion capital will cover the expansion cost and the remodel of about 1,300 of its stores. These stores will offer fresh produce along with energy saving refrigeration and improved lighting. This investment comes as the distribution centers are constructed by Lidl to open its maiden store in the United States. The revamped stores will provide a broad range of gluten free and organic products. It will provide direct competition with the more economical 365 brand of Whole Foods. The brand is sold by targeting a younger demographic.
Lidl is now actively pursuing a US expansion style with a treasure chest of around $3 billion. It wants to dramatically increase the number of international stores from the present 650 to about 2,000 within five years.
This new investment by Aldi highlights the intense competition within the American supermarket industry. The present scenario is a scarred one of pride deflation, partly caused by Walmart's aggressive pricing strategy. According to Mike Paglia of Kantar Retail, the last few years witnessed Aldi's foray into the American market. The company has emphasized on “better for you” saleable products and fresh produce. Its activities has put pressure on a number of rivals like Whole Foods, Albertsons and Kroger. Paglia, an analyst, said there is always the risk of getting engaged in price wars if other supermarkets went in the same path as Aldi's. The financial crisis has smashed the American grocery market. Consumers now want quality products at the best prices. Organic foods are now increasingly being stocked by supermarkets.
This action in the grocery segment comes as both American and foreign companies acquaint themselves with the Trump administration. The President has singled out a few foreign companies across a wide range of sectors, including Nordstrom and Lockheed Martin. Paglia is uncertain whether the announcement by Paglia could be partly a political move.