US supermarket sector braced for German invasion

22 May 2017 Authored by Consulting.us

US shoppers are embracing discount grocery stores whose expansion across the country is expected to slash the market share of traditional retailers. Cost and quality factors have helped the discount sector become mainstream. 

Research from Bain & Company indicates that discount supermarket chains have a bright future in the US marketplace. The leading management consultancy surveyed 2,800 American shoppers for its report: ‘Getting Ready to Battle Grocery’s Hard Discounters’. 

German giants Aldi and Lidl feature prominently in the report, which paints a stark picture of the challenges facing traditional grocers across the country. After cornering the European market, Lidl recently announced its entry into the US, while Aldi plans to expand its fleet of 1,600 American stores to 2,000 within a few years. 

Bain researchers zeroed in on key segments within the American shopper demographic. They found that discounters are increasingly attracting consumers from the mainstream and family focused segments, tempted by the range and number of deals. Aldi in particular is reaping the benefits of targeted investment in different segments. More than six in ten respondents said they would try an Aldi if it opened nearby. Lidl was even more popular despite, or perhaps because of,  its later entry, with 71% willing to give it a shot. 

Aldi historically focused on smaller households

Bain identified lack of awareness as the major hurdle facing Aldi’s plans for US expansion. Almost 40% of respondents who said they had never shopped in Aldi said the primary reason was simply not knowing about it. Roughly 30% cited the lack of a local Aldi store, while just 20% said value for money and food quality informed their decision.

Shoppers havent tried Aldi due to lack of local stores

With 60% of respondents identifying good value and low prices among their important shopping criteria, discounters are in a favorable position to continue expanding, Bain found. A convenient location and availability of fresh produce were cited by around half of surveyed shoppers as essential to their decision making. 

Traditional shoppers perceive Aldi as superior on top two criteria-value and price

One crucial element investigated by Bain researchers was the public perception of discounters’ store brands, compared to more established national name-brand products. A substantial majority of 80% agreed that store brands are typically just as good, or better than, more famous national brands. 

Regular customers keen on store brands

Alarmingly for traditional retailers, huge majorities said that once they tried an Aldi product they were unlikely to return to national name-brand products. This applied across the board with 80% considering Aldi’s meat and fish products to be at least equal to national brands. For non-perishable and canned food the figure was a striking 95%. 

Once they try Aldi products they tend to rate them highly across all categories

Kent Knudson, a Partner in Bain’s Retail Practice, and co-author of the report said, “Even the most faithful shoppers at traditional grocery stores are increasingly rolling out the welcome mat for these European imports. While this should be a wake-up call for U.S. incumbents, few seem to be concerned about the potential impact to their business, and even fewer are taking the broad range of actions necessary actions to address it.”

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