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Study: Aldi, Lidl making slow but steady gains

Traditional grocers take heed: Now is not the time to remain complacent.

That’s according to a new report by Bain & Company, which found that while German grocery discounters Aldi and Lidl have not upended the U.S. grocery landscape as many had expected, both continue to make slow and steady gains, and represent a mounting competitive threat for traditional grocers.

While hard discounters' expansion into the U.S. turned out to be less overwhelming than expected, it still will prove tumultuous for traditional grocers who are slow to differentiate," said Kent Knudson, a partner in Bain & Company's retail practice and a co-author of the How US Grocers Are Standing Up to Europe's Hard Discounters report. "As we've seen over the past year, the hard discounters know how to pivot their strategies in real-time as they get a feel for the US market. They are still a force to be reckoned with."

The Bain study, conducted in partnership with ROIRocket, found Lidl and Aldi have used their strong customer advocacy and ability to lure consumers into cross shopping as a wedge to build up their presence and popularity in the United States. As many as 30% of shoppers at mass and traditional grocery stores also regularly shop at Lidl and Aldi.

Aldi continues to win over American shoppers. Its consumer advocacy rose to 55% in 2018 from 46% a year earlier. The fast-growing chain outperformed in the two areas customers care about most: "best everyday low prices" and "best value for the money." This has translated into strong market performance and slow but steady gains. In a summer 2018 study, Aldi had more than 3% share of grocery spending in six of the eight markets studied, and saw share gains in the majority of those markets over the last two years.

Similarly, Lidl captured 3% or more share in five of the seven markets studied in the summer of 2018, gaining spending from traditional grocers.

As both Aldi and Lidl carefully plot their U.S. expansion, traditional grocers will need to similarly plan for dealing with these hard discounters, who remain a formidable competitive threat—particularly as they demonstrate an ability to learn as they grow, advised the report.

A 2017 Bain & Company report prioritized price as the most important factor in competing with hard discounters and outlined five rules for growing share amid the broader disruption caused by the hard-discount format:

• Embrace your own private brands before your shoppers embrace someone else's.
• Lead with fresh.
• Get more convenient while your competitors get less so.
• Transform your cost structure, don't just tweak it.
• Use advanced analytics to unlock new sources of value.

While all five remain important, two have gained in significance since last year: investing in convenience and using advanced analytics or other new technologies to improve operational efficiencies.

“Lidl and Aldi are just beginning to flex their competitive muscles,” said Mikey Vu, a partner with Bain & Company's Retail Practice and a co-author of the report. “What we're seeing is that U.S. grocers can effectively stand up to these hard discounters, but that they need to remain vigilant and innovate in strategic areas to keep their edge.”
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