Discount chain Aldi, for example, could “double down and continue to be quite aggressive because they are the ideal retailer for this environment,” Clear said.
Reese Samuel, a 22-year-old swimming coach in Washington, D.C., said he and his roommate buy most of their groceries at a recently opened Lidl in maintain a high-protein diet on a limited budget.
“We eat a lot, so it’s essential to have a lot of food at a low price,” he said outside the store in Washington’s Columbia Heights neighborhood.
Dollar General, Dollar Tree, Aldi and Lidl collectively increased their store footprints by nearly 17% between 2019 and the end of 2023, according to analytics firm GlobalData. Dollar General alone has stores within a five-mile radius of about 75% of the U.S. population, its executives told investors last week.
For Aldi and Lidl, it’s paying off: consumers struggling financially are more willing to break their habits to save a few dollars on essentials, industry experts say.
“As inflation came to the forefront when people were shopping, consumers became very focused on good deals,” said RJ Hottovy, head of analytics research at Placer.ai. “These value-driven concepts are the ones that people have flocked to, and now they’re starting to come back more often.”
Aldi, one of the fastest growing grocers in the United States, this month announced an ambitious four-year expansion plan that includes new store openings and conversions following its recent acquisition of Southern supermarket chains Winn-Dixie and Harvey. The chain generated $124 billion in 2022, according to the National Retail Federation, including $40 billion in the United States.
The economic environment gives Aldi and Lidl a perfect opportunity to pull out of an old playbook, said Katrijn Gielens, a marketing professor at the University of North Carolina. The retailers, both owned by German companies, accelerated their expansion in Europe after the 2008 recession. The chains managed to attract new, wealthier consumers who then stayed there even when economic conditions improved, a- she declared.
They are now expanding into the American market. Aldi, which entered the United States in 1976, has added nearly 400 stores nationwide since 2020, bringing the chain to a total of more than 2,300 locations nationwide by the end of 2023, according to GlobalData. Lidl arrived in the United States in 2017 and has more than 170 locations, primarily along the East Coast. “Most people associate price as an indicator of quality,” Gielens said. But once they try the cheaper options, many wonder: “Why did I pay so much?” »
Andrew Welch, 27, said the quality at Lidl was better than he expected. It was a relief for the government employee to find a cheap option for shopping. “The more I save, the more I can eat, the more I can cook,” he said in front of Lidl. “That’s why I like coming here, because I don’t have to feel bad: If I went to Target or Giant, I couldn’t get as much.”
Aldi and Lidl know it the elements that keep them nimble – limited selections, majority private label inventory and no-frills format – can prevent them from meeting the needs of all.
“They sometimes say if they could open a store in the Walmart parking lot, they would,” Gielens said. “They will even try to make it easier for you to go to other retailers, as long as you go there for your essentials.”
While Walmart leverages its size and purchasing power to keep prices low, dollar stores and discount grocers have slightly different tactics, Placer.ai’s Hottovy said. Dollar Tree and Dollar General offer limited selections, focusing on popular brands and products with a shorter shelf life than many items at a traditional supermarket. Some food manufacturers sell specially made products, usually in a smaller format, to meet the pricing demands of these retailers.
Mariah Williams, 28, frequents Lidl in Columbia Heights, but she also goes to Target, Giant Foods, Whole Foods and Trader Joe’s, all within a 1.5 mile radius of the store. “Everything is very expensive, so I go wherever I can get the best price,” Williams said.
Dollar stores are trying to capitalize on this opportunity by expanding their grocery options to become “a critical source of affordable groceries and essentials, especially in rural and low-income communities,” a writes Sujeet Naik, an analyst at Coresight Research, in a report on the sector’s growth. . Dollar Tree and Dollar General said they would expand their private label selections in stores.
Dollar General recently announced that it sells fresh fruits and vegetables in more than 5,400 stores, or about a quarter of its locations. And it’s “targeting up to 1,500 additional product stores in 2024,” CEO Todd Vasos told investors.
“Products are a travel engine,” Gielens said. “It’s something you need very frequently, depending on how you shop.”
Elizabeth Meister, 78, had to rethink her grocery strategy to compensate for rising prices. She’s cut “a lot of meat” from her diet and now bypasses the Publix supermarket in her Anderson, South Carolina, neighborhood for Walmart and dollar stores. “I’m just trying to keep my head above water.”
Dollar stores have been even more ambitious than discount grocers when it comes to expansion. Coresight projects that dollar stores and discount stores, which generated approximately $76.5 billion in revenue in 2022, will grow 27% in 2027.
Dollar General opened 987 new stores last year, executed 129 moves and 2,007 renovations, Vasos said. The chain opened its 20,000th store last month and plans to add 800 this year, renovate 1,500 locations and relocate 85 stores. In December, foot traffic at Dollar General increased 5.4%, according to annual data from Placer.ai.
Not everything went well. After adding more than 1,500 stores between 2019 and 2023, Dollar Tree now plans to cut locations, primarily from its Family Dollar subsidiary, which plans to close nearly 1,000 stores over the next few years.
But its flagship Dollar Tree brand has been a bright spot, adding 3.4 million shoppers last year, most of whom come from households earning more than $125,000 a year, CEO Richard Dreiling said. Foot traffic in December increased 12.5 percent, according to Placer.ai.
Increased competition from discount, value and dollar stores threatens an industry that already operates on low margins. Gielens conducted a case study following the opening of a Lidl on Long Island from April 2019 to March 2020, and she found that big-box supermarkets reduced prices by up to 15%. A similar scenario played out in Europe after the 2008 recession, when cheap grocery stores flooded the continent, pushing big chains to lower their prices.
But she noted that legacy and established retailers must be careful not to start a price war, which can be “extremely destructive.” She highlighted a cautionary tale that unfolded in Britain in the mid-2010s. As Aldi and Lidl accelerated their expansion, Tesco, the country’s largest supermarket chain, “tried to beat them at their own game” and it almost destroyed them, Gielsens said.
“[Big box retailers] are very afraid of them,” she added. “They should know by now to be extremely careful” when competing on price.
