With cheap wine and bare-bones stores, German discount grocers Aldi and Lidl are coming for Publix shoppers
Two German discount grocers planning massive expansions in the U.S. in the coming years will cut into Publix Super Markets Inc.'s market share by winning over millennial and Generation Z shoppers.
Aldi and Lidl, which are fierce competitors in Germany, are both limited-assortment grocers that sell mostly private label goods. Their stores offer the upscale perks that mainstream grocers have rolled into their shopping experience in recent years — like craft beer and specialty chocolates and cheese — at an extreme discount.
"Generation Z and millennials see no difference between store brands and name brands," said Phil Lempert, editor of SuperMarketGuru.com. "They’re still buying craft beers but buying Lidl brand craft beer, and on the package they’re going to have the awards they’ve won for it."
Aldi already has a presence in the U.S. and throughout Florida. Lidl will open its first U.S. stores on Thursday — a move that prompted Aldi to announce this week that it will ramp up its U.S. expansion, with plans to have 2,500 stores nationwide by 2022.
Collectively, Aldi and Lidl represent yet another competitive force that will chip away at Publix's customer base. Lakeland-based Publix in recent years has been forced to adapt to a number of new competitors, from new grocery concepts to meal kits. Both Aldi and Lidl are headed straight for Publix territory — the first Lidl stores open in Virginia and North Carolina, which is exactly where Publix is expanding its retail footprint.
Jim Hertel, a senior vice president at Chicago-based food retailing consultancy Willard Bishop, an Inmar Analytics Co., said he estimates the U.S. could support around 7,000 limited-assortment grocery stores like Aldi, Lidl and Save-A-Lot. There are currently between 3,000 and 3,500 of those types of stores.
Plans for Florida
Lidl will open its first U.S. stores in North Carolina on Thursday, with more to come next week. It is targeting sites in Ohio, Pennsylvania, New Jersey, Maryland, Virginia, the Carolinas, Georgia and Texas. It has not announced plans for Florida, but Lidl in January registered as a limited liability company with the state, signaling that it intends to do business here.
“As recent as two weeks ago, I have had credible people tell me they [Lidl] are looking within the state for ‘opportunities,'" said Mark Thompson, managing director of Crossman & Co. in Orlando, who specializes in grocer-anchored real estate.
Will Harford, a spokesman for Lidl, said Wednesday that the company isn't focused on Florida at this time. Lidl plans to open 100 stores on the East Coast between New Jersey and Georgia within one year of the first store opening.
"That’s a lot to take on, and we're excited about it," Harford said of the expansion plans. "That's our focus."
Lidl's supply chain will determine how quickly it comes to Florida — and where those first stores might be located. Sprouts Farmers Market Inc., which recently opened its first Florida stores in the Tampa Bay region, serves those stores out of a distribution center in the metro Atlanta area.
"Distribution centers are key on these types of growth initiatives, so that would be the leading indicator," Thompson said. "Their closest current facility is in North Carolina, which would create logistical problems in both freshness and pricing unless they open a local distribution facility.”
Crossover with Publix
At first blush, grocers like Aldi and Lidl would appeal to a lower-income demographic. But that's not entirely true, Hertel said.
"It has an appeal to folks who are above average in terms of income," Hertel said. "Publix is an all-purpose, traditional supermarket, but I think they appeal more to the upper end. My guess is there is going to be a crossover [between shoppers]."
A glance through Lidl's first sales flyers shows boneless, skinless chicken breasts for $1.29 per pound, 79-cent chocolate bars and an $8.99 bottle of prosecco that won a gold medal at this year's Los Angeles International Wine Competition. There are plenty of non-food items, like grills and aluminum water bottles, and supermodel Heidi Klum will debut her U.S. clothing line in Lidl stores.
The most likely response from Publix, Lempert said, will be a ramping up of its private label line and a continued emphasis on customer service.
"What it’s going to do for Publix is reinforce for them to get behind their store brands," he said, "and reinforce for them to tout the quality of store brands."
Ashley Gurbal Kritzer is senior reporter for the Tampa Bay Business Journal.
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