Hard discounters expanding in the U.S. are putting a lot more than pricing pressure on traditional competitors. In many cases, discount shoppers also prefer the shopping experience over supermarkets and are more likely to recommend the format to friends.
Those findings come from a study of more than 17,400 consumers conducted by Bain & Co. and ROIRocket, revealing that hard discounters lead in customer advocacy out of all grocer types for three of the four main shopper journeys, based on the Net Promoter Scores (NPS), a method for gauging customer advocacy.
Graphic courtesy of Bain & Co.
The study also found that shoppers are willing to add Lidl or Aldi stores to their shopping options wherever they become available, justifying the ambitious U.S. expansion of the German counterparts. As many as 30% of shoppers at mass and traditional grocery stores also regularly shop at Lidl and Aldi, Bain said.
The figures were especially strong for Aldi, which the survey indicated was gaining customer acceptance along with its move to expand assortment to premium tiers. Its consumer advocacy rose to 55% in 2018 from 46% a year earlier and outperformed in the two areas that according to Bain customers care about most: “best everyday low prices” and “best value for the money.”
Consumer advocacy is a predictor of future success, because promoters—or a company’s biggest fans—tend to spend more, purchase more frequently and devote a higher share of their overall spending to retailers than do detractors, or consumers giving company a low rating. Aldi had the third-best NPS of 25 retail brands in the Bain study, while Lidl ranked 12th in that group. Bain did not identify the companies in the provided rankings but said the group included supermarkets, mass merchants and warehouse clubs, and excluded convenience stores and dollar stores.
Lidl, which entered the U.S. less than two years ago, is still tinkering to find a profitable model, but has captured 3% or greater share in five of the seven markets studied in summer 2018, gaining spending from traditional grocers, Bain said.
“Lidl and Aldi are just beginning to flex their competitive muscles,” said Mikey Vu, a partner with Bain & Co.’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.”
Bain said the continued success will further pressure grocers to invest in convenience and use advanced analytics and other technologies to improve operational efficiencies.
Another recent study from Retail Feedback Group also made note of the growing influence of the discounters in grocery.
Where Pathmark and Kmart once ruled, now there’s Aldi and Lidl.
The rival German hard discounters each opened a new store this week in Hazlet, N.J., a town of about 20,000 in Monmouth County, near the Raritan Bay.
Aldi’s new store, which opened Nov. 27, replaced an existing smaller unit directly across Route 35 and occupies a portion of a store that once belonged to defunct supermarket chain Pathmark. Twenty-four hours later, Lidl’s newest U.S. store opened in a new building alongside the now-empty former Aldi.
The following photos illustrate the scene around those stores—and others—in a shifting northern New Jersey shore town.
Lidl was bright, busy and a little chaotic on opening morning as shoppers found their way around for the first time. Among the visitors outside were a few dozen picketers representing the United Food and Commercial Workers Union, calling attention to another nonunion employer in the once union-heavy industry.
Directly across Route 35, a newly relocated and larger Aldi was beginning its second day in its new environment. The store occupies one end of a large retail site that once included now-defunct Pathmark and Kmart stores. Parking on this side of the road is plentiful, compared to the old location, and visibility is great thanks to a towering sign in the lot now bearing the Aldi logo that can be seen from a distance.
For stores with a seemingly similar offering, the Hazlet branches of Lidl and Aldi give off decidedly different vibes. Where Lidl’s extremely bright front end, neon pricing signage and digital signboards tends to off come off frenetic and noisy, Aldi is comparatively chill: sedate, quiet and dim in beiges, grays, browns and dark ceilings.
This Aldi had six checkout lanes and no self-checkout. This store maintains Aldi’s customary practices—shoppers release their own shopping carts with a quarter and bag their own groceries. For the opening, Lidl had baggers stuffing paper bags for free, offered a self-checkout option and carts came with no required deposit.
Unique sizes and formulations for store brands make precise comparisons between the discounters—not to mention conventional competitors—difficult to make. But on this day, Aldi had a price edge on 8-ounce bags of kettle chips (95 cents at Aldi; $1.39 for a similar offering at Lidl). Half-gallons of organic 2% milk were also cheaper at Aldi ($2.69 vs. $3.29 at Lidl).
The larger footprint of the new Aldi is giving the store room for more variety, including tiered offerings of nearly all of its grocery products and a larger fresh food section. Lidl by contrast appeared to have tiered offerings only on some products. This selection of Aldi coffee includes organic and fair trade-certified single-origin coffees, the premium Specially Selected German roast, and less-expensive offerings under its Barrissimo label.
The new discounters are surrounded by conventional and unconventional competitors. Just north of the stores on the same road is a modern ShopRite owned by one of Wakefern Food Corp.’s largest independents, Saker ShopRites. The Saker family also owns the unique farm stand, nursery and specialty foods store known as Dearborn Market, just a mile south of the stores in Holmdel. A Costco and a Stop & Shop are also close by on that same stretch of road.
Holmdel is also home to New Jersey’s only Best Market store. As WGB recently reported, Best Market is in the process of being acquired by Lidl, which has plans to gradually convert it—along with 26 other Best Market stores—to the Lidl brand beginning next year.
For this Best Market, a switch to the Lidl format would appear to promise big changes. This store competes on fresh prepared foods, service meat, seafood and bakery departments and a gigantic Boar’s Head service deli. Barring something unforeseen, none of these things would necessarily work under Lidl, indicating Best Market's real estate and not the format, is what attracted its new owner.
This would give Lidl two stores within less than two miles, and combined with recent (Union, N.J., and Eatontown, N.J.) and shortly arriving (Staten Island, N.Y.) units, is building real density in metro New York.