Marketing Info

Inflation is helping Europe’s discount stores benefit from Walmart

(Bloomberg Opinion) — Associated British Foods plc’s Primark isn’t the only European discounter to win over American shoppers.

Research by footfall-analysis company Placer.AI shows that budget grocers Aldi Incoff SE and German rival Lidl, part of Germany’s Schwarz Group, are gaining traction with American consumers as well. This could accelerate further as inflation takes a toll on household spending. And that should worry big US food retailers like Walmart Inc., Target Corp. and the kroger company

Aldi and Lidl are known for their cheap prices and limited range. Consumers turned away from these so-called hard discounters during the pandemic because they didn’t get all the products they wanted. Instead, he opted for a weekly shop over a big box store where he could get everything under one roof.

But with the biggest increase in food prices in 40 years, shopping habits are changing.

Aldi has been in the US for almost 50 years, but now it’s expanding rapidly. It has 2,100 stores in 38 states and is set to open 150 more stores this year. It is on track to become the third largest US grosser by store number by the end of 2022.

Lidl came out only five years ago, and after a slow start it is now gathering momentum. It has about 170 US stores and is clearly in line with American shoppers.

A major strength of these discounters is their ability to customize the offers in their local markets. For example, they offer more fresh produce and fancy but still reasonably priced wines meant to appeal to the cash-strapped middle class.

What is clear is that when Americans search for German discounters, they tend to stick around. An analysis from Placer.ai showed that both Walmart and discounters were declining shoppers — which suggests the world’s largest retailer is losing some customers to European upstarts. Walmart should take this into account as it assesses how much food-price inflation it can pass on to its customers.

Much of the concern about how US retail will perform this year has focused on companies exposed to low-income consumers, as they spend more of their income on food and fuel and therefore suffer more from rising prices. Will happen.

But this is not the whole story. Value chains should benefit from customers who are trading on cheap goods. It’s actually mid-market retailers, known for valuable items like department stores, that are most vulnerable to the squeeze on household spending. As Primark is working on expansion plans for the US, Five Bottoms, Inc. It also plans to triple its number of stores in the country to 3,500 in the next five years.

In tough times, a bargain basement is a better place than a squeezed middle. This is something that Aldi and Lidl know very well.

To contact the author of this story: Andrea Felsted at [email protected]

© 2022 Bloomberg LP

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