If you didn’t realize it, the supermarket industry landscape is rapidly changing. Over the last few years, curbside pick-up, delivery services, and even online shopping services have brought about innovative changes. But these are not the largest shifts that the supermarket industry is experiencing. Newcomers are engaging in intense grocery wars with some of the biggest retailers in the sector. And the ultimate winner is anything but certain.
While Walmart and Kroger are still the largest retailers in the supermarket industry, new names are gaining market share quickly. Aldi grocery stores and newcomer Lidl are aggressively challenging long-standing companies as the grocery wars heat up. In fact, these two German-based chains specifically are entirely disrupting the grocery shopping experience. How the major players in the supermarket industry react next may determine who survives in the future.
An Unexpected Strategy of Supermarket Industry Disruption
As the leader of the supermarket industry, Walmart collected $184 million on grocery sales in 2018. This figure represents over half the company’s total revenues for the year. How did they do it? By being the low-cost leader and out-pricing their competitors. Amazon, who bought Whole Foods for $14 billion in 2017, has tried a similar approach. And both are pursuing online, curbside and home delivery services to further entice customers.
Given this blend of low prices and hi-tech convenience, industry disruption would not be expected. However, stores like Aldi have done just that. For one, they have outperformed Walmart on price with most items averaging 15 percent less than Walmart’s. Also, more importantly, they have attracted customers through its no-frills stores, private label brands and a smaller number of selections. One might not expect customers to like such things, but the opposite is proving to be true.
Grocery Wars —The Battle Lines Are Drawn
At present, Aldi has around 1,800 stores in 35 states in the United States. However, the company is expected to have over 2,500 stores by the end of 2020. That will make Aldi the third largest grocery retailer in the U.S. supermarket industry. As part of the grocery wars, Aldi shows itself to be rather bold. This German-based chain recently targeted Bentonville, Arkansas, for a store location. Being Walmart’s headquarters site, Aldi looks to be embracing its upfront role as a player in the grocery wars.
Aldi’s strategy is simple—cut costs everywhere possible without compromising on quality. The average Aldi store only has three to five employees working at any one time. How is this possible? All staff members undergo cross-training, and customers do much of the work. From cart returns to bagging their own groceries, customers have accepted this role in exchange for lower prices.
The Future of the Supermarket Industry
Based on recent events in the grocery wars, three key areas of competition are evident. First, customers want low prices and good quality. Second, while brick-and-mortar stores are still preferred, added convenience services are appreciated. Third, grocers do not have to have fancy stores and brand names to thrive. Lidl, another no-frills and low-cost upstart, has adopted a similar strategy as Aldi in this regard. It, too, is making waves. Indeed, the supermarket industry chains that can compete in these areas will be tomorrow’s survivors of the grocery wars.
In the meantime, Southeastern Grocers—the parent company of Winn-Dixie and BI-LO—has filed for bankruptcy. Amazon has yet to convince their Prime members to buy into their Whole Foods brands. And Kroger is rapidly shifting gears, adding more private label offerings at increasingly lower prices. Other companies like Instacart and Peapod represent addition supermarket industry disruptors that may also play a role in the future. Not only are the grocery wars seem to be rather complex, but also how all this will shake out is yet to be determined.