A study found when low-price supermarkets move into a neighborhood, prices drop everywhere. Consumer Reporter Susan Hogan reports.
If you’ve noticed a sudden increase in Lidl and ALDI stores popping up in your neighborhood, it’s because the low-priced retailers are expanding at record rates.
ALDI announced it’s opening 70 new stores in the U.S. by the end of 2020. Lidl will open 50 new stores by the end of 2021, including one in Southeast D.C. at the new Skyland Town Center. The area is known as a food desert with just one supermarket in the area.
Both Lidl and ALDI are known for their low price, no-frills shopping. They primarily stock private-label products rather than groceries from big-name national brands. In terms of pricing, they want to be at the very bottom of the market.
Patrick Fisher used to head up the pricing division at Lidl. He says typically when Lidl moves in, prices at nearby grocery stores drop.
“At first we had a general understanding that they might see some competitive interaction with the different competitors within the market,” Fisher said. “But we didn’t understand at first how much it was going to affect, and it was significantly.”
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In 2018, marketing professor Katrijn Gielens at the University of North Carolina was hired by Lidl to research the impact.
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“So it’s not just about their prices relative to their competitors, but also how competitors react to their presence,” said Gielens.
Gielens selected a dozen towns in Virginia and the Carolinas where Lidl had opened new stores. She built a basket of 48 common grocery items like ice cream, bacon, milk and tuna. She then collected prices from grocery stores in the surrounding areas. Across the board, according to Gielens, most retailers decreased their prices on average by 9 percent.
Gielens found savings of up to $22 on the entire basket of goods, which could add up to hundreds of dollars a year off your grocery bill. She says the study has important implications for grocery retailers assessing the potential impact of low-cost competitors.
“The more you are alike, the less you can afford to sit back and do nothing,” said Gielens.
Now the big question is, how long do these lower prices stick around at the nearby competitors?
That’s the professor’s next research project.
