Aldi to invest extra $1.6bn in US expansion

German discount supermarket group intensifies battle with American rivals

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YESTERDAY

by: Lindsay Whipp in Chicago

Aldi said on Wednesday that it would invest an extra $1.6bn in the US, intensifying a battle of the supermarkets as German rival Lidl enters the market and Whole Foods struggles to attract more shoppers.

The discount supermarket, which along with Lidl upended the UK market as they undercut rivals on pricing, is in the middle of a $3bn-plus US expansion to increase the number of stores by 650 to 2,000 over the five years to the end of 2018.

Aldi has grown to more than 1,600 stores. The company said the additional $1.6bn would cover the cost of expanding and remodelling 1,300 stores to accommodate its ramped-up offerings of fresh produce as well as improving lighting and using recycled materials and energy-saving refrigeration.

The investment comes as Lidl constructs distribution centres ahead of plans to open its first store in the US.

With groceries already suffering from price deflation, in part due to aggressive pricing by Walmart, Aldi’s new investment underlines the heated competition in the US supermarket industry.

Mike Paglia, an analyst at Kantar Retail, said that over the past several years Aldi’s expansion into the US, including its emphasis on fresh produce and “better for you” products, has put pressure on rivals such as Whole Foods, Kroger and Albertsons.

“This is the latest ramp-up in pressure that supermarkets have increasingly been feeling from Aldi over the past several years,” Mr Paglia said. “The risk of a price war is always present, if supermarkets choose to play Aldi’s game.”

The US grocery market has fragmented since the financial crisis, with consumers prepared to pay for quality items but also keeping a sharp eye on their purses. And as Walmart and other grocers including Aldi increase their organic offerings, Whole Foods has struggled to maintain comparable store sales.

The revamped stores, which will offer a wider range of organic and gluten-free products, will compete directly with Whole Foods’ cheaper 365 brand aimed at the younger demographic.

The move comes as US and foreign companies are getting to grips with President Donald Trump, who has singled out several in recent months from Lockheed Martin to Nordstrom.

Mr Paglia said it was hard to say whether the timing of Aldi’s announcement might partially be a political move.

However, “what is clear is that Aldi has always been laser focused on its business in all of its markets”, he added. “Aldi’s investments in the US over the last several years have been largely aimed at growing and solidifying its position before Lidl enters. The coming showdown between the two big German rivals is likely Aldi’s biggest concern right now.”