Forefront Communications

Financial Times: US Grocers Count the Pennies as Discounters Wage Price War

Mark Dowd

Mark Dowd

In Fredericksburg, Virginia, German retailers are trying to beat Walmart at its own game. At stake is the $800bn US food market, in a battle being fought over a few cents on the prices of eggs and cereal.

Discount chains Lidl and Aldi are hoping to replicate the success they have enjoyed in Europe and the UK, where their no-frills approach and low prices have helped them capture 12 per cent of the UK market, a share analysts expect to rise eventually to a quarter.

Lidl has been quietly crafting ideas to test US appetites for more than a year, building a prototype store in Fredericksburg, before opening its first US store in June — just as Amazon unveiled its $14bn deal to buy Whole Foods. Grocers across the US and Europe had $40bn wiped from their market value as investors contemplated a deepening price war in an industry grappling with historic food deflation, falling revenues and pressure on already thin margins.

The day Amazon closed its $14bn purchase of Whole Foods, the ecommerce juggernaut began cutting prices at the upmarket food chain — a sign that Jeff Bezos would bring his competitive streak straight to the grocery sector.

The strategy has somewhat paid off, according to new data. Foot traffic to Whole Foods jumped 17 per cent the week of the price cuts, according to data provider Thasos Group. Three weeks later, it had fallen back but remained about 4 per cent higher.

Regular customers of Walmart were the biggest defectors, making up 24 per cent of the new shoppers at Whole Foods, followed by those from Kroger’s at 16 per cent, said Thasos, which tracks geolocation data from mobile phones for hedge fund clients.

Thasos said it was “the wealthiest regular customers” of rivals who had defected, meaning Amazon’s price cuts did not lure lower-income shoppers, a key customer base for Walmart.

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