Lidl's effect on grocery prices 'unprecedented'
Lidl drives competitors to set prices up to 55% lower than what they charge in markets where Lidl is not present, according to a new study.
The University of North Carolina (UNC) Kenan-Flagler Business School study, led by UNC Kenan-Flagler Associate Professor of Marketing Katrijn Gielens and commissioned by Lidl US, looked into the competitive price effect of Lidl’s entry into the U.S. grocery market, and the reaction of prime rivals Aldi, Food Lion, Kroger, Publix and Walmart.
Gielens analyzed prices in six markets in which Lidl operates and six control markets without Lidl in Virginia, North Carolina and South Carolina. The study encompassed 48 grocery products, among them dairy, meats, produce, canned items and frozen foods, the prices for which were collected on store visits.
“We know that supermarket chains systematically compete with each other on price,” noted Gielens, an expert in international retailing whose research focuses on the dynamics in the retailing industry and relationships between retailers and brand manufacturers. “The level of competitive pressure Lidl is exerting on leading retailers to drop their prices in these markets is unprecedented. In fact, the competitive price-cutting effect of Lidl’s entry in a market is more than three times stronger than the effect of Walmart’s entry in a new market reported by previous academic work.”
In markets where Lidl is present, the study found that retailers, on average, set prices 25 percent above Lidl’s prices. More specifically, prices were about 100 percent higher at Publix, 50 percent higher at Kroger, 36 percent higher at Food Lion, 9 percent higher at Walmart, and 5 percent higher at Aldi.
Rival grocers set the price for a half-gallon of milk about 55 percent lower in Lidl markets versus markets where the deep-discounter isn’t present, according to the study, which also found the following:
- Price reductions of more than 30 percent in categories such as avocados and bread products
- For some frequently purchased items, including ice cream, bananas, and cheese, price reductions came to more than 15 percent
The study uncovered considerable consumer savings on staple products due to Lidl’s entry into the market. Because of the competitive price-cutting effect, Kroger shoppers save up to $22 in markets in which Lidl operates, compared with markets where Lidl isn’t present. For a basket of 48 products, shoppers in markets where Lidl is present save up to $17 at Food Lion and up to $14 at Aldi, versus a comparable purchase in non-Lidl markets.
On average, competing retailers near Lidl stores set their prices about 9.3 percent lower than in markets where Lidl isn’t present – more than three times the percentage typically reported in previous academic work on Walmart’s entry into a new market.
Meanwhile, average prices set by retailers in markets where Lidl operates varied significantly among different supermarkets:
- Aldi’s prices were up to 19 percent lower in markets where Lidl operates, compared with non-Lidl markets
- Food Lion’s and Kroger’s prices were up to 15 percent and up to 13 percent lower, respectively
- Walmart’s and Publix’s prices were up to 4 percent lower