This German grocery chain was set to send shockwaves through America - but its plan may have backfired
- Lidl seemed poised to crush the American grocery scene when it opened its first US locations in 2017.
- The chain initially announced it would be opening 100 stores by mid-2018.
- But this aggressive store expansion has faltered, and experts say that Lidl's hotly anticipated "disruption" has yet to materialize.
- Meanwhile, many of its competitors have lowered their prices to compete.
German discount grocery store Lidl, which is known for its low-cost, high-quality private-label products, seemed poised to take over the US grocery market when it launched on the East Coast last year.
In the summer of 2017, Lidl opened 20 stores in North Carolina, South Carolina, and Virginia and announced plans to open another 80 stores along the East Coast by mid-2018.
Seven months later, it seems that this expansion plan was not only aggressive but perhaps wildly optimistic. 50% of the stores that had been slated to open have not yet done so. So far, 49 locations have opened in the US, and the 50th opens in Virginia next week, the company said.
A Lidl spokesperson would not confirm how many stores will now open this year, or whether it would still be on track to have 100 stores open by the middle of the year.
"Lidl may have experienced a rocky start in the U.S. and could be rethinking its real estate strategy. This is evidenced by the fact that several construction projects have been halted and 2018 projected openings are a fraction of those the year before," real-estate firm JLL wrote in its 2018 US Grocery Tracker report.
"It's fair to say that the initial launch hasn't been as overwhelming a success as they had hoped," Doug Koontz, head of content at the research firm Planet Retail RNG, told Business Insider.
He added: "But I don't think the sky is falling."
The hype around Lidl was based on its success in Europe, where it has lured customers from legacy stores with its high-quality, low-priced products. It was expected to explode in the US with prices forecasted to be about 9% cheaper than Walmart.
But the buzz around its opening ended up working to Lidl's disadvantage as it motivated the competition to react.
"It was so highly promoted and anticipated that a lot of competition (Kroger and Walmart) took the competition threat seriously," Koontz said.
"Retailers got extreme in how they tackled Lidl," Diana Sheehan, vice president of retail and shopper insights at Kantar Consulting, told Business Insider.
Stores such as Aldi, Food Lion, Kroger, Publix, and Walmart, which were located close to the new Lidl stores, dropped prices to keep their customers loyal. Prices were approximately 9.3% lower than in markets where Lidl was not present, according to a study conducted by the University of North Carolina's Kegan-Flagler Business School. In fact, some staple products were actually priced 55% lower in these stores compared to their sister locations elsewhere.
Though these prices are likely to creep up in the future, giving Lidl the chance to swoop back in further down the line, some experts say they are better off switching to urban markets where rival stores such as Walmart and Aldi don't already have a presence.
Lidl's new US stores, primarily located in rural and suburban areas, are roughly 35% larger than its European stores. In Europe, the company has historically had more success in urban areas where it can operate smaller stores and be more competitive on price.
The US arm of the business seems to now be drawing from its success in Europe: In December, it announced it would now be looking to open smaller stores, between 15,000 and 25,000 square feet, in urban areas such as New York City.
Experts still say there is a place for Lidl in the market, but the expectation that it will have a massive impact in a large part of the US in a short amount of time is unrealistic.
"I don't think they would walk away because they failed but perhaps because they don't think it's worth the extra effort," Sheehan said.