By Sean Cheyney, Vice President, North American Business Development, Triad
A new wave of grocery chains with a fresh outlook on price differentiation, in-store design, food selection and digital touchpoints is set to shake up the traditional market foundation in the United States.
In June, the German grocer Lidl made its entry into the market by opening nine stores on the East Coast — a harbinger to its larger plan that includes the establishment of 100 additional locations set to open by the end of summer 2018.
Its competitor, Aldi, then followed suit by announcing its goal of opening 2,500 stores by 2022 in an effort to become the third-largest grocery chain in the nation.
Leave it to Amazon, however, to remain front and center through its acquisition of Whole Foods, rounding out a series of strategic business moves that now has the American grocery market scrambling to keep a leg up on the competition.
The entry of three rising competitors
While a surprising pair, Amazon and Whole Foods have some serious potential to carve out a new category in the grocery market. Specifically, the acquisition gives Amazon in-store presence at scale — an important element that the company previously lacked. This move represents an entirely new level of competition for other brick-and-mortar retailers as Amazon’s expertise in e-commerce combined with Whole Foods’ leadership in higher-tier food quality makes for a potential game-changer in the grocery market.
Even though Aldi has been around for some time and has had to brush off its “lower-tier” stigma, it has hustled to position itself competitively in the market with recent upgrades to its fresh-food offerings and in-store design that make shopping more pleasant. Think softer lighting and wider aisles, as well as a strong supply chain and private-label offering.
As the newcomer, Lidl is trying to avoid a similar perception by not only delivering value from low prices, but also quality by offering an exclusive line of clothing designed by Heidi Klum. Whether that clothing sells within a grocery store is irrelevant. What’s important, rather, is that Lidl is leveraging Heidi Klum’s brand recognition to drive curiosity and bring consumers in-store — differentiating it from its competitors.
The pros and cons of the new grocery model
In short, the strides made by both Aldi and Lidl are shaping a new grocery model that examines price differentiation, in-store design and product selection. Both companies pose a threat to other grocery chains, as well as CPG brands, in that Aldi and Lidl are undercutting competitors by slashing prices and tapping into competitor strategies of lower price points and convenience.
There is a risk factor, however, with the companies’ use of private labels. While it may benefit Aldi and Lidl’s supply chain, it proves to be a challenge for many CPG brands. Ultimately, CPG brands must decide that if by private-labeling their goods, they’re willing to impact margins and eliminate brand awareness for a larger sales channel. In contrast, if CPG brands choose to keep their label, they run the risk of being outperformed by more affordable product options.
From the CPG point of view, it’s important to seek grocers they consider as partners who will best support their goal in creating quality advertising opportunities. These partnerships give CPG brands the opportunity to get in front of the consumer and move products, bridging the digital and physical shopping experience to consolidate retail efforts.
Inspiring grocers to realize the value of digital advertising and bringing solutions that help convert shoppers to buyers is an approach that has proven to be tried and true for generating sales. Many of the world’s largest retailers partner with Triad to first identify consumer behavior, then take those insights and apply them toward future campaigns to effectively leverage ad dollars for greater positioning in front of consumers. That alone, in addition to serving a genuine purpose, also fulfills another by way of enhancing customer relationships.
Why disrupt now
While price may work for a period of time to initially draw consumers in, it won’t last forever. Grocers looking to thrive in this shifting market need to look at other points of differentiation. For Aldi and Lidl, their competitive advantage is the ability to offer affordable fresh foods to consumers who may otherwise associate higher prices with better quality. It may take some time for consumers to road-test the products before trading in the Whole Foods bags.
And, thanks to Amazon’s large presence in the e-commerce space, its new Whole Foods partner will be able to leverage tactics that support the online shopping experience, including click-and-collect models, home delivery, mobile apps and other in-store offerings that drive convenience and add value to customers. In large part due to the acquisition, Amazon also now has immediate access to in-store distribution points for road-testing its proprietary technologies, bringing it one step closer to reaching digitally savvy shoppers directly from across the aisle.
Beyond Aldi, Lidl and Amazon, other grocers have also expanded their points of differentiation. Giant Eagle, for one, is now including restaurants within its Market District stores to create an experience for the shopper that goes beyond just buying groceries for the week, and instead offering a place to eat with friends, too. As the largest grocer in the U.S., Walmart, meanwhile, has continued to attract shoppers by integrating touchpoints that simplify the grocery shopping journey. For instance, in 2015, the company won over customers by giving them the ability to order groceries online and pick them up in-store. Even today, Walmart’s evolution remains highly visible across the retail space, as it just recently announced its trial of a grocery-delivery service in partnership with Uber.
Until now, however, the grocery segment hadn’t changed much. In-store formats are mostly the same today as they were decades ago. But even with the recent efforts of retail behemoths such as Amazon, and new players like Aldi and Lidl, the industry has evolved into a competitive arena in which the primary quest is no longer only to disrupt, but rather to determine which competitors are willing to rise up for the challenge.