No-frills grocery chains Aldi and Trader Joe’s have been attracting loyal customers in the U.S. regions where they operate, and as similar retailer Lidl (which also sells apparel and home goods) readies its entry into the U.S., many observers are wondering what its arrival means for the future of the grocery category. Even before Oppenheimer’s note this week, as early as February, there were signs that Walmart was responding to the threat with aggressive pricing.
While the moves garnered kudos from Oppenheimer analyst Parikh, it may be a nightmarish deja vu for Walmart, which in the U.K. has seen its Asda grocery unit decimated by a years-long price war sparked by the same German grocers that are now expanding in the U.S.
For a report last year, experts repeatedly told Retail Dive to look at Britain’s grocery wars to understand the devastation that could be wrought by Aldi and Lidl. Asda and rival supermarkets Sainsbury, Tesco and Morrisons, like the retailers cited by Parikh, have been slashing prices to neutralize the German threat.
Although the depressed post-Brexit British pound has slowed Aldi and Lidl’s momentum somewhat, not much else has changed since that red flag, and that has some analysts warning that Lidl and Aldi could do to Walmart in the U.S. what they did in Europe.
Keep in mind that Walmart limped away from its German grocery effort in 2006, selling 85 stores to homegrown German retailer the Metro Group at a $1 billion loss after an eight-year struggle to establish a beachhead there, losing hundreds of millions of dollars a year in the process. Asda has faced similar challenges in the U.K. market, with sales falling for seven straight quarterly periods as of last year, as more shoppers head to Aldi and Lidl.
London-based Bloomberg columnists Andrea Felsted and Chris Hughes said last August that it’s “time for Walmart to cut Asda’s apron strings” in the U.K., too. “The U.S. retail giant has struggled with the U.K. supermarket it bought for 6.7 billion pounds ($8.9 billion) in 1999,” they wrote. “A sale to a private equity firm would make sense,” considering that U.K. grocery retailers, already battered by the ongoing price war, are unlikely to be interested. Instead, Walmart (which declined to comment on our earlier story) appears to be shoring up Asda’s resources. Two years ago, Asda announced a turnaround effort including price cuts and store improvements as well as a halt to plans for “click-and-collect” sites, and last year Walmart replaced outgoing Asda CEO Andy Clarke with Sean Clarke, previously president and CEO of Walmart China.