It’s going to be Aldi vs. Aldi in California

Date : 24 February 2016

Aldi will open its first stores in Southern California next month as part of a broader development strategy focused on the region. Among a range of competitors will be sister company, Trader Joe’s.

Will support plans to reach 2,000 stores by 2018

Aldi will open eight stores simultaneously on March 24, the first of 45 which are expected to open in Southern California this year. The retailer’s expansion in this area is part of its five year strategic plan to open 650 new stores in the US. By the end of 2018, it expects to operate almost 2,000 stores. The initial openings are clustered around its new regional headquarters and distribution centre in Moreno Valley, California.

Competitive market, including sister company, Trader Joe’s

By launching in California, the retailer is entering one of the most competitive grocery retailing markets in the US. Shoppers are currently well-served by a range of national and regional supermarket operators including Albertsons Safeway, Kroger and Whole Foods Market. However, the discount segment is under-served with Save-A-Lot only having a limited presence, although Dollar General has been seeking to expand its DG Market format in the region over recent years. 

Interestingly one of its major competitors will be Trader Joe’s which operates small format stores with a strong value for money proposition; Trader Joe’s is operated by Aldi Nord while the Aldi stores are operated by Aldi Süd. California is Trader Joe's heartland and operates from a position of strength. However, Aldi has developed a successful proposition, and it's low price credentials, along with a smart new store format, should enable it to replicate its performance in other parts of the country.

Discount channel set for strong growth as Lidl continues market entry plans

Aldi’s rapid expansion comes as Lidl continues with its market entry plans. The retailer, which competes with Aldi in a number of European markets, is set to open its first stores on the east coast in 2018. It has recently established its first regional headquarters and distribution centre in Virginia. Initial planning documents suggest that the store design will be similar to the latest ‘Lidl of the Future’ concepts which have been launched in Europe, with store sizes ranging from 15,000 sq ft to 20,000 sq ft. The first distribution centre is expected to support a minimum of 100 stores.

Existing operators planning their defensive strategies

Lidl’s entry will intensify competition in the US grocery market and over the next two years we expect to see existing operators sharpen their value credentials. The impact which Aldi and Lidl have had in a number of European markets, particularly the UK, will not have gone unnoticed. Defensive strategies are likely to include a stronger focus on EDLP pricing, rather than promotions, investing in private label and simplifying the shopper journey in-store.

What is the outlook for grocery retailing in the US this year? View our recent analysis of the North American market, including the top five trends to watch.

Stewart Samuel, Program Director, IGD Canada
Based in Canada, Stewart heads up all of IGD's research and coverage on the North American region. Contact Stewart at [email protected] to see how we can support your market planning and development strategies.