German grocer Lidl scouting for sites on Kroger Co.'s home turf

Sources: Discount grocer has Cincy sites locked up
Posted at 5:12 AM, Apr 26, 2017
and last updated 2017-04-26 05:30:03-04

CINCINNATI -- Cincinnati grocery rivals could soon be facing a big new competitive threat. The German chain Lidl is quietly scouting for store locations in Cincinnati, part of a potential statewide expansion, industry sources told WCPO.

The move could intensify the price competition that’s already driving down grocery bills in the Tri-State. As WCPO reported in November, grocery prices fell faster in Cincinnati than the rest of the country in 2016. A November price check found several competitors offering 35 products at well below the average price reflected in the Labor Department’s monthly Consumer Price Index report.

Although Kroger dominates in its hometown, with market share above 40 percent, it is facing a potential price war in stores and online – as Wal-Mart accelerates its cost-cutting program to combat and German discount retailers, Aldi and Lidl.

“We are now moving into a discount-driven era of retailing,” said Bill Bishop, co-founder of Brick Meets Click, a Chicago-based consulting firm. “This is a different world where price is more important.”

Lidl has not responded to interview requests. Kroger declined to comment.

Aldi entered the U.S. in 1976, but it has doubled in the last decade to more than 1,600 stores. In 2015, it announced plans to grow to more than 2,000 U.S locations.

Lidl announced its U.S. invasion in 2015, an effort that is largely focused on East Coast states from Georgia to New Jersey.

But three local real estate sources told WCPO that Lidl has placed Cincinnati sites under contract as part of a broader statewide strategy that has yet to be announced. Two of the sources said they have direct knowledge of Lidl deals but declined to be identified because they're not authorized to speak on behalf of the company.

Lidl has requested a zone change to open a 36,000-square-foot store near Youngstown. Mahoning County’s Planning Commission approved the change Tuesday, sending the matter to Austintown Trustees for further deliberation.

Lidl’s web site describes the sites it will consider for store locations, including a minimum of four acres to accommodate a 36,000-square-foot building and 180 parking spaces. It’s seeking sites in established retail locations with “a dense population within three miles” and “traffic counts of more than 20,000 vehicles per day.”

Bishop predicts Aldi and Lidl combined will grow to 3,500 U.S. stores with up to $67 billion in annual revenue by 2021. That’s less than 10 percent of the roughly $800 billion grocery segment in the U.S., but it’s a big enough threat to provoke a competitive response.

“Clearly, they've caused turmoil in markets they've gone into,” Kroger Chief Financial Officer Mike Schlotman told Wall Street analysts in March. “Do we have to continue to be … sharper on price and continue to invest in price? Absolutely. I don't think we've really taken a year off of investing in price since we've launched our Customer 1st Strategy” in 2004.

Wolfe Research said in an April 20 report that Wal-Mart started reducing prices in the Southeast last May, prompting Kroger, Albertsons, Dollar General and Target to follow suit. This year, “Wal-Mart is investing in price in certain Midwestern markets,” Wolfe Research told its clients. “We continue to believe that industry participants, particularly strong operators like Kroger, will not stand by and watch Wal-Mart lower prices, but will indeed react to protect market share. “

Wal-Mart CEO Doug McMillon told Wall Street analysts last month that Aldi and Lidl are influencing its strategy on price.

“That certainly focuses you,” McMillon said. “We've got to make sure that the quality of our merchandise, not just the price, is right. So that takes a little bit of time, and we've been working on that for some time.”

Bishop said the industry’s weaker players will be most impacted by the increased competition. He expects Kroger to fend off its German rivals with a mixture of promotional pricing, new product innovations and in-store services that make shopping more convenient and entertaining.

“We know people aren’t switching to rock-bottom prices if they have to make sacrifices,” Bishop said. “I have a feeling (Kroger) is going to do pretty well in this competition. It’s a very well-run company. People know who they are and what to expect.”

Editor’s note: WCPO does not ordinarily use anonymous sources. However, WCPO staff members use anonymous sources in rare circumstances where such sources are the only way to obtain information vital to the public good. WCPO staff members have vetted these sources and believe the information they provide to be accurate and in good faith.