Masters of cheap

The price gap between conventionals and discounters is closing in.

The grocery industry analysts who study these things suggest the price gap between discount stores and conventional supermarkets in Canada is beginning to shrink.

Where once the price differential was 15% to 20% in favour of discount stores, some say the gap has narrowed to something between 8% and 10%.

One of the analysts seeing the shrinking price gap is Perry Caicco, of CIBC World Markets.

“The discount store segment has begun to struggle a little, with same-store sales numbers (ex-inflation) apparently lagging at some notable banners,” wrote Caicco in a recent report.

“There is a sense among many observers that discount has gone about as far as it can go, having expanded its SKU base, added services, improved the physical plant, upgraded fresh areas and, in one case, actually adding a points-based loyalty program," he added.

However, even if the price gap has shrunk, it has not deterred Canadians from shopping for bargains and patronizing discount stores. Nielsen figures indicate approximately 40% of all grocery purchases in Canada are made at reduced price levels.

The days of paying a “manufacturer’s list price” are clearly over.

If there is, in fact, a decline in the price gap between discount and conventional supermarkets, it could provide the incentive necessary for global discounters, such as Aldi and Lidl, to come to Canada.

Both retailers have studied Canada, and Lidl actually had an office here five or so years ago but never opened any stores.

Both Aldi and Lidl are based in Germany. They have expanded rapidly across Europe and Australia. Aldi is also in the U.S., with some 1,300 stores. It also operates Trader Joe’s 400-plus supermarkets.

Aldi entered Australia in 2001 and now has 340 stores there. It came to Ireland in 2014, where it now has 111 locations. That same year it entered Spain and now has 247 stores there. Aldi has more than 4,000 stores in Germany, while Lidl has around 3,300 in that country.

For a period of time in 2013, Aldi was opening one store per week in the U.K., including in affluent neighbourhoods. Lidl belongs to Schwarz Gruppe, which includes the Handelshof chain and hypermarket Kaufland. It, too, has grown in the U.K.

Both Aldi and Lidl are limited-assortment box stores, meaning they often stock only one SKU of each product, merchandised sparsely in case-cut boxes, and their prices are basically rock bottom.

This is possible by limiting the size of their stores (to around 10,000 sq. ft.), restricting the number of staff and by tough negotiations with suppliers. Private-label items also help cut costs.

Canada hasn’t seen anything quite like Aldi and Lidl since back in the 1980s, when the Valdi chain of box stores operated here. Perhaps it was a merchandising failure, or perhaps simply a matter of a good concept launched at the wrong time (Canadians weren’t so discount-motivated 30 years ago), but Valdi lasted only a few years.

One of its mistakes may have been not selling fresh meat or produce. But both of those departments are features of Aldi and Lidl stores.
Unlike what was tiny Valdi in Canada, today’s Aldi has more than 9,000 stores in 18 countries, and Lidl has more than 10,000 in 26 countries.

Lidl plans to open 100 stores in the U.S. within about four years. Canada isn’t officially mentioned in Lidl’s plans, but it is obviously under consideration.

Caicco also says of Aldi: “It moves very quickly and can have a damaging impact on a market. Its 10,000-sq.-ft. box is easily available, and we expect either Aldi or similar competitor Lidl to announce a Canadian entry within 12 months.”

I have no intention of challenging Caicco over his prediction. He could very well be right. One thing I am sure about is that the Canadian consumer is vastly different today from when Valdi operated here.

Today, there is no greater driver of sales than lower prices, and Aldi and Lidl have shown they have lower prices. We’ll all be watching, I’m sure.

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