Sunday, May 14, 2017

Aldi reacting to Walmart's efforts to become low price leader

Recent reports say that Aldi is responding to Walmart's aggressive pricing in an effort to remain the nation's overall grocery price leader. Aldi's adoption of a more flexible pricing strategy comes as the company plans to spend $1.6 billion on store remodels (see "Aldi remodeling stores ahead of Lidl openings") and open about 400 new stores by the end of next year.

Aldi says that its remodeling strategy will expand its ability to merchandise more private-label products in certain fast-growing categories, including perishables.

Analysts believe that Aldi's strategy, combined with Walmart's price cuts and Lidl's entrance into the market, will put pressure on traditional food retailers. These analysts suggest that traditional supermarket operators should examine their own lowest tier private label assortments.

According to Jon Hauptman, an analyst with Willard Bishop, having a wide range of economy private labels throughout the store could help retailers enhance their price image.

"It is incredibly important to have a robust assortment of economy or second-tier private label items through the store, so that in those categories in which customers are willing to make a trade-off in order to save some money, that trade-off item is available," Hauptman said.

Walmart is reinvesting in its own Great Value line, according to CEO Doug McMillon. McMillon said in March that the increasing availability of name-brand products online will compress their margins over time, which highlights the need for a strong private label offering.

Aldi's sales in 2016 were about $12.8 billion, up 9.4% from the previous year.

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