Lidl is putting the heat on the competition.
The German discount grocer’s recent entry into the Long Island market pressured rivals to cut their prices by up to 15%, according to a new study by the University of North Carolina Kenan-Flagler Business School. Based on data collected immediately before the COVID-19 pandemic caused supply shortages, Lidl’s prices were about 45% lower than Trader Joe’s and more than 30% lower than other national retailers. The findings show Lidl’s price-cutting effect is erasing the steepest increase in food prices seen by consumers in decades, the report said.
Katrijn Gielens, professor of marketing at UNC Kenan-Flagler, led the independent study, which was commissioned by Lidl U.S. Gielens analyzed prices of 47 grocery products, including dairy, meats, produce and canned and frozen goods. She examined prices collected at Aldi, BJ’s Club, Costco, King Kullen, Stop & Shop, Target, Trader Joe’s and Walmart before and after Lidl entered the market. Prices were collected during visits of 27 stores on Long Island between April 2019 and March 2020.
“Lidl’s competitive price-cutting effect is continuing to pressure other retailers to drop their prices,” said Gielens. “The data shows the effect is greater than Walmart’s entry in a new market reported by previous academic studies.”
Retailers on Long Island decreased prices considerably after Lidl opened new stores compared to prices collected before Lidl entered the market. The price-cutting effect was more pronounced than previous academic findings about Walmart’s entry into a new market where price decreases typically varied between 1% and 2.5 % or 5% at most.
According to the study:
• Aldi cut its list prices by 15% and Walmart cut its list prices by 9% after Lidl’s entry.
• Stop & Shop and King Kullen decreased their prices an average of 5.3% to 3.8%, respectively.
• Costco reacted to Lidl’s entry by decreasing prices by 8.3%.
• Target and Trader Joe’s reacted by decreasing their prices by 4% each.
The findings corroborate the results of a study Gielens conducted in 2018, which showed that Lidl exerted a significant level of pressure on leading retailers to drop its prices soon after it first opened stores.