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Presence Of Discount Retailer Lidl Found To Reduce Retail Prices Of Dairy, Other Products

Grocery retailers located near Lidl stores in the US set their prices for dairy and other food products up to 55 percent lower compared to markets where Lidl is not present, according to a new study from the University of North Carolina Kenan-Flagler Business School.

The independent study was led by Katrijn Gielens, associate professor of marketing at UNC Kenan-Flagler, and was commissioned by Lidl US.

For the study, Gielens analyzed prices in six markets where Lidl operates and six control markets in which Lidl is not present in Virginia, North Carolina and South Carolina. She looked at prices for a broad basket of 48 grocery products, including dairy, meats, produce, and canned and frozen goods, which were collected through store visits.

Last June, Lidl opened 10 stores in Virginia, North Carolina and South Carolina, with further plans of the opening of up to 90 more stores across the US within a year, the study explained.

Unlike conventional supermarkets, which usually carry up to 40,000 mostly branded products, a typical Lidl store offers a carefully managed assortment of mainly private label products, perhaps representing a tenth as many items but providing a quick and easy shopping opportunity, the study noted. Lidl’s US stores are positioned as “low-priced” grocery.

Lidl’s business model, which is also embraced by other retailers such as Aldi, Trader Joe’s, and even wholesale clubs like Costco, in many ways is aimed at offering basic goods of daily need at the lowest possible prices — up to 30 to 50 percent below traditional retailers’ prices — while maintaining high-quality standards, the study said. The concept is not to be confused with discounters like Walmart.

Lidl stores in the US are about 20,000 square feet, and offer a limited assortment of consumer packaged goods and perishables — typically less than 2,000 SKUs. A typical US supermarket sells 40,000 items, on average. Around 90 percent of Lidl’s SKUs are private label.

In her study, Gielens presented empirical evidence that retailers do indeed systematically compete with each other on price, and that they drop their prices if necessary to remain price competitive following Lidl’s entry.

She found that the competitive price effect due to Lidl’s entry amounts to approximately 9.3 percent, meaning that competing supermarkets in vicinity of a Lidl store set their prices lower by 9.3 percent compared to markets where Lidl is not active. This competitive price effect is substantively stronger than what is reported in academic studies following Walmart entries.

The strength of the competitive price reaction varies considerably by retailer, the study found. Close competitor Aldi sets prices up to 19 percent lower in markets where Lidl is present compared to markets where Lidl is not present.

Food Lion and Kroger set prices up to 15 percent and up to 13 percent lower, respectively, in Lidl markets compared to markets where Lidl is absent. These price reactions imply substantial dollar savings for consumers on a wide basket of 48 typical grocery products of $17 and $22 in the case of Food Lion and Kroger, respectively, and $14 for Aldi.

Also, substantial differences in price reactions can be observed across the product aisles, the study noted. For staples such as a half-gallon of milk, retailers close to Lidl set prices lower by about 55 percent compared to markets where Lidl is not present.

For some frequently purchased goods, such as ice cream, these differences amount to more than 15 percent, and for avocados and bread products price differences of over 30 percent can be found.

For several dairy products, the study found that price differences between Lidl and non-Lidl markets are as follows:
—For a half-gallon of whole milk, competitors near Lidl, on average, set their prices 56 percent lower than in markets where Lidl is not present. Consumers in stores near Lidl save 93 cents on a half gallon compared to stores in markets where Lidl is not present.
—For sliced Provolone, competitors near Lidl, on average, set their prices 22 percent lower than where Lidl is not present. Consumers in stores near Lidl stores save 49 cents compared to stores in markets where Lidl is not present.
—For vanilla ice cream, competitors near Lidl stores, on average, set their prices 15 percent lower than in markets where Lidl is not present. Consumers in stores near Lidl stores save 38 cents compared to stores in markets where Lidl is not present.