Grocery retailers located near Lidl stores in the U.S. set their prices for key staple products by up to 55 percent lower compared to markets where Lidl is not present, according to a new study released today by Katrijn Gielens, a marketing professor at the University of North Carolina Kenan-Flagler Business School.
The study examines the competitive price effect of Lidl’s entry in the U.S. grocery market and the reaction of Aldi, Food Lion, Kroger, Publix and Walmart.
The independent study was led by Katrijn Gielens, associate professor of marketing at UNC Kenan-Flagler, and was commissioned by Lidl US.
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.
“We know that supermarket chains systematically compete with each other on price. The level of competitive pressure Lidl is exerting on leading retailers to drop their prices in these markets is unprecedented,” said Gielens. “In fact, the competitive price-cutting effect of Lidl’s entry in a market is more than three times stronger than the effect of Walmart’s entry in a new market reported by previous academic work.”
In markets surveyed where Lidl is present, the data shows retailers, on average, set prices 25 percent above Lidl prices. Markedly more had to be paid at Kroger and Publix. More specifically, prices are about 100 percent higher at Publix, 50 percent higher at Kroger, 36percent higher at Food Lion, 9 percent higher at Walmart, and 5 percent higher at Aldi.
Competing retailers set the price for a half gallon of milk, an important staple product, about 55 percent lower in Lidl markets compared to markets where Lidl is not present, according to the study. It found the following price reactions across product aisles:
The study revealed significant consumer savings on staple products resulting from Lidl’s market entry. Due to the competitive price-cutting effect, people shopping at Kroger save up to $22 in markets where Lidl operates compared to markets where Lidl is not present. For a basket of 48 products, shoppers in markets where Lidl stores are located save up to $17 at Food Lion and up to $14 at Aldi compared to non-Lidl markets.
On average, competing retailers near Lidl stores set their prices approximately 9.3 percent lower than in markets where Lidl is not present, which is more than three times as was typically reported in other academic work on Walmart’s entry in a new market. In previous studies looking into the effect of Walmart Super Center entries, competitive price reductions were typically between 1 percent (Basker and Noel 2009) and 2.5 percent (Hausman and Leibtag 2007), and 5 percent at most (Ailawadi et al. 2010).
On average, prices set by retailers in markets where Lidl operates varied considerably among the different supermarket chains.