UNC Study: Lidl’s impact on grocery prices ‘unprecedented’
The arrival of German discount grocer into the United States is prompting rivals in its operating markets to lower their prices.
That’s according to a study by the University of North Carolina Kenan-Flagler Business School, which examined 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 study, which was conducted independently, was commissioned by Lidl U.S.
Grocery retailers located near Lidl stores set their prices for key staple products up to 55% lower compared to their stores in markets where Lidl is not present, according to the study. For example, competing retailers set the price for a half gallon of milk about 55% lower in Lidl markets, compared to markets where Lidl is not present, according to the study. Price reductions of more than 30% were found in categories such as avocados and bread-related products. For some frequently purchased goods, such as ice cream, bananas, and cheese, the price reductions amount to more than 15%.
“The level of competitive pressure Lidl is exerting on leading retailers to drop their prices in these markets is unprecedented,” said Katrijn Gielens, associate professor of marketing at UNC Kenan-Flagler. “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.”
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, ranging from dairy and meats to produce and canned and frozen goods.
But even with the lower prices, the other retailers still came in above Lidl, the study found. In markets surveyed where the German grocer is present, the data showed that retailers, on average, has prices 25% above Lidl prices.
IHL: Retailers expect strong sales growth in 2018; new stores, remodels up
The nation’s retailers are bullish on the new year.
North American retailers expect a 6.2% increase in sales in 2018, according to research from IHL Group. The report found that retailers are increasing the number of stores in 2018 by an average of 5.6%, with planned remodel of stores expected to rise more than 5%.
IT spend is also up. Store level IT Investment is expected to rise 5.8% this year over 2017 levels.
“Despite what the headlines might say, retail grew over $220 billion in the U.S. and Canada in 2017,” said Greg Buzek, president of IHL Group. “Retailers are projecting even stronger growth in 2018, including 4.8% growth in sales at stores.”
IHL’s 2018 Retail Transformation Study looks at retail sales growth at store level, e-commerce, mobile commerce, and how retailers plan to increase both stores and IT spending to meet customer demands and effectively compete with Amazon and Walmart. The research included 123 retail senior executives surveyed, most with annual sales over $1 billion.
Jewelry giant reports disappointing holiday results
The parent company of such chains as Kay Jeweler’s, Jared and Zales Jewelers saw its total holiday sales fall over last year as issues related to outsourcing its credit transactions negatively impacted business.
Signet’s total sales for the nine weeks ending Dec. 30 fell 3.1% to $1.88 billion. Same-store sales dropped 5.3%.
Same-store sales at Zales Jewelers rose 4.6%. Signet’s online outlet, R2Net, had a comp-sales gain of 38.6%. Same-store sales declined 10.8% at Key and 5.9% at Jared.
“During the holiday season, we made positive progress on our strategic priorities, offset primarily by the negative impact of the credit outsourcing transition, as evident by the mixed performance across our banners and channels,” stated Virginia C. Drosos. “Our overall e-commerce business grew double-digits, and our Zale division, where our strategic initiatives are beginning to take hold unencumbered by the credit transition, delivered same store sales growth with strength in both bridal and fashion. Conversely, progress in our Sterling division was overshadowed by the negative impact of the credit outsourcing transition in stores.”
Signet affirmed its fiscal 2018 same-store sales outlook of down in the mid- single-digit percentage range. The company raised its earnings-per-share outlook to $6.45 to $6.50 from $6.10 to $6.50 to reflect an expected lower tax rate after the tax reform legislation.