Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Refrigerated Buyer magazine.
Although no one knows exactly how big a share they'll take, it's clear that Aldi and, eventually, Lidl are likely to become key players in the U.S. marketplace. So what's a retailer to do?
At one end of the spectrum, conventional grocers could try to fight fire with fire by opening up a discount format of their own.
Mike Paglia, director of retail insights for Kantar Retail, said he wouldn't be surprised to see more chains follow the lead of retailers like Supervalu (Save-A-Lot), HEB (Joe V's Smart Shop) and ShopRite (PriceRite) that have already gone that route. However, he's quick to point out that discounters require a very different business model than conventional supermarkets, and retailers may find it difficult to operate two such disparate formats.
A similar but less drastic approach is to offer a value-oriented private label collection, perhaps merchandised in a separate section of the store.
"Clearly, Aldi and Lidl are filling a consumer need that other retailers aren't," said retail food industry consultant Michael Sansolo.
But retailers should be very careful not to focus only on prices, lest they spark a U.K.-style price war they can't win. That said, some price adjustments may be necessary, even if only in certain zones where the discounter threat is particularly strong. And retailers should definitely take a close look at key value items to make sure they're in the right ballpark. Areas such as frozen and refrigerated that are more expensive for the discounters to run and maintain can be positioned into destination categories.
Mr. Paglia believes differentiation is, indeed, the right approach. Unlike those in the U.K., Portuguese chains reacted to discounters' growth by really emphasizing the high quality of the brands they sell, differentiating themselves through their assortment.
"As a result, [discounters] there didn't have the same decimating effect they did in the U.K." He adds that, in the U.S., retailers that already have differentiated value propositions — think Publix, Wegmans, HEB, and even Whole Foods — will be in the best position to weather the discounter storm.