Discount grocers smell opportunity amid rising prices


Aldi plans to add 800 stores over the next four years. Dollar General expects to add that many just this year. And their main rivals have ambitions of their own.

Together, these discount grocers and value retailers are sprinting to meet consumers where they are: hunting for cheaper grocery options.

Prices in the grocery category have surged 25 percent over the past four years, outpacing the overall inflation rate of 20 percent during the same period. That opens the door for discount and value-driven retailers, said John Clear, senior director in the consumer retail group at consulting firm Alvarez & Marsal.

Discount chain Aldi, for instance, could “double down and continue to be pretty aggressive because they’re the perfect retailer for this environment,” Clear said.

Reese Samuel, a 22-year-old swim coach in D.C., said he and his roommate buy most of their groceries from a recently opened Lidl to maintain a high-protein diet on a budget.

“We eat a lot, so getting a lot of food at a low price is essential,” he said, standing outside the store in Washington’s Columbia Heights neighborhood.

Dollar General, Dollar Tree, Aldi and Lidl expanded their store footprint collectively by almost 17 percent from 2019 through the end of 2023, according to analytics company GlobalData. Dollar General alone has store locations within five miles of approximately 75 percent of the U.S. population, executives told investors last week.

For Aldi and Lidl, it’s paying off: Financially strained consumers are more willing to break with habits to save a few dollars on essentials, industry experts say.

“As inflation has became front-and-center when people were shopping, consumers have become very deal focused,” said R.J. Hottovy, head of analytical research at “These value-focused concepts are the ones that people have flocked to, and now they’re starting to come back more often.”

Aldi, one of the fastest-growing grocers in the United States, announced an ambitious four-year expansion plan this month that includes new openings and store conversions from its recent acquisition of Southern supermarket chains Winn-Dixie and Harvey. The chain generated $124 billion in 2022, according to the National Retail Federation, with $40 billion in the United States.

The economic environment gives Aldi and Lidl a perfect opportunity to pull out an old playbook, said Katrijn Gielens, a marketing professor at the University of North Carolina. The retailers, both owned by German companies, expedited their expansions across Europe following the 2008 recession. The chains succeeded at luring in new and wealthier consumers who then stuck around even when economic conditions improved, she said.

Now they’re expanding in the U.S. market. Aldi, which entered the United States in 1976, has added almost 400 stores nationwide since 2020, giving the chain a total of more than 2,300 locations in the country by the end of 2023, according to GlobalData. Lidl came to the United States in 2017 and has more than 170 locations, mostly along the East Coast. “Most people associate price as an indicator of quality,” Gielens said. But once they try the lower-priced options, many wonder: “Why have I been paying so much?”

Andrew Welch, 27, said the quality at Lidl was better than he expected. It was a relief for the government employee to find a cheap option for groceries. “The more I save, the more I can eat, the more I can cook,” he said, standing outside Lidl. “That’s why I like coming here, because I don’t have to feel bad — if I went to Target or Giant, I wouldn’t be able to get as much.”

Aldi and Lidl know the things that keep them nimble — limited selections, majority private-label inventory and no-frills format — can prevent them from serving everyone’s needs.

“They sometimes say if they could open up a store on Walmart’s parking lot, they would,” Gielens said. “They will even try to make it easy for you to go to other retailers as long as you go to them for your essentials.”

While Walmart leverages its scale and buying power to keep prices low, dollar stores and value grocers have slightly different tactics,’s Hottovy said. Dollar Tree and Dollar General offer limited selections, focusing on popular brands and products with a shorter shelf life than many items in a traditional supermarket. Some food manufacturers sell specially made products, usually in a smaller size, to meet the price demands of these retailers.

Mariah Williams, 28, frequents the Lidl in Columbia Heights, but she also goes to Target, Giant Foods, Whole Foods and Trader Joe’s, all within a 1.5-mile radius of the store. “Everything is super expensive, so I go wherever I can get the best price,” Williams said.

Dollar stores are trying to capitalize on the opportunity, expanding their grocery options to become “a critical source of affordable groceries and essentials, particularly in rural and lower-income communities,” Coresight Research analyst Sujeet Naik wrote in a report on the sectors’ growth. Both Dollar Tree and Dollar General said they will expand their private-label selection in stores. And Dollar General recently announced that it sells fresh fruits and vegetables at more than 5,400 stores, about a quarter of its locations, and is “targeting up to 1,500 additional stores for produce in 2024,” chief executive Todd Vasos said told investors.

“Produce is a trip-driver,” Gielens said. “It’s something you need on a very frequent level, depending on how you shop.”

Elizabeth Meister, 78, had to rethink her grocery strategy to offset higher prices. She cut “a lot meat” from her diet and now bypasses the Publix supermarket in her Anderson, S.C., neighborhood for Walmart and dollar stores. “I’m just trying to keep my head above water.”

Dollar stores have been even more ambitious than value grocers about their expansions. Coresight projects dollar and discount stores, which brought in about $76.5 billion in revenue 2022, will grow 27 percent in 2027.

Dollar General opened 987 new stores last year, executed 129 relocations and 2,007 remodels, Vasos said. The chain opened its 20,000th store last month and plans to add an additional 800 stores this year, remodel 1,500 locations and relocation 85 stores. In December, foot traffic at Dollar General was up 5.4 percent, according to’s year-over-year data.

Not everything has gone smoothly. After adding more than 1,500 stores from 2019 through 2023, Dollar Tree now plans to shed locations, mainly from its Family Dollar subsidiary, which expects to shutter nearly 1,000 stores over the next few years.

But its flagship Dollar Tree brand has been a bright spot, adding 3.4 million shoppers last year, most of whom are from households earning more than $125,000 a year, he said. Foot traffic in December was up 12.5 percent, according to

The added competition from discount, value and dollar stores threatens an industry already operating on slim margins. Gielens conducted a case study following a Lidl opening on Long Island from April 2019 to March 2020, and she found that big box supermarkets lowered prices by up to 15 percent. A similar scenario unfolded in Europe following the 2008 recession as value grocers flooded the continent, pressuring major chains to cut prices.

But she noted that incumbent and established retailers have to be careful to not start a price war, which can be “extremely destructive.” She pointed to a cautionary tale that unfolded in Britain in the mid-2010s. As Aldi and Lidl ramped up their expansion, Tesco, the largest supermarket chain there, “tried to beat them at their own game” and it almost destroyed them, Gielsens said.

“[Big box retailers] are very much afraid of them,” she added. “They should know by now you have to be extremely careful” when competing on price.


Source link

Leave a Comment