New study: Aldi, Walmart and Kroger drop prices when Lidl opens nearby

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New study: Aldi, Walmart and Kroger drop prices when Lidl opens nearby
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Lidl, the German discount supermarket chain known for high quality and low prices, has opened dozens of stores in the United States over the past six months.

But what effect is Lidl really having on the grocery wars? A new report says it’s forcing other retailers to lower their prices!

RELATED: How I cut my food bill by nearly $1,200 in one year

What happens to grocery prices when Lidl comes to town 

Katrijn Gielens, an associate professor of marketing at the University of North Carolina Kenan-Flagler Business School led an independent study commissioned by Lidl to examine the price effect of Lidl’s entry in the U.S. grocery market.

The report also looked at how Aldi, Food Lion, Kroger, Publix and Walmart have reacted when a Lidl opens up nearby.

For the study, Gielens analyzed the prices of 48 grocery products (dairy, meats, produce, canned and frozen goods) that were collected through store visits in six East Coast markets where Lidl operates and six control markets where Lidl is not present.

Here are four key takeaways from the price comparison: 

Lidl is the cheapest overall: In the cities surveyed where Lidl does business, competitors set prices an average of 25% above Lidl’s prices. The report states that prices were about 100% higher at Publix, 50% higher at Kroger, 36% higher at Food Lion, 9% higher at Walmart and 5% higher at Aldi.

Milk priced 55% lower in Lidl markets: The study found that grocers set the price for a half-gallon of milk 55% lower in Lidl markets compared to cities where Lidl has no stores. Price cuts of more than 30% for avocados and bread were also found, plus about 15% for ice cream, bananas and cheese.

Substantial savings in Lidl markets: Due to this competitive price-cutting effect, the report concluded that people shopping at Kroger save up to $22 in markets where Lidl operates compared to non-Lidl markets. For a basket of 48 products, those savings are up to $17 at Food Lion and up to $14 at Aldi, according to the study.

Price reaction varies by supermarket chain: Competing retailers with a Lidl nearby set their prices an average of 9.3% lower than in cities where Lidl has no stores, the study found.

  • Aldi sets its prices up to 19% lower in markets where Lidl operates compared to where it is not present
  • Food Lion and Kroger set their prices up to 15% and up to 13% lower, respectively, compared to where it is not present
  • Walmart and Publix set their prices up to 4% lower

“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.”

Like Aldi, Lidl is smaller than a traditional supermarket and sticks to the basics. Each location is about 20,000 square feet and has only six aisles, with about 90% of its assortment made up of private label items.

I recently stopped by one of Lidl’s new locations to check it out. Here are 15 things to know before your first trip!

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Michael Timmermann paid off his mortgage in two years. Now, he shares his money-saving tips on his blog, Save on Almost Everything.
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