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How Retailers Respond to Lidl Store Openings and Competitive Store Closures

By July 21, 2020August 3rd, 2020No Comments

The University of North Carolina’s Kenan-Flagler School of Business recently released a study which found that Lidl’s entry into the Long Island, NY grocery market drastically affected prices at its surrounding competitors.

Winsight Grocery Business asked Engage3 to review the study, and the report showed how competing retailers have reacted to Lidl’s entry by decreasing their local pricing in the range of -3.8% to -14.9%. They also measured how much prices increased, when stores in the immediate area closed. A table from the report below shows, for example, that when there were store closures (Best Market locations were replaced by Lidl stores), Walmart prices within a 5-mile radius of that store went up by 2.3% on average. Conversely, when a new Lidl store opened in the same area, Walmart prices decreased by an average of 8.5%.

The “Lidl Effect” featured in Winsight’s article

In the U.S., grocery and food represent one of a household’s biggest expenses, amounting to an average of approximately $7,923 in 2018. During the COVID-19 pandemic, food prices rose by 2.6% in April 2020 from a month earlier, and 5.8% in the 13 weeks from March 1 to May 30 compared with the same period one year earlier.

The main takeaways from the study are as follows:

  1. Lidl prices of the 47-item basket were substantially lower when compared to competing retailers across Long Island.
  2. All retailers decreased their prices considerably after Lidl opened new stores, compared to prices collected before Lidl entered the market. 
  3. Despite the rising trend of more than 2% in grocery prices in the last 3 months, competing retailers on Long Island set their prices for individual products, including staples, substantially lower after Lidl’s entry (product-specific price reaction chart below).
  4. Lidl stepping into the void left by the closed Best Market store locations led to more competitive dynamic on Long Island. After the closure of Best Market stores in Fall 2019, retailers tended to increase their prices when store competition was relaxed. The price increases were wiped out once Lidl entered the market.
  5. Localized Pricing Matters. The pandemic trend of consumers limiting their shopping trips to just 1-2 stores, compared to their pre-COVID practices of shopping 3-4 stores makes precision pricing all the more important.

“If consumers were going to three or four different stores before COVID, they’re now going to just one or two, so it’s critical to get pricing right.”

Edris Bemanian, CEO of Engage3, in Winsight Grocery Business article: How Lidl Slowed Inflation on Long Island

Winsight Grocery Business’ article “How Lidl Slowed Inflation on Long Island” can be found here.

For an Engage3 study of how prices are affected by local Aldi stores in four Texas markets – Austin, Dallas-Fort Worth, Houston, and San Antonio, you can read “The Aldi Effect.”

For more information on how retailers are responding to competitive and consumer trends, you can read The Hidden Price War and Pricing and Out-of-Stock Trends During COVID.