UNC study: Lidl pressures supermarket chains to cut prices at unprecedented levels
Grocery retailers located near Lidl stores in the U.S. set their prices for key staple products up to 55 percent lower compared to markets where Lidl is not present, according to a new study released today by the University of North Carolina Kenan-Flagler Business School. The study examines 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 independent study was led by Katrijn Gielens, associate professor of marketing at UNC Kenan-Flagler, and was commissioned by Lidl US. 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, including dairy, meats, produce, and canned and frozen goods, which were collected through store visits.
“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.”
Cheapest overall baskets were found consistently at Lidl
In markets surveyed where Lidl is present, the data shows retailers, on average, set prices 25 percent above Lidl prices. Markedly more had to be paid at Kroger and Publix. More specifically, prices are about 100 percent higher at Publix, 50 percent higher at Kroger, 36 percent higher at Food Lion, 9 percent higher at Walmart, and 5 percent higher at Aldi.
Price of individual products demonstrates price-cutting effect
Competing retailers set the price for a half gallon of milk, an important staple product, about 55 percent lower in Lidl markets compared to markets where Lidl is not present, according to the study. It found the following price reactions across product aisles:
- Price reductions of more than 30 percent can be 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 percent.
Dollar savings for shoppers in Lidl markets is substantial
The study revealed significant consumer savings on staple products resulting from Lidl’s market entry. Due to the competitive price-cutting effect, people shopping at Kroger save up to $22 in markets where Lidl operates compared to markets where Lidl is not present. For a basket of 48 products, shoppers in markets where Lidl stores are located save up to $17 at Food Lion and up to $14 at Aldi compared to non-Lidl markets.
Lidl’s competitive price-cutting effect more than three times stronger than Walmart’s effect
On average, competing retailers near Lidl stores set their prices approximately 9.3 percent lower than in markets where Lidl is not present, which is more than three times as was typically reported in other academic work on Walmart’s entry in a new market. In previous studies looking into the effect of Walmart Super Center entries, competitive price reductions were typically between 1 percent (Basker and Noel 2009) and 2.5 percent (Hausman and Leibtag 2007), and 5 percent at most (Ailawadi et al. 2010).
Price reaction varies considerably across supermarket chains
On average, prices set by retailers in markets where Lidl operates varied considerably among the different supermarket chains.
- Aldi sets their prices up to 19 percent lower in markets where Lidl operates compared to where it is not present;
- Food Lion and Kroger set their prices up to 15 percent and up to 13 percent lower, respectively, compared to where it is not present;
- Walmart and Publix set their prices up to 4 percent lower.
About UNC Kenan-Flagler Business School
Consistently ranked one of the world’s best business schools, UNC Kenan-Flagler is known for its collaborative culture that stems from its core values: excellence, leadership, integrity, community and teamwork. Professors excel at both teaching and research, and demonstrate unparalleled dedication to students. Graduates are effective, principled leaders who have the technical and managerial skills to deliver results in the global business environment. UNC Kenan-Flagler offers a rich portfolio of programs and extraordinary, real-life learning experiences: Undergraduate Business, full-time MBA, Executive MBA Programs (Evening, Weekend and global OneMBA®), online [email protected], UNC-Tsinghua Dual-Degree EMBA, Master of Accounting, PhD, Executive Development, and UNC Business Essentials programs. It is home to the Frank Hawkins Kenan Institute of Private Enterprise.