German grocery store chain Lidl is set to open stores on the East Coast. Like Aldi, Lidl is a low-priced grocery store with a set number of items for sale. The two companies killed the competition in Great Britain.
Before Aldi and Lidl entered the U.K., the scene was dominated by Tesco (TSCDY, Financial), Morrison Supermarkets (MRWSF, Financial) (MRWSY, Financial), Asda and Sainsbury (JSNSF, Financial). Sales have fallen 1.3% at Tesco, 2.4% at Morrisons, 1.4% at Sainsbury's and 5.9% at Asda. Both Lidl (pronounced Little) and Aldi are German; neither is publicly traded. Trader Joe’s is owned by Aldi. The two know how to run a profitable grocery store.
Lidl operates 10,000 stores in Europe and has named Arlington, Virginia, as its U.S. headquarters. It is opening stores in Georgia, the Carolinas, Virginia, Maryland, Delaware, New Jersey and Pennsylvania. This article in Britain claimed that Lidl has the lowest prices among several large chains.
The stocks of the British companies above have been obliterated. Even Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial) had to sell out of Tesco. So I wonder who should be wary in the U.S.?
I wouldn’t worry about Whole Foods (WFM, Financial). Whole Foods is high end. Walmart (WMT, Financial) might see some deterioration but not any time soon. I see that there is a Food Lion in Charlotte, North Carolina, one of the places where Lidl plans on opening a store. Food Lion is owned by the Belgian Ahold Delhaize (ADRNY) (AHODF) and competes for bargain shoppers.
Many of the stores against which Lidl will compete are not publicly traded. Wegmans is a great chain in the Northeast and consistently ranked as a favorite by Consumer Reports. Publix (PUSH) is big in the Southeast.
Kroger (KR, Financial) has a location in Richmond, Virginia, and many other places that Lidl will enter. Kroger has done a great job growing revenue and free cash flow. This stock could be affected by Lidl’s entry into its territory.
Of my short analysis, the grocery chains to be most affected by Lidl’s entry in the U.S. are Kroger and Food Lion. Many other chains are privately held, high end or already do pretty well with lower-priced goods. Also, Lidl could steal market share from Aldi. I’m sure they’ve done that to one another in Europe. Lidl is not known to the average American but given time, it will be.
Disclosure: We own none of the stocks mentioned.
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