Rising competition and a major expansion of online ordering is setting the stage for a major disruption of the U.S. grocery-store industry, according to a Morgan Stanley report.
Much of that competition is coming from fast-growing Aldi, which is winning over customers with its lower prices, Morgan Stanley says in Food Retail: The War of Attrition Has Begun.
The hard-discount grocery chain has plans to open roughly 700 additional U.S. stores by 2022, which would bring its total here to about 2,500. That would make Aldi the third-biggest grocer in the U.S. by store count. There is now an Aldi store within five miles of roughly 46 percent of Walmart stores and 58 percent of Kroger stores, the report says.
There is now an Aldi store within five miles of roughly 46 percent of Walmart stores and 58 percent of Kroger stores
Aldi is squeezing competitors on the price front too. A February grocery-basket comparison showed that Aldi’s items were about 20 percent cheaper than Walmart’s or Kroger’s, and 35 percent lower than those of regional grocers, according to the report.
“Importantly, we think it will be difficult for conventional grocers to ever catch up to hard discounters on price,” said the report. “Aldi’s price gap is mainly driven by its high private-label penetration (90 percent of SKUs), which can be priced more aggressively than branded products to attract consumers seeking value.” Making them even more attractive to shoppers, hard discounters are adding more fresh products, the report observes.
A Morgan Stanley survey in February showed that comparable bags of groceries from Aldi were about 20 percent cheaper than Walmart's or Kroger's
As a result, Aldi is gaining shoppers. Among those who switched grocery stores this year, 19 percent went over to Aldi, compared with 15 percent last year. In this regard, Aldi did better than Costco, Kroger, Target, or Amazon.com-owned Whole Foods. Though 30 percent of those who switched this year chose Walmart, that is down slightly from 31 percent last year.
Walmart still has a strong lead in market share — 21.5 percent of shoppers, versus Aldi’s 1.8 percent. But, the report notes, Aldi is no doubt looking to replicate the growth it achieved in the U.K., where its market share has risen to 11 percent, from just 1 percent in 2011.
Walmart and Kroger will offer click-and-collect grocery shopping at 3,600 stores by year-end
A major disruption to the industry is coming in other ways too. Walmart and Kroger are both boosting the number of locations offering click-and-collect — where shoppers order online for pickup in store — by 80 percent this year, to about 3,600 by year-end, the report says. Amazon is also expanding its two-hour delivery from Whole Foods for its Prime members, 21 percent of whom now do most of their grocery shopping this way. Aldi, for its part, aims to roll out home delivery nationwide through its partnership with Instacart and is set to begin testing click-and-collect this year.
“Grocers are making it easier than ever to shop online,” the report says, “and consumers are taking advantage.”
By Edmund Mander
Director, Editor-In-Chief/SCT
