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USA: Discounters are booming. Here’s how they pick location spots

Discount Retail Chain Lidl, Aldi and others browse smaller footprints than their pricier competitors but it still has to be busy outside.

Cheap sells, at least at the grocery store. Discount chains such as German-born Lidl and Aldi, as well as US domestic discount brands like Grocery Outlet and Dollar General, have been on an expansion clip as of late.

The low-cost discount model that these retailers offer has become increasingly appealing, as inflation has made Americans more conscious of spending and their budgets.

In the past year in the U.S., Aldi has opened or signed a lease for 117 locations totaling 1.97 million square feet, and is set to open 120 more this year, 60 of which it has already unveiled. Meanwhile, Lidl has opened or signed a lease for 19 locations totaling 566 thousand square feet, according to Brandon Svec, national director of U.S. retail analytics for CoStar (CSGP) Group.

Some non-grocery stores are even dipping their toes in supermarket waters. Dollar General, albeit not exclusively a grocery store, has recently expanded its food offerings, with plans to open over 1,000 new locations in 2023, while Grocery Outlet opened 27 new locations in 2022 and plans to open at least 25 more in 2023.

“What a lot of these discount grocers recognize is there’s just untapped market,” said Ethan Chernofsky, senior vice president of marketing for foot traffic data provider “There are a lot of people who are going to appreciate this specific offering. And so that’s what drove a lot of this expansion.”

The discount grocers are not trying to expand into just any space, though.

They tend to need fewer square feet or acres than a mainstream grocery store. A traditional grocery store would normally need to be built on around 5 acres of land, while one like Aldi only needs 2 or 3 acres, said Tim McNamara, senior director of Cushman & Wakefield (CWK), who has represented Aldi in New England and New York for the past 15 years. But even though discount grocers may be seeking smaller spaces, they aren’t aiming to be in no-man’s-land.

“If you’re going grocery shopping, we want you to see us out the window to try us and think of us as an alternative. So we want to go where everyday grocery shopping is happening,” McNamara said.

Other discounters, such as Dollar General, tend to go into less dense areas because of their smaller format and target demographic. Discount grocers, however, are generally looking to situate themselves in the middle of the market and “sticking to demographic drivers from a density and an income profile that look much more similar to what you see from regional and national grocers,” Svec said.

“Bottom line, we look for convenient locations for our customers that can support a high-traffic volume daily,” Aldi divisional vice president Karla Waddleton said in a March Q&A with Chain Store Age.

Lidl takes a very patient and disciplined approach to its real estate needs, but it’s one that hasn’t stopped its rapid expansion in recent years, according to a source who has brokered deals for the grocer.

Once Lidl determines a neighborhood it wants to be in, it looks at various types of properties — including anchor spaces and traditional retail shopping centers — to lease up, while favoring mixed-use developments in cities, according to Lidl’s website.

And its recent New York City leases show Lidl’s wide approach to retail locations. It took anchor space in a mixed-use project in Crown Heights, Brooklyn; stores in shopping centers in Fresh Meadows and Glen Oaks, Queens; a full floor in an Elmhurst, Queens mall; and storefronts at the base of residential developments in Park Slope, Brooklyn and Chelsea.

The German grocery store first came to the U.S. in 2017 in Virginia and now has 170 locations spread throughout 5 million square feet, Svec said. All told, it has around 12,000 stores in 32 countries.

So far, Lidl’s stores have been concentrated in the East Coast, but “there’s obviously a lot more room for Lidl to continue to grow and push that border westward,” Svec said.

Lidl’s footprints tend to be between 30,000 to 40,000 square feet, which means it doesn’t face much competition when it comes to finding a space.

“There’s just not as many retailers targeting 30,000 square feet and above spaces, or really 25,000,” Svec said. “Once you get above 25,000 square feet, your potential tenant demand pool thins out pretty substantially.”

There can also be some benefits for landlords who lease to affordable grocery stores, leading them to actively seek out these retailers. For example, New York City’s Food Retail Expansion to Support Health (FRESH) program provides tax and zoning incentives when affordable and healthy food is brought to certain communities. It’s something Lidl’s landlords have taken advantage of.

Back in May, Lidl signed on for 25,000 square feet at the base of the affordable housing development at 335 Eighth Avenue in Chelsea. Securing Lidl was a win for developer MAG Partners, since a low-cost discount supermarket for the retail space was required as part of its approval process for the project.

Unlike Lidl, Aldi is often not the anchor in a shopping center and, if it ever is, it tends to backfill a second-generation shopping center, McNamara said.

Aldi, which is also German, opened its first store in the United States in 1976 and now operates 2,400 locations, with a total of 39 million square feet of retail space, according to Svec. It ranks as the fourth-largest grocery store by square footage in the country, behind Kroger, Albertsons and Publix, Svec said. It already has a wide spread around the country and recently kicked off a Sun Belt expansion by acquiring the Winn-Dixie supermarket chain, which has outposts in Florida, Georgia, Louisiana and Mississippi.

The deal, which is set to close in 2024, “supports our long-term growth strategy across the United States,” Aldi CEO Jason Hart said in a statement.

Aldi’s locations are around 15,000 to 20,000 square feet, which put it in competition for space with off-price retailers, more traditional grocery stores, fitness tenants and some experiential retail, Svec said.

Even without competition from other retailers, retail space is tight in the country, currently at a nearly 20-year low for available space, according to Svec.

The nationwide availability rate for retail centers over 10,000 square feet is 4.6 percent with a grocer, 8.1 percent without a grocer and 7.5 percent with or without one, Svec said.

Getting into tight markets such as New York City or Boston, where real estate is at a premium, has been a challenge for Aldi, McNamara said. Discount retailers’ profit margins are smaller than their mainstream counterparts because of their low-cost products. They therefore don’t have as much cash to spend on occupancy costs, so they are not able to compete for properties in those high-value markets, McNamara added.

“We’re competing against other players that maybe pay a little bit more than we do,” he said. “Right now, real estate availability is difficult . . . the price of real estate has not dropped, despite some of the rockiness of the past decade.”

But once discount grocers get over the barrier of finding a property, the customers start flowing. In November 2022, Lidl’s foot traffic increased year-over-year by 7.4 percent, while Aldi’s grew by 13.6 percent and Grocery Outlet’s by 18.8 percent, according to data provided to Commercial Observer by That’s higher than the 3.1 percent increase in foot traffic seen nationwide by the grocery sector that month.

“[Discount grocers] have, for the most part over the last few years, set the pace in the [foot traffic] sector,”’s Chernofsky said. “And it’s because of those expansions, but also because of the demand they’ve been able to tap into.”

While Aldi and Lidl are both private companies, sales figures are not publicly available, so foot traffic is a strong indicator of how they’re doing.

Grocery Outlet, however, is public, and its net sales topped $1 billion in the second quarter of this year, a first for the company, while it had a 9.2 percent increase in comparable store sales during that time.

The success of discount grocers comes after the entire grocery industry had a very good pandemic. While the rest of retail took a major hit with an 8.7 percent decrease in sales from February to March 2020, the largest month-to-month decrease since the government started tracking the numbers in 1992, grocery stores saw the exact opposite.

Supermarkets experienced a 26.9 percent increase in sales between February and March 2020 and a 29.3 percent increase in year-over-year sales during that time, according to the United States Census Bureau..

Even with their obvious successes and expansions, discount grocers haven’t been putting others through the meat grinder.

“We’re not putting people out of business; we’re taking a chunk from everybody,” McNamara said. “Those grocers and [discount grocers] can typically coexist with each other.”

Chernofsky said that customers aren’t necessarily replacing one grocer with another, but are doing parts of their shopping at different retailers. “There’s bits of the pie that are there for the taking,” he said. And others are trying to get some of those pieces, which is why Dollar General (DG) recently expanded its grocery offerings through a string of stores called DG Market and the timing could not be better.

As prices skyrocket, Americans have started to pay more attention to spending, and shoppers have been trying to cut costs wherever they can. Grocery bills have been a popular option.

“Given the strain of inflation, you will see Americans really willing to trade down for value, more so in this environment than at any point in time over the last couple of years,” Svec said.

Generally, groceries are a regionally focused industry, with many grocers targeting individual states or regions where they can understand the supply chains. The discount grocers take a different approach and are able to reduce their costs in the process.

They rely on private label brands, meaning, they have their own brand of products and mainly sell those (think Trader Joe’s) and display products exactly as they were delivered: in large boxes. They have customers bag their own groceries, leading to the hire of fewer employees, and therefore have less overhead, McNamara said. All of this translates to more affordable products and a quicker shopping experience. Plus, the lack of overhead also means that the turnaround from lease signing to store opening can be very quick.

Even with a huge expansion clip, and Dollar General getting into the fray, the risk of oversaturation of these stores is slim, experts said.

DG Market will be targeting a different consumer, who will be making smaller, but more frequent, purchases, while shoppers at Aldi and Lidl will likely be doing the bulk of their grocery shopping in the stores.

“Your individual who’s going to Aldi and who is going to DG Market is trying to accomplish two different things, or is shopping for two different types of baskets of goods,” Svec said.

While Lidl closed 11 underperforming locations across North Carolina, Virginia, New Jersey, South Carolina, Maryland and Pennsylvania, it has not dampened its plans of opening more locations, and others have not been shedding spaces.

Congestion is not a big concern because grocery is a steady market, and there are vast opportunities to expand into new markets with growing populations, like the Gulf Coast, Svec said.

“You’re going to see that network of stores continue to expand because there’s just going to be the buying power,” Svec said, “and the population growth that will allow for it without worrying about getting too oversaturated from a grocery concentration perspective.”

McNamara is hopeful that in the future, discount grocery stores will be considered the new anchor, since their smaller footprints mean less space returning to the market, giving landlords more flexibility in case a store goes out of business.

When it comes to the future, McNamara sees the expansion of discount grocers as “unlimited.”

“We’re in most of the major markets, at least in the Northeast, and we’re penetrating smaller markets now,” he said. “And we see the growth of our store sales as something that probably won’t diminish for the foreseeable future.”


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