USA: Discount retail still has a long way to go conquering the USA

Discount Retail Chain Aldi USA may be grabbing headlines, but retailers like Grocery Outlet and Lidl are still struggling to capitalize on a macroeconomic environment that’s very favorable for them.

Consumers are beyond tired of paying stubbornly high prices for everyday essentials and are willing to shop around at various retailers to find the right deals. The turmoil surrounding the government shutdown and the SNAP program could end up pushing millions of shoppers to trade out of their current grocery stores and into ones that offer the lowest prices in their market.

Consumer anxiety isn’t likely to let up anytime soon. The closely watched consumer sentiment index from the University of Michigan reached its lowest point since 2022 this month. The index of 50.3 is nearly 30% lower than last November.

So are discount grocers ready to capitalize on this macroeconomic environment? For the most part, no.

Aldi certainly seems prepared, having spent the past several years transforming its stores into smart, tidy places that are the supermarket equivalent of what Cliff’s Notes are to a 500-page novel. Its approach seems to be working, and it’s pressing its advantage with an ambitious expansion plan, revamped social media strategy and private label rebrand. At the moment Aldi has a US market share of 4% with 2,500 stores.

But competitors don’t yet appear to be in fighting form, and that could cost them dearly over the long run. Grocery Outlet last week posted anemic comps growth of just over 1% during its third quarter. That’s disappointing for a company that, at least on its surface, has a compelling selling proposition focused on national brands and a treasure hunt shopping experience.

Lidl, the German hard discounter that opened its first U.S. stores more than eight years ago, should also be seizing the opportunity. But it’s still trying to right the ship after initially thinking it could steam across America with the same strategy that succeeded in Europe. Perhaps the biggest indicator that something was amiss: A lot of consumers didn’t even know it was a grocery store. CEO Joel Rampoldt, the latest in a revolving door of chief executives, is making common-sense changes, but the company still isn’t viewed as a major competitor by the rest of the industry. Lidl USA has 225 stores at the East coast and a US market share of 0.5%.

Save A Lot has likewise struggled to set a consistent strategy for its franchisees amid executive turnover and other headwinds in recent years. It’s all a reminder that discount grocers, while a growing threat in the industry, are still very much a work in progress. Save-a-Lot has around 850 stores and a US market share of 0.4% in the Midwest, Southeast and mid-Atlantic.

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