Supermarket retailers located near new Lidl stores in the eastern United States dropped 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 by the University of North Carolina-Flagler Business School.
The study — which examines the competitive price effect of Lidl's enter into the US market and the reaction of chains like Aldi, Food Lion, Kroger Publix and Walmart — was commissioned by Lidl US. Katrijn Gielens, associate profession of marketing at UNC, analyzed prices in six markets were Lidl operates and six control markets where Lidl is not yet present in Virginia, North Carolina and South Carolina. Prices for a broad basket of 48 grocery products, including dairy, meats, produce, and canned and frozen goods were analyzed.
"We know that supermarket chains systematically compete with each other on price," Gielens says. "The level of competitive pressure Lidl is exerting on leading retailers to drop their prices in these markets is unprecedented. In fact, 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,"
The study shows that competing retailers set the price for a half gallon of milk about 55 percent lower in Lidl markets compared to markets where Lidl is not present. If also found price reductions of more than 30 percent in categories like avocados and bread-related products. For some frequently purchased goods, like ice cream, bananas and cheese, the price reductions amount to more than 15 percent.
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 and 2.5 percent (Hausman and Leibtag 2007), and 5 percent at most.