Wal-Mart loses ‘everyday low price’ edge as Aldi opens across the U.S.

In the Southern California town of Beaumont, Wal-Mart shoppers must first drive past the new Aldi, a recent addition to the family-owned German grocery store chain that is beating the U.S. retail giant at its own game: selling food at rock-bottom prices.

Aldi is betting that many in Beaumont will never make it to Wal-Mart.

Like hundreds of other stores Aldi has opened in recent years, the Beaumont store is strategically located to siphon off the retail giant's discount-seeking shoppers with prices that can average almost 20 percent less than those at Wal-Mart.

Aldi stores lack the massive size and selection of a Wal-Mart — they tend to be around one-tenth the size of an average Wal-Mart and carry few national brands. Yet their rapid proliferation and the chain’s ability to offer even lower prices than Wal-Mart are putting pressure on the discounter. And as Aldi expands aggressively in the United States, it’s becoming just the latest in a long list of problems for Wal-Mart.

“It's like a thousand cuts,” said Leon Nicholas, a senior vice president at consulting firm Kantar Retail. “They are impacted by Aldi, by Amazon, by the dollar stores — and all these things add up for Wal-Mart.”

Wal-Mart isn’t the only grocer under pressure by competition from Aldi and regional chains such as Kroger. Great Atlantic & Pacific Tea Co., which operates under brands such as A&P and Food Emporium, filed for bankruptcy last year, just three years after emerging from court protection. And Fairway Group Holdings Corp. may be on the brink of default this year as it struggles to expand in the New York market. Both are battling competition on the low end from discounters like Aldi and, on the high end, from retailers like Whole Foods.

Wal-Mart, with $298 billion in annual U.S. revenue from its 3,500 superstores, is on far more solid financial footing. But with more than half of that revenue coming from grocery sales, it can scarcely afford to lose customers to Aldi, which is going after the same discount-minded lower-to-middle-income shoppers.

At the same time, Essen, Germany-based Aldi has quietly grown its U.S. business to nearly $13 billion, according to Kantar data. A closely held company focused mainly on the East Coast and Midwest, Aldi doesn't disclose its sales or profits. But Kantar forecasts that within five years the company’s annual sales will reach nearly $20 billion as total stores increase by about 33 percent to 2,000, including a major expansion on the West Coast.

Wal-Mart executives say they have a plan to punch back. The company has been cutting costs over the past year, including eliminating jobs, closing underperforming stores and negotiating new contracts with suppliers. Wal-Mart also plans to lower prices further this year even as Wal-Mart improves the quality of its fresh foods and speeds checkout times. And it’s experimenting with shopper innovations such as expanding an online grocery service where customers can buy their food online and pick it up without leaving their cars.

Wal-Mart’s ongoing challenge, though, is that its longtime marketing mantra of “everyday low price” is no longer resonating for shoppers going to Aldi in search of bargains.

Aldi’s level of frugality can make Wal-Mart look downright extravagant. Its stores run on as few as three to five employees at one time, made possible because of its limited selection of items and spartan presentation. No opportunity for cost savings goes unnoticed. The chain eliminated the need to pay employees to fetch carts in the parking lot by making customers pay a 25-cent deposit per cart, refundable upon returning the cart inside the store.

It also charges for bags and only recently started taking credit cards. And Aldi doesn't focus on national brands, such as Oreos or Frosted Flakes. More than 90 percent of its products are lower-cost versions of the household names.

This story was originally published March 25, 2016 at 2:35 PM with the headline "Wal-Mart loses ‘everyday low price’ edge as Aldi opens across the U.S.."