New UNC study: Lidl has price-cutting effect that pressures other retailers to drop prices

According to a new study from the University of North Carolina Kenan-Flagler Business School, which was commissioned by Lidl, the store has a price-cutting effect that pressures other retailers to drop their prices when a new Lidl opens nearby.

Posted 11:44 a.m. Jul 7, 2020 — Updated 6:34 p.m. Jul 9, 2020

According to a new study from the University of North Carolina Kenan-Flagler Business School, which was commissioned by Lidl, the store has a price-cutting effect that pressures other retailers to drop their prices when a new Lidl opens nearby.

The independent study, led by Katrijn Gielens, professor of marketing at UNC Kenan-Flagler, indicates that "Lidl’s recent entry into the Long Island market pressured grocery retailers to cut their prices by up to 15%. Based on data collected immediately before the COVID-19 pandemic caused supply shortages, Lidl’s prices were about 45% lower than Trader Joe’s and more than 30% lower than other national retailers. The findings show Lidl’s price-cutting effect is erasing the steepest increase in food prices seen by consumers in decades."

The study analyzed prices of 47 grocery products, including dairy, meats, produce and canned and frozen goods at Aldi, BJ’s Club, Costco, King Kullen, Stop & Shop, Target, Trader Joe’s and Walmart before and after Lidl entered the market. The prices used in the study were found during visits of 27 stores on Long Island between April 2019 and March 2020.

“Given that U.S. households are facing the fastest-rising rise in food prices in a generation and a looming recession, understanding how supermarket competition can keep grocery prices at bay is more important than ever,” said Gielens. “Lidl’s competitive price-cutting effect is continuing to pressure other retailers to drop their prices. The data shows the effect is greater than Walmart’s entry in a new market reported by previous academic studies.”

In a conference call with the media on July 8, 2020, Dr. Gielens shared that although the study was commissioned by Lidl, she had full discretion regarding the content of the study without Lidl's input.

Study Findings

The following study findings were shared by the University of North Carolina Kenan-Flagler Business School:

Prices at Lidl were substantially lower compared to competing retailers on Long Island. Based on data collected before there were supply shortages due to the pandemic, Lidl’s food prices were about 45% lower than specialty retailer Trader Joe’s.

* Lidl set prices 39.6% lower than King Kullen and 33.8% lower than Stop & Shop.

* At Target and BJ’s, price differences were 18.5% and 10%, respectively.

* For Costco, Aldi and Walmart, no price differences with Lidl were found.

Retailers on Long Island decreased prices considerably after Lidl opened new stores compared to prices collected before Lidl entered the market. The price-cutting effect was more pronounced than previous academic findings about Walmart’s entry into a new market where price decreases typically varied between 1% and 2.5 % or 5% at most.

* Aldi cut its list prices by 15% and Walmart cut its list prices by 9% after Lidl’s entry.

* Stop & Shop and King Kullen decreased their prices an average of 5.3% to 3.8%, respectively.

* Costco reacted to Lidl’s entry by decreasing prices by 8.3%.

* Target and Trader Joe’s reacted by decreasing their prices by 4% each.

Despite a general rising trend of more than 2% in grocery prices between April 2019 and March 2020, competing retailers on Long Island set their prices for individual products, including staples, substantially lower after Lidl opened new stores.

* For higher priced items like frozen seafood, laundry detergent and olive oils, prices decreased 15%.

* In staple categories, such as pasta, butter and breakfast cereals, prices decreased more than 10% to 15%.

* For some frequently purchased goods, such as refrigerated drinks, peanut butter and frozen pizza, prices were reduced by 10%.

The findings corroborate the results of a study Gielens conducted in 2018, which showed that Lidl exerted a significant level of pressure on leading retailers to drop its prices soon after it first opened stores. Three years after its entry in the U.S., Lidl’s competitive price-cutting effect has shown to be enduring and more than offsets the trend of rising grocery prices.

The full study is available HERE.

Lidl entered the North Carolina grocery market on June 15, 2017 with the grand opening of six stores including Greenville, Rocky Mount, Sanford, Kinston, Winston-Salem and Wilson. There are now 10 Lidl stores in and around the Triangle and multiple other locations through the state.

Six Lidl stores open June 15 including Wilson

The newest Lidl location here in the Triangle opened on April 29, 2020 at 2741 NC-55, Cary, NC in the High House Crossing shopping center. The company had announced in January that the store would open in mid-2020, but they opened much earlier than expected in April to better serve the community during the pandemic.