German Discount Chains Aim to Dethrone Upscale American Grocery Stores

Business Features Automation

Lidl operates over 10,000 grocery stores across 28 countries in Europe, and is now planning to open 100 outlets along the east coast by mid-2018. Their business model is centered around providing food that is similar in quality to Trader Joe’s or Whole Foods, but at discount prices. They accomplish this feat by cutting down on a wide array of overhead costs—like displaying food right in the shipping carton—in order to make restocking quicker, lessening the lead for additional staff.

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Unlike the larger chains, Lidl focuses on selling a narrow array of products, which dramatically reduces the outlays associated with purchasing products, stocking them, and having to throw out unsold food. They also require shoppers to pack their own groceries into bags they bring from home, further cutting down on overhead. This model has proven to work across the Atlantic, as Marketwatch reported

German discount grocer Aldi was the clear winner in terms of U.K. sales growth over the 12 weeks ending Jan. 1, posting a near 12% increase on the year, with peer Lidl coming in a close second, according to a survey Tuesday.

Aldi is Lidl’s main competitor, and it already has a presence in California and every state east of Colorado. Its business model is similar, as it has a smaller rotating group of items, and it tries to find creative ways to cut down on costs. For example, from Aldi’s website:

The Carts: We keep our carts in one convenient place. You put a quarter in the cart, shop and then return the cart to get your quarter back. This helps to keep prices low because we don’t spend time retrieving carts.

In order to differentiate themselves from their primary competitor, Lidl also sells furniture, appliances, and a women’s clothing collection which sold out in the first three days after it debuted in August 2014.

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The common theme between these models is cutting down on the biggest cost to nearly every business: labor. Automation doesn’t necessarily mean complex machinery completing tasks previously left to humans—Aldi’s quarter idea and Lidl’s shipping carton displays are a 20th century solution to a 21st century problem. “Low prices plus high quality” sounds like a winning strategy, but given how touchy a subject automation and its relation to the destruction of jobs is right now, whether it will work long-term in America remains to be seen. Aldi has experienced early success in the states, but the winds of public opinion seem to be shifting away from businesses that are killing jobs.

We are living in a strange moment in history where real disposable income per capita has flattened out while the future of service jobs rests firmly in the crosshairs of technological innovation. Many of us must save money wherever possible, but that usually comes at the expense of other people’s income. Simply put, there are a lot of folks who have lived an entire life with skills that are becoming less useful to the economy by the day, and it creates a negative feedback loop that winds up taking jobs away from people in similar situations.

The bottom line of stores like Aldi and Lidl are proof that this is the direction the economy is headed regardless of our personal feelings, but the election of Donald Trump proves that a backlash exists to this technological progress (automation, not globalization, is predominantly responsible for the disappearance of many jobs—and that connection has yet to be made amongst most of Trump’s most fervent supporters). Whether that backlash will be reflected in the market is uncertain at best, and companies like Aldi and Lidl will serve as the canary in the coal mine for this experiment. If we find that people are actually willing to pay a little more in order to ensure that a human keeps their job, then this entire narrative building over the last decade-plus will finally have its first real challenge.

Jacob Weindling is Paste’s business and media editor, as well as a staff writer for politics. Follow him on Twitter at @Jakeweindling.

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