Saving is the new spending

Led by Aldi and Lidl, discount grocers are poised for expansion in New Jersey

Gabrielle Saulsbery//October 28, 2019//

Saving is the new spending

Led by Aldi and Lidl, discount grocers are poised for expansion in New Jersey

Gabrielle Saulsbery//October 28, 2019//

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American shopping isn’t about spending. It’s about saving – money and time.

Convenience stores and discount retailers will show the greatest expansion across offline retail channels in the next five years with projections of more than 5 percent growth, according to a Discount Channel Report released in October by global commerce advisor Edge by Ascential.

All other retail channels excluding membership stores are projected to grow by 3 percent or less, the report found.

Urbanization, convenience and a preference for smaller shopping trips will continue to drive consumers to the corner store, while cost savings and convenience have lured and will continue to lure them to discount retailers selling both food and non-food items.

Worldwide, Aldi leads the discount retail sector in net sales, with $95 billion in 2019 and $122 billion projected for 2024, according to the Discount Channel Report. It’s slightly ahead of competitor Lidl, which will bring in a projected $89 billion in 2019 and $120 billion in 2024. Edge projects a 5.3 percent growth in sales by food discount stores through 2024.

Aldi entered the New Jersey market 21 years ahead of its rival, which opened its first location in Vineland just two years ago.

The state is home to more than 50 Aldi stores and five Lidl outlets, and both brands are poised for growth: Aldi, which has invested billions of dollars to revamp its existing stores since 2017, has more than five additional New Jersey locations planned through 2020. Lidl, which is the nation’s fastest growing retailer according to the National Retail Federation’s magazine Stores, has at least one planned and intentions of expanding much further.

Compact spaces

“People want grocery shopping to be easy so they can get on with their lives, and people are savvier about what they eat and how much they’re willing to pay for food,” explained Aldi Center Valley Division Vice President Bob Grammer.

Chains like Lidl, above, are redefining the grocery shopping experience. -LIDL PHOTO
Chains like Lidl, above, are redefining the grocery shopping experience. – LIDL

According to a study of Aldi shoppers, the discounter really does help shoppers just “get on with their lives.” It found shopping there is at least 20 percent faster than shopping at Kroger or Walmart stores. Its limited selection takes up 12,000 square feet of floor space on average compared to the average 60,000 square feet at a traditional grocery store, facilitating a more get-in-get-out experience.

Lidl, too, keeps stores small, with an average of 17,000 square feet to 20,000 square feet of retail space.

“A majority of our stores have five to six aisles. Really, by the time that you’re walking down that first aisle, you’re able to do something like 80 percent of your shop,” explained Lidl Director of Communications Will Harwood. “What customers tell me a lot is that the shopping experience is manageable, it’s fast, it lets them get on their way. That’s a key attribute of our model – that we’re there to save customers both time and money.”

The retailers’ careful curation of their assortment also contributes to the experience, taking the 50 or so ketchups in a traditional grocery store aisle and whittling it down to two or three.
And when customers get out of the market before growing tired of aisles and low on cash, well, that’s more opportunity for the stores around them.

Good neighbors

“From a developer’s perspective, they’re great quality tenants to invest in and if it’s part of a larger shopping center, they’re great anchors. Smaller shop tenants like the foot traffic from a supermarket. You go there and then you go to the dry cleaner and get your cup of coffee and go to the pizzeria next door,” said Jason Pierson, owner of Englishtown retail real estate brokerage firm Pierson Commercial.

Lidl meat
Lidl will bring in a projected $89 billion in 2019 and $120 billion in 2024. – – LIDL

In addition, where landlords might have trouble placing a larger scale supermarket like Wegmans in a former 50,000-square-foot Pathmark or A&P location, they can repurpose the space or demolish it to be fitted for an Aldi or Lidl that requires less space, Pierson said.

Having a low-price grocer in the area isn’t just good for those who shop there, but for those who shop for food nearby, according to a University of North Carolina Kenan-Flagler Business School study on Lidl.

The study found that when a Lidl is in town, grocery prices in town are 55 percent lower than a comparable town without a Lidl.

“If you want to get the best deal on your groceries, all you need to do is drive toward a Lidl store, and your prices go down. If you want to get the best price, you drive into the Lidl parking lot,” Lidl’s Harwood said.

In New Jersey, competition for food dollars is fierce, noted New Jersey Food Council President Linda Doherty. Traditional regional grocers can’t push costs through their supply chain like national smaller format stores, which also save money with less customer service, private labels, and limited labor costs. Due to a demand for prepared foods and expanded offerings, she said, larger format grocers will continue to thrive anyway, and they will support that with the continued examination and integration of efficiencies, development of innovative approaches and marketing, along with tightening labor costs.

David Gordon, author of the Discount Channel Report and Edge by Ascential’s research director, explained why the discount food sector is making out better than other offline retail sectors right now and in the future.

“Unlike other categories such as consumer electronics or clothing, food is still a relatively small share of the online market, so the discount food channel has been able to make the most of that,” Gordon explained. “We recognize that food and grocery will eventually become more of an online marketplace so it’s interesting to see what the discounters are doing. Discount relies on being a very simple economic model, with low cost, low complexity. That allows discounters to offer the value to consumers and be able to differentiate from other retail. In order to be competitive in the future, discounters have to offer an online channel which will add cost and complexity to their channels.”

He noted Aldi’s partnership with Instacart as a current solution that doesn’t further complicate Aldi’s model.

‘Your only chance to buy’

New Jersey’s been fertile ground for discounter Ocean State Job Lot, said Director of Store Operations Paul Cox. OSJL fits under both the discount food and discount non-food umbrellas, with shelf-stable food comprising about 15 percent of its floor space and things like clothing, décor, and pool supplies making up the rest.

Lidl stores average 17,000 square feet to 20,000 square feet of floor space, much smaller than the 60,000 square feet for traditional outlets. – LIDL

OSJL opened South Plainfield and Franklin Park locations in the last year, and discounters like them and TJX Brands are a different animal than either food discount stores or traditional department stores.

“There’s something about closeouts that’s almost internet-insulated,” Cox said, who started his retail career at Marshall’s. “It’s one-in-a-million, closeouts, and this is your only chance to buy. It’s a different creature. It’s more in the moment.”

OSJL buys surplus goods from national brands and sells them at discounted prices. This week, Cox bought his wife a scarf for $5 that OSJL had gotten a lot of from a national department store, marked down from $20 each.

Most of the products need to be available in quantities that stock shelves at all 139 OSJL stores, or they can’t advertise a product. But the company has made exceptions through its loyalty, or “insiders” program.

“Now we buy some of these closeouts, say there’re only 10 items, we offer them to our insiders now,” Cox explained. “Recently we had this beautiful teak patio set, but there were only 100 of them. It was a ship-to-store [item]. You’d go in and pay for it, and then it’d ship to the store,” Cox said. The set sold out “in minutes.”

The value of immediacy

Convenience stores are poised to show the most growth of any retail category, according to the Discount Channel Report. Retail sales at convenience stores are projected to increase by 5.4 percent by 2024. They’ve also proven to be competitive with online retailers, losing only 0.2 percent of market share from 2013 to 2018.

Convenience stores are expected to show the most growth of any retail category, according to the Discount Channel Report. - QUICKCHEK PHOTO
Convenience stores are expected to show the most growth of any retail category, according to the Discount Channel Report. – QUICKCHEK

With longer hours, a smaller store formats, and a relatively wide assortment, convenience stores fill a unique purpose in the market, Gordon said.

“As more of us live in urban areas, and societal trends change and more of us want a simpler easier lifestyle where more of us buy less more often, the convenience channel is growing,” Gordon said. “They want immediacy, they want a solution now, so by being on every street corner or in every mall, it’s about trying to support that demand.”

QuickChek and Wawa, the convenience stores synonymous with New Jersey, are feeling the growth. Wawa is on track to open 63 new stores by the end of 2019 including seven in New Jersey, bringing its state total to 250; QuickChek has been opening eight new locations a year for the past four years and plans to continue that growth in 2020 and the near future.

“Our customers’ number one request is “build one near me”—so we open stores in the path of busy people on the go,” said QuickChek Chief Executive Officer Dean Durling.

Both chains have intensified their focus on fresh prepared food to appeal to today’s young professionals, families and health-conscious consumers. Wawa added grain bowls and a custom salad program this year to its prepared food selection, and QuickChek hired a professional chef to oversee its culinary team.

When it comes down to it, convenience stores scratch an itch that e-commerce cannot: it gets consumers what they need now, in this moment, on the go.

“We serve busy people on the go with immediate consumption, fresh products and services. Other retail stores and online companies sell products you may be okay picking up on your regular shopping trip tomorrow or ordering online. We meet your need for what you need now, whether it’s food, the best cup of coffee in America, or fuel,” Durling said.