Aldi has announced that it will enter the Spanish market in March 2002. Up until 1999, Aldi had been unable to trade under its name in Spain. Now that the hard discounter has finally set a date for its expansion into the Spanish market, it will certainly face strong competition from its main rival Lidl. Its efforts at establishing itself in the market through heavy discounting may even prompt a price war.
Aldi is the leading discount retailer in Germany and is famous for its no-nonsense store layout and aggressive pricing. In 1999, Aldi had a 10.5% share of the German food, drink and personal care retail market. A stagnant German market has increasingly pressurized the company to expand overseas.
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However, Aldi had avoided entering the Spanish market since wholesale company, IFA, owned its name there. In 1999, Aldi bought the name from IFA for $11.4 million. Now the company has announced its intention to enter the Spanish market in March 2002, but it will face very stiff competition from its main domestic rival, Lidl.
Lidl is the second largest discounter in Germany with a 5.9% share of the food, drink and retail market in 1999. However, Lidl has been far more active at developing an international presence than its counterpart Aldi.
Lidl had approximately 2,061 stores in foreign markets in 2000 compared to 1,486 for Aldi. There are significant benefits from achieving sizeable international presence, namely scale efficiencies from larger sourcing contracts. Clearly, Aldi cannot rest on its laurels in the German market and has been stepping up its expansion drive. Yet the Spanish market may prove tough to crack due to Lidl’s early entrance advantage.
Currently, Lidl has 320 stores in Spain and is expanding at a planned rate of 50 new stores every year. Although Lidl has achieved national coverage in Spain, it plans to develop greater penetration to drive its market share. Lidl will have taken many of the best sites for hard discount stores already. Aldi is likely to resort to heavy price cutting in an effort to uproot Lidl’s consumer base. Yet Lidl will not shy away from such a challenge.
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By GlobalDataConsequently, Aldi’s planned entrance will create a climate ripe for a significant price war on everyday goods that should worry other Spanish retailers, in particular other discounters.
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