Dive Brief:

• Walmart, Target and other grocery players are responding to the growth of no-frills German grocery retailers Aldi and Lidl with aggressive pricing and product placement in stores, according to a note from Oppenheimer & Co. analyst Rupesh Parikh and cited by Supermarket News.

• While Lidl and Aldi have demonstrated extreme price competition that experts have told Retail Dive are as much as 30% lower than Walmart, Parikh found that in Southeastern stores, Lidl beat Walmart by just 2% in overall basket prices, according to Supermarket News. Parikh also found that Target had reduced prices on some of its private label items by 10% and 20% and that Kroger, Food Lion, Family Dollar and Dollar General are also moving prices down.

• The assertive price competition on private label goods could mean higher prices elsewhere, he noted.

Dive Insight:

No-frills grocery chains Aldi and Trader Joe's have been attracting loyal customers in the U.S. regions where they operate, and as similar retailer Lidl (which also sells apparel and home goods) readies its entry into the U.S., many observers are wondering what its arrival means for the future of the grocery category. Even before Oppenheimer's note this week, as early as February, there were signs that Walmart was responding to the threat with aggressive pricing.

While the moves garnered kudos from Oppenheimer analyst Parikh, it may be a nightmarish deja vu for Walmart, which in the U.K. has seen its Asda grocery unit decimated by a years-long price war sparked by the same German grocers that are now expanding in the U.S.

For a report last year, experts repeatedly told Retail Dive to look at Britain’s grocery wars to understand the devastation that could be wrought by Aldi and Lidl. Asda and rival supermarkets Sainsbury, Tesco and Morrisons, like the retailers cited by Parikh, have been slashing prices to neutralize the German threat. 

"There are phony price wars, and there are real price wars. This is a real price war," Fraser McKevitt, head of retail and consumer insight at market research firm Kantar Worldpanel, told the Financial Times in 2014, adding that larger grocers were losing market share "hand over fist."

Although the depressed post-Brexit British pound has slowed Aldi and Lidl's momentum somewhat, not much else has changed since that red flag, and that has some analysts warning that Lidl and Aldi could do to Walmart in the U.S. what they did in Europe.

Keep in mind that Walmart limped away from its German grocery effort in 2006, selling 85 stores to homegrown German retailer the Metro Group at a $1 billion loss after an eight-year struggle to establish a beachhead there, losing hundreds of millions of dollars a year in the process. Asda has faced similar challenges in the U.K. market, with sales falling for seven straight quarterly periods as of last year, as more shoppers head to Aldi and Lidl.

"[Asda] was the greatest division a few years ago," Howard Davidowitz, chairman of New York retail consulting and investment banking firm Davidowitz & Associates, told Retail Dive last year. "Then Aldi and Lidl went across England, and now Asda is doing very badly."

London-based Bloomberg columnists Andrea Felsted and Chris Hughes said last August that it’s "time for Walmart to cut Asda's apron strings" in the U.K., too. "The U.S. retail giant has struggled with the U.K. supermarket it bought for 6.7 billion pounds ($8.9 billion) in 1999," they wrote. "A sale to a private equity firm would make sense," considering that U.K. grocery retailers, already battered by the ongoing price war, are unlikely to be interested. Instead, Walmart (which declined to comment on our earlier story) appears to be shoring up Asda's resources. Two years ago, Asda announced a turnaround effort including price cuts and store improvements as well as a halt to plans for "click-and-collect" sites, and last year Walmart replaced outgoing Asda CEO Andy Clarke with Sean Clarke, previously president and CEO of Walmart China.

In his note this week, Parikh cited Walmart's store remodels and omnichannel efforts, which include more in-store pickup of online orders, discounts for those orders and its low-minimum, membership-free no-cost delivery as further evidence that the world's largest retailer is up to the Aldi-Lidl test. But those efforts are costly, other analysts have warned. Plus, fighting Aldi, Trader Joe's and Lidl isn't just about a price war or even those e-commerce efforts, according to Nick Egelanian, president of retail development consultants SiteWorks International.

"I do not see any evidence that Walmart is rising to the Aldi/Lidl challenge," he told Retail Dive in an email. "The fundamental difference Aldi and Lidl are offering is greater convenience tied to ultra-low pricing and respected private label. With Walmart not opening any stores of equal convenience, I do not believe they are addressing the fundamental advantage Aldi and Lidl offer."