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Exclusive: Aldi raises stakes in U.S. price war with Wal-Mart

A lady shops at Aldi, a retail grocery store chain in Wheaton, Illinois, U.S., April 13, 2017. REUTERS/Nandita Bose

WHEATON, Ill. (Reuters) – German grocery chain Aldi Inc is trying to beat the world’s biggest retailer at its own game: low prices.
Already with 1,600 U.S. stores, Aldi’s internal studies show its prices are 21 percent lower than its lowest-priced rivals, including Wal-Mart Stores Inc , according to Chief Executive Jason Hart. He plans to maintain that gap going forward.
His strategy, previously unreported, centers on adding more private-label goods, which are a retailer’s in-house brands, to win over price-sensitive customers, and a massive expansion to further disrupt a U.S. grocery sector that has seen 18 companies go bankrupt since 2014.
Hart’s plan calls for spending $1.6 billion to expand and remodel 1,300 U.S. stores, and open 400 new stores mainly in Florida, Texas and on both coasts by end of 2018. He also pledged Aldi will be willing to change prices more frequently to respond to rivals if needed.
“We are re-merchandising, remodeling, enhancing our product range and are focused on gaining volume so more customers start their shopping at Aldi and we are able to complete their shopping lists moreso than we have in the past,” said Hart, who added Aldi’s U.S. sales have doubled in five years.
Though it only accounts for only about 1.5 percent of the U.S. grocery market, Aldi is growing at 15 percent a year, whereas Wal-Mart currently controls about 22 percent of the market and its U.S. sales are estimated to grow about 2 percent this year, according to analysts.
Aldi’s growth potential has competitors taking notice. Reuters reported in February that Wal-Mart is running price tests in 11 states, pushing vendors to undercut Aldi and other rivals by 15 percent and is expected to spend about $6 billion to regain its title as the low-price leader. For a graphic, click http://tmsnrt.rs/2le6v0Y
Price wars are roiling the entire retail sector – from department stores to discount chains – but it is nowhere as intense as in the grocery sector. Beyond Wal-Mart’s move to match Aldi on price, German discount chain Lidl plans to open up to a 100 U.S. stores in a year, and Amazon.com Inc is aggressively testing out various brick-and-mortar grocery formats along with growing Amazon Fresh, its grocery delivery service. For a graphic, click http://tmsnrt.rs/2qRbNT9
“We have not seen anything like this in the grocery sector in the United States before,” said Scott Mushkin, managing director of Wolfe Research and a leading pricing analyst.
Such heated competition risks a dangerous race to the bottom that could result in more retailers shutting their doors.
“Given Aldi’s expansion, Lidl’s entry, Wal-Mart’s response and Amazon’s growing ambitions in this space, it is fair to expect a significant acceleration in the bankruptcy and liquidation cycle in this sector over the next few years,” said Burt Flickinger, managing director at retail consultancy Strategic Resource Group. For more on Wal-Mart’s stock performance vs Amazon, click [L1N1IC270]
GOAL: EVERYDAY LOW PRICING
Aldi, has a simple strategy to win more customers: everyday low pricing, according to Hart.
“We don’t confuse our customers with yo-yo discounts, sales, coupons and loyalty cards that require membership fees,” he said.
Four analysts and consultants contacted by Reuters confirmed Aldi now offers the lowest prices in private label consumer products in the states it operates, although they did say Wal-Mart is gaining ground in the states they are conducting price tests.
Depending on the product, Aldi’s prices are cheaper than most rivals’ private label items and even most branded items, analysts said. Hart said the 21 percent difference in price is calculated by monitoring competition on a basket of groceries.
Aldi counts on its no-frills shopping experience to help keep costs low, and limits much of its inventory to items that sell in huge volume. But its focus on offering far more private label items than branded products is central to allowing Aldi to adjust pricing whenever it chooses, Hart said.
Aldi and Wal-Mart do no break out the figures, but analysts including Mushkin and Flickinger say Aldi carries about 1,200 stock keeping units (SKUs) or type of products, 90 percent of which are private label. Wal-Mart stocks about 30,000-40,000 SKU’s of products similar to ones Aldi sells, and only 30 percent of that are private labels.
That different product mix can potentially make it more difficult for Wal-Mart to adjust prices because it often first needs buy-in from suppliers, and many times faces push back from packaged goods makers like Procter & Gamble , Unilever and even smaller brands. Such vendors fear steep discounting can erode the value of their brands, analysts said.
A Wal-Mart spokesman declined comment, saying the company would not comment on a competitor’s strategy. P&G and Unilever did not respond to Reuters requests seeking comment.
But the explosive growth in private label products is on the radar of Wal-Mart Chief Executive Doug McMillon. Last month he told analysts that private label goods will play an even more important role as the widespread availability of branded products online will compress those products margins over time.
“Aldi is disrupting the sector the way Wal-Mart did when they started,” said Strategic Resource Group’s Flickinger.
STEPPING UP THE GAME
Aldi’s aggressive push to remodel its stores will allow it to add new private label merchandise in rapidly growing categories like fresh food.
“The remodels are aimed at increasing our volumes which means more purchasing power that will help us lower prices further,” said Scott Patton, Aldi’s vice president of corporate buying.
At a recent visit to an Aldi store in Wheaton, Illinois Reuters found newer-looking shelves, wider aisles and brighter lighting than a typical Aldi store. There was also a bigger assortment of fresh, organic, gluten-free products and antibiotic-free meats versus what it stocked earlier – categories Aldi said is growing the most rapidly at its stores.
For example, its Simply Nature range of private-label products grew 53 percent to $300 million in 2016 from a year ago.
Aldi has also opened stores close to Wal-Mart’s supercenters to benefit from its budget-conscious shoppers. Its total store count of 2,000 stores by the end of next year will be about 42 percent of Wal-Mart’s U.S. store base.

Bid to revoke Obama methane rule fails in surprise U.S. Senate vote

A pumpjack brings oil to the surface in the Monterey Shale, California, in a file photo. REUTERS/Lucy Nicholson

The U.S. Senate on Wednesday rejected a resolution to revoke an Obama-era rule to limit methane emissions from oil and gas production on federal lands, dealing a blow to President Donald Trump’s efforts to free the drilling industry from what he sees as excessive environmental regulation.
The Congressional Review Act resolution received just 49 votes after Republican leaders scrambled for weeks to secure the 51 needed to pass it. The resolution would have revoked the rule and prevented similar regulations from being introduced.
Getting the Trump administration to repeal the BLM rule had been a top priority of the oil and gas industry. Companies said it was unnecessary, would could cost them tens of thousands of dollars per well and hinder production.
But not all Republicans supported the measure, in part because it would have made regulating methane waste more difficult in the future.
Republican Senator John McCain of Arizona made a surprise vote against the resolution, joining fellow Republicans Lindsey Graham of South Carolina and Susan Collins of Maine in opposition to torpedo it.
“While I am concerned that the BLM rule may be onerous, passage of the resolution would have prevented the federal government, under any administration, from issuing a rule that is ‘similar’,” McCain said in a statement.
He said the Interior Department should issue a new rule on to replace the existing one on methane leaks, which he called a public health and air quality issue.
The rule, finalized by President Barack Obama in his last weeks in office, updated 30-year-old regulations that govern flaring, venting and natural gas leaks from oil and gas production. Obama’s administration said it would preserve up to 41 billion cubic feet (BCF) of natural gas per year that is currently lost to leaks and flaring.
The American Petroleum Institute and other industry groups have said the methane rule is unnecessary because companies have made strides in reducing leaks on their own.
“The rule could impede U.S. energy production while reducing local and federal revenues,” said Erik Milito, API’s Upstream and Industry Operations Group Director.
Members of the Western Energy Alliance, which include Devon Energy , Whiting Petroleum and EOG Resources had also been strongly opposed to the rule.
Environmental groups hailed what they depicted as a rare victory for the environment after several regulatory rollbacks by the Trump administration.
“In recent months, thousands of Americans asked the Senate to stand up for clean air and against the oil lobby, and their efforts were successful today,” said Jamie Williams, president of the Wilderness Society.
The Western Values Project estimated that if the rule had been rescinded, the U.S. Treasury would have lost out on $800 million in lost potential royalties from leaked or vented natural gas over the next decade.
Republican Senator John Barrasso of Wyoming, chairman of the Senate Committee on Environment and Public Works who supported the resolution to kill the rule, called on Interior Secretary Ryan Zinke to act unilaterally to revoke it.

Republican Senators McCain, Sasse oppose Trump’s U.S. trade representative pick

Republican U.S. Senators John McCain and Ben Sasse said on Wednesday they would vote against President Donald Trump’s nominee for U.S. trade representative, Robert Lighthizer, because of his opposition to the North American Free Trade Agreement.
“Unfortunately, your confirmation process has failed to reassure us that you understand the North American Free Trade Agreement’s (NAFTA) positive economic benefits to our respective States and the nation as a whole,” McCain and Sasse said in a letter to Lighthizer.

Delay seen, again, on Trump growth agenda after Comey sacking

Not even a week after the Trump administration and Congress rekindled optimism that they could soon make progress on a pro-growth agenda including tax cuts, the unexpected firing of the head of the FBI late Tuesday presented investors with a fresh reason to second-guess their confidence in the “Trump trade.”
At the least, financial market participants viewed President Donald Trump’s abrupt dismissal of FBI Director James Comey as an unwelcome distraction, while some fretted it could tie Washington in knots for months, potentially postponing already-delayed reforms.
The takeaway for the stock markets: don’t bet on any quick legislation around trade, the budget, healthcare or infrastructure.
“There is nothing good out of this for markets,” said Michael Purves, chief global strategist at Weeden & Co. “It will weigh on Trump’s ability to cut deals with Congress. It costs him negotiating leverage.”
Jack Ablin, Chief Investment Officer at BMO Private Bank, said, “on a medium-term basis, it does undermine the administration’s power to get things done.”
Trump’s election last November unleashed a powerful upswing in U.S. stock markets on the premise that he would cut taxes and regulation and usher through a major infrastructure spending package. The benchmark S&P 500 <.SPX> has gained 12 percent since Election Day, while shares of tech stocks and smaller companies have performed even better.
Nagging concerns about Trump’s ability to get things done, along with some anxiety about stretched equity valuations, have combined to cap the rally, and stocks have done little since early March.
Around midday Wednesday, the S&P was near unchanged, as were other market benchmarks.
The administration recovered some credibility last week when the House of Representatives voted to repeal major portions of former President Barack Obama’s Affordable Care Act after failing to do so a month earlier. The simple achievement of advancing the healthcare bill to the Senate had been seen by investors as a signal that enacting tax cuts was doable, the big question was just how soon – this year or next.
“There’s a tremendous amount of hope baked into the market that Trump is going to be able to act, particularly on tax reform,” said Brad McMillan, Chief Investment Officer for Commonwealth Financial in Waltham, Massachusetts.
Edward Perkin, Chief Equity Investment Officer at Eaton Vance, said if the date to pass tax “is pushed out it’s not so much a problem, but if people question if it will ever happen, then that’s a problem.”
The degree to which this further alienates Democrats on Capitol Hill, especially in the Senate, was another concern given how narrow support has been so far for Trump’s agenda.
Sen. Dianne Feinstein, a senior Democratic lawmaker from California, was not optimistic that tensions between the parties would ease anytime soon.
“I had been hopeful that we could have a line of activity that’s going to bring a very divided country together,” Feinstein told Reuters Wednesday. “The problem out there is that people are so divided.”
Should the Comey episode weaken Trump’s bargaining ability with lawmakers, it may actually act as a catalyst for a tax bill, just one that might resemble congressional Republicans’ version more than Trump’s.
“An ongoing special investigation or shift in the balance of power could actually make Trump more eager to sign off” on the previously existing congressional tax plan, analysts at NatWest Markets said.
Of course, some had already adopted the view that Trump’s promised reforms were a distant hope, at best.
“Investors are realizing that the fiscal policy agenda is being pushed out farther on the horizon,” Michael Arone, Chief Investment Strategist at State Street Global Advisors .