German Grocery Chain Aldi to Invest $3.4 Billion to Expand U.S. Stores
German grocery chain Aldi said on Sunday it would invest $3.4 billion to expand its U.S. store base to 2,500 by 2022, raising the stakes for rivals caught in a price war.
Aldi operates 1,600 U.S. stores and earlier this year said it would add another 400 by the end of 2018 and spend $1.6 billion to remodel 1,300 of them.
The investment, which raises Aldi’s capital expenditure to at least $5 billion so far this year, comes at a time of intense competition and disruption in the industry.
German rival Lidl will open the first of its 100 U.S. stores on June 15. In May, Lidl said it would price products up to 50% lower than rivals.
Wal-Mart Stores (WMT), the largest U.S. grocer, is testing lower prices in 11 U.S. states and pushing vendors to undercut rivals by 15%. Wal-Mart, the world’s biggest retailer, is expected to spend about $6 billion to regain its title as the low-price leader, analysts said.
The furious pace of expansion by Aldi and Lidl is likely to further disrupt the U.S. grocery market, which has seen 18 bankruptcies since 2014. The two chains are also upending established UK grocers like Tesco (TSCDY) and Wal-Mart’s UK arm, ASDA.
In May, Aldi Chief Executive Jason Hart told Reuters the chain intended to have prices at least 21% lower than rivals and would focus on adding in-house brands to win over price-sensitive customers.
“We’re growing at a time when other retailers are struggling,” Hart said in a statement. Hart added that Aldi’s prices were also up to 50% lower than traditional grocery chains, a move that appeared to follow rival Lidl’s announcement on prices.
The latest store expansion will create 25,000 U.S. jobs and make Aldi the third-largest grocery chain operator in the country behind Wal-Mart and Kroger (KR), the German chain said in a statement. Aldi’s 2,500 stores would equal about 53% of Wal-Mart’s U.S. outlets.
“As we continue to expand and grow, our purchasing power continues to increase and allows us to bring products at better prices for consumers,” Scott Patton, Aldi’s head of corporate buying, said in an interview.