The move comes as consumers continue to seek cheaper alternatives for groceries and general merchandise as inflation remains above pre-pandemic levels. Aldi, one of the fastest-growing grocers in the United States, has said it plans to open 120 new stores across the country this year, which would give the brand more than 2,400 U.S. locations.
The acquisition announced Wednesday is an extension of that strategy, Aldi chief executive Jason Hart said. “The time was right to build on our growth momentum,” he said.
Some of the acquired locations will remain Winn-Dixie and Harveys stores rather than being converted to the Aldi format, Hart said.
Discount and value retailers have been thriving in this inflationary era. Even high-earning consumers are showing signs of trading down, industry analysts say.
Weekly visits at discount stores were up almost every week in the second quarter, according to foot traffic analytics firm Placer.ai. Foot traffic at Aldi increased 5.4 percent year over year and Trader Joe’s, which is also owned by Aldi, saw visits increase 9.7 percent.
Consumers are also looking for cheaper merchandise — visits to Dollar General surged almost 40 percent in the second quarter year-over-year, and foot traffic at Dollar General was up nearly 30 percent, Placer.ai reported. Walmart, which has lower-priced grocery options, reported in its first quarter results that it has attracted and held onto newer and younger shoppers looking for value.
Lidl, another German discount grocer, has also been rapidly expanding in the United States since its first store outside Europe opened in 2017. There are more than 170 Lidl stores on the East Coast, but the chain has struggled to make further inroads in the United States. Earlier this year, the company announced it laid off about 200 employees from its U.S. office in Arlington, Va.
The thriving discount sector has hurt profits for traditional supermarkets, according to an analysis from Coresight Research released last year. With the rapid expansion, “retailers with significant store overlap with discounters could be at serious risk of margin pressure in the coming years,” the report said.
The merger of Aldi and Winn-Dixie and Harveys is in part an answer to those struggles, said Neil Saunders, managing director of analytics company GlobalData.
“Under the stewardship of Aldi, the business will have access to much deeper pockets and a ruthlessly efficient and effective supply chain which will help reduce costs,” he said. “This is important as shoppers at Winn-Dixie are relatively price sensitive and demand a strong value for money proposition.”
Saunders also noted that the proposed merger is another example of consolidation in the market. In October, grocery giant Kroger announced plans to buy Albertsons for $24.6 billion, a move that would merge two of the country’s largest grocery chains. While the deal has yet to be approved, critics have raised concerns that such a consolidation could lead to higher prices for consumers already battling inflation. Secretaries of state from Colorado, Arizona, Maine, Minnesota, New Mexico, Rhode Island and Vermont are calling on the Federal Trade Commission to block the deal.
John Clear, director in the consumer retail group at the global professional services firm Alvarez & Marsal, called the proposed merger a “massive step” for Aldi, which has been slowly building its presence in the United States for more than four decades.
Clear, who formerly worked with Lidl, added that an Aldi acquisition of Winn-Dixie stores could challenge Publix’s dominance in Florida, where consumers could use Aldi as a “top-up” shop to find products they can’t find at a mainstream grocery store. Winn-Dixie is the second-most-visited grocer behind Publix, according to the Tampa Bay Times, although Aldi signaled Wednesday that it would not transform every Winn-Dixie into an Aldi.
“If I was Publix I would be pretty worried by this,” Clear said. “I think it’s a big step into their territory.”