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German grocer Lidl promises high quality, low prices; US supermarkets take notice

  • About 90 percent of Lidl's products are dubbed "premium private label."
  • The chain promises deep discounts for customers as it embarks on its expansion across the U.S. East Coast.
  • Lidl hopes to have around 100 stores open in the U.S. over the next year; its first stores opened in the South in mid-June.

The grocery wars are growing in America with a new German competitor in play, which hopes to shake things up.

Coming to the U.S., Lidl wants to be to Wegmans, as Trader Joe's is to Whole Foods, Karen Short, a food and grocery analyst at Barclays, told CNBC's "Power Lunch" on Thursday. The grocery industry is ripe for more disruption, she said, in making this analogy.

Lidl, one of the world's largest retailers and a top competitor to discount chain Aldi, opened its first 10 U.S. grocery stores in Virginia, North Carolina and South Carolina in mid-June. Lidl has said it intends to open an additional 20 stores on the East Coast this summer and to have up to 100 stores open within a year, in states like New Jersey, Pennsylvania and Georgia.

What sets Lidl apart from the rest is that about 90 percent of its products are dubbed "premium private label." And this could bring a bigger trend to U.S. supermarkets, according to Short. Maybe Lidl can change shoppers' perception.

As more American shoppers visit Lidl now, a "training process" is going to take place among consumers, Short said. "The American consumer is trained to not like private labels," she said.

But more and more retailers and grocers alike might choose to create and emphasize their own brands, as shelf space and aisles become more competitive, Short added. Whole Foods, for example, has its "365 Everyday Value" brand; Kroger has "Private Selection"; and Target's take on its private food label is called "Market Pantry."

To be sure, Kroger has recently filed a lawsuit against Lidl, claiming the German company's "Preferred Selection" branding is an infringement on Kroger's own packaging. Kroger has said Lidl will cause the company irreparable damage with its similar label.

A spokesman for Lidl said he could not comment on ongoing litigation, but emphasized that the new brand was created in house, according to a Washington Post article on the suit.

Supermarkets need to strengthen their brands, still, Short told CNBC.

"[Lidl] is positioning themselves along the Eastern seaboard … going after a niche, middle-income consumer," she said. "[The] store looks very nice. … Trust me, Wal-Mart is not taking this lightly."

The German-based company will build smaller-than-normal grocery stores across the U.S., saving Lidl expenses and excess space, and Lidl will have fewer items on sale than a traditional store would. There are threats on many fronts.

Lidl's private-label brands also tend to be higher margin and provide the company with more opportunities for deep discount pricing.

Aldi, which tracks closely with Lidl, has recently said it plans to invest about $5 billion globally in its growth over the next five years. Meanwhile, Amazon getting into the brick-and-mortar food business with its deal to buy Whole Foods will make competition in the grocery aisles even stiffer.

— CNBC's Jeff Daniels contributed to this story.

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