If your town has a Lidl, your grocery prices are lower

Key Points
  • Lidl expects to have as many as 100 stores in the U.S. by midyear.
  • Rival grocers are cutting their prices when Lidl arrives, a new study finds.
  • On average, competing retailers near Lidl stores set their prices about 9.3 percent lower than in markets where the German grocer is not present, the study said.
  • That is more than three times as much as was typically reported in other academic work on Walmart's entry in a new market.
Customers browse produce during the grand opening of the Lidl Ltd. store in Virginia Beach, Virginia.
Benjamin Boshart | Bloomberg | Getty Images

When low-priced German grocer Lidl opens a new store, it brings a food fight, and consumers are the ultimate winners.

A new study shows if there's a Lidl store, competing grocers drop their prices by more than when Walmart enters a new market.

The University of North Carolina Kenan-Flagler Business School conducted the pricing study, looking at six cities where there is a Lidl store and six nearby cities without a Lidl store, comparing pricing on 48 frequently purchased food products at Walmart, Kroger, Aldi, Publix and Food Lion.

"On average, competing retailers near Lidl stores set their prices approximately 9.3 percent lower than in markets where Lidl is not present, which is more than three times as much as was typically reported in other academic work on Walmart's entry in a new market," said Katrijn Gielens, an associate professor of marketing at UNC who led the study.

Lidl commissioned the study, but UNC said it had control over its methodology and analysis.

Lidl is in the midst of a U.S. expansion and plans to open as many as 100 stores by mid-2018. As of Thursday, Lidl has opened 48 U.S. stores in six states along the East Coast from New Jersey to Georgia.

The grocer was expected to shake up the already competitive category with its entry. Lidl has said it sells products for as much as 50 percent lower than rival stores, as around 90 percent of its products are private label rather than national brands.

Gielens' work shows grocers set the price for a half gallon of milk about 55 percent lower in Lidl markets compared with markets without a competing Lidl store. Avocados and bread-related products are 30 percent lower in markets with a Lidl store. Prices for ice cream, bananas and cheese are more than 15 percent lower at grocers competing in a city with Lidl.

The study reveals Kroger shoppers save up to $22 on their total in markets where Lidl is present compared with markets where there is no competing Lidl store. The savings was $17 at Food Lion, $14 at Aldi, $7 at Publix and $3 at Walmart.

On a percentage basis on average, Aldi stores near Lidl stores set prices 14 percent lower than in markets where there is no competing Lidl. Food Lion prices are 13.6 percent lower when directly competing with Lidl than in a town without a nearby Lidl store. At Kroger the difference was 10 percent lower and at Publix 3.9 percent. Walmart comes the closest to pricing parity in markets with and without a Lidl competing, with prices 2.5 percent lower with Lidl competition than without.

When Lidl opened its first U.S. stores in June 2017, KeyBanc's consumer analyst team wrote in a note to investors: "this could be one of the most disruptive recent entrants in U.S. retailing and could drive both grocery deflation as well as competitor store closures."

However, longtime retail analyst and Telsey Advisory Group CEO Dana Telsey said Lidl has had some struggles in the U.S. in the early going.

"They haven't gained the share, I think, originally expected. But you are seeing U.S. retailers come down and ... match those prices, I don't know for how long, though," she said.

Don't count out the big existing grocery players as Lidl finds its footing in the U.S., Telsey added. "The pricing power of Walmart, of Costco, is extensive. Getting consumers to recognize the brand name of Lidl takes time."

The competition has been clear since Lidl began opening its doors.

"We have seen the pricing pressured in every market since we entered last summer," said William Harwood, Lidl's U.S. spokesman. "There is a dramatic price drop just around our stores, so we wanted to look at how vastly different those prices are from those retailers just down the road."

While Walmart declined to comment on the study itself, the retailer did point to its ongoing strategy to lower prices in certain, unspecified categories. Spokesman Lorenzo Lopez said in part Walmart looks for a way to lower costs and pass along the savings to shoppers.

"That's why we're giving customers in select markets even lower prices on the national and private label brands our customers want and trust," Lopez said.

Analysts expect Walmart and others to keep up the pricing pressure given the expected windfall from a lower corporate tax rate.

CNBC reached out to Kroger, Aldi, Publix and Food Lion but did not hear back before publication.