Discount Retail Chain Lidl Germany and Kaufland Germany are advertising their new price reduction of sugar. The new price per kilo is 0.99 euros. ALDI Nord and ALDI SOUTH seem to have been caught off guard by the price reduction. The prices for Raffinade Zucker were still at the old price of 1.49 euros/KG when the shops opened in the morning. The falling world market prices on the futures exchanges for sugar provide the scope for this price reduction. Year-on-year, prices for this agricultural commodity are down 28.2%.
The market leader Südzucker AG from Mannheim reacted to these price declines in the market with a profit warning on the same Monday. This operating loss in the sugar segment is unexpected from the company's point of view. The causes, the better harvest in the EU and the falling prices on the world markets, should have been known for some time.
A price guide is usually not the cheapest provider, but it specifies the time and extent of the price change. For years, this role was attributed to ALDI Nord Group and ALDI SOUTH.
This role has been faltering for some time. The Schwarz Group is aiming for a changing of the guard. The customers can only be pleased. Competition over price also works in the oligopoly of food retailing.
In pricing policy, this is referred to as colluding price leadership. Two large providers take turns specifying price changes unannounced. Lidl specified the timing and Aldi the extent of the price change. In this respect, there is already a division of roles here.
According to the Lebensmittel Zeitung direkt on Monday, ALDI SÜD and ALDI Nord Group are lowering the price of sugar to 0.89 euros from 17 September. The price leadership is vehemently defended. The even lower prices of 0.10 euros were communicated by Aldi on a full-page basis. As with Lidl's price attacks against IKEA a few weeks ago or in February 2023 with Kaufland's coffee against Aldi, the reaction of the attacked party is an additional price reduction. In this respect, one can speak of a first-offer disadvantage of the challenger. The initiator is always undercut and does not seem to have completely exhausted the price reduction potential vis-à-vis the customers. The effects on the price image of retailers remain open.
EDEKA ZENTRALE Stiftung & Co. KG and REWE remain the role of price followers among the top 4 in food retailing. Price following is particularly common for homogeneous products.
REWE retailers are not going along on Tuesday despite Aldi's announcement and will remain at 0.99 euros.
How is Lidl now reacting to Aldi's countermove?
Despite Aldi's advance notice, prices at Lidl were constant at 0.99 euros. As in a chess game with consecutive moves, a move by Lidl would have been expected. This is not happening for the time being, the chess clock is still running. This approach can also be well explained from game theory. This is about anticipating the opponent's response and seeing through their strategy. Actually, there is a long history of processes between Aldi and Lidl and the answers are no surprise. Even without coordination and communication, fixed moves have been made. The moves in this sugar price reduction deviate from this.
In any case, the price reductions this week go far beyond the reduction of the world market price. In this respect, sugar is a good example of agricultural commodities and their sales price effects.
Sugar is an ingredient in a large number of products in the product groups bakery products, confectionery, ketchup, jam, beverages/lemonades, dairy products and cereals. In this respect, sugar has an extensive multiplier effect through large parts of a grocer's assortment. There is a time lag in price effects for processed sugar. We can remain curious to see which product groups with which communication and price sequence will be reduced in the next few weeks.
With the price reduction of flour on Wednesday, in the same week, there was again the well-rehearsed sequence. Aldi lowered the price and Lidl, Kaufland, Norma and Penny followed, but without undercutting. Aldi remains the undisputed price leader here.
So far, Aldi has still been able to score points from the customer's point of view with a better price/performance ratio compared to Lidl. "Customers are recognizing clear price advantages," according to the 2024 Customer Monitor study. This week of price reductions will not change this overall picture. Lidl has to look for other ways.
Read more: Schwarz Group's attack on Aldi's price leadership - Kompetenznetzwerk Handel (handel-dhbw.de)
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