As German low-cost grocer Lidl opens its first U.S. stores, its American supermarket chain counterparts prepare for a surge in competitive pressure. Discount grocer Lidl opened its first U.S. stores in mid June, with plans for more than 100 by next summer. Currently, the German retailer operates 10,000 stores in Europe that are popular for their price competitiveness and streamlined shopping experience.

Analysts at Oppenheimer say four Lidl stores will be within one mile of a Kroger Co. (KR) store, while nine will be located within one mile of a Wal-Mart Stores Inc. (WMT) outlet. When expanding the radius to 10 miles, all of the initial 20 Lidl stores will overlap with at least one Wal-mart and a majority (13) will overlap with a Kroger.

Slashing Prices in Preparation

Oppenheimer’s Rupesh Parikh notes that Cincinnati-based Kroger has already begun rapidly cutting prices on certain private label products and advertising the price cuts on billboards primarily around its southern stores. The price reductions have been focused in the “center of store categories and in some private label perishables,” with an average discount of 20%, according to the analysts’ analysis.

Parikh also expects that aside from Lidl’s entrance to the U.S. market, Kroger will maintain its long-time price war with Bentonville, Ark.-based Wal-Mart. “We suspect the price reductions we observed are here to stay and likely to reflect proactive reductions ahead of Lidl’s entry and/or to Walmart,” wrote Parikh. “We do not believe Kroger management will let their pricing gaps erode vs. Walmart and others.” Oppenheimer indicates Kroger’s price cuts “could be a move to lower every day prices” and “appear significant on paper.” The U.S. grocer has reduced prices by an average of 7% on select Hain Celestial Group Inc. (HAIN) and Kraft Heinz Co. (KHC) products. (See also: German Supermarket Giant Lidl Makes its U.S. Debut.)

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