New LI Grocery Store Leads To Falling Supermarket Prices: Study

PLAINVIEW, NY — The opening of a new grocery store in Plainview and elsewhere led to falling prices at other stores across Long Island, a new study found.

As Patch previously reported, the German supermarket chain Lidl, known for its low prices, opened in Plainview in December. Lidl has two other Long Island locations, in Huntington Station and West Babylon.

The entrance of the supermarket chain on Long Island pressured other grocery store retailers to cut their prices by up to 15 percent, according to the results of the study by the University of North Carolina Kenan-Flagler Business. The results were released Wednesday. The study was commissioned by Lidl, but Katrijn Gielens, a professor of marketing at the university, had discretion over the content of the report without Lidl's input, a spokesperson told Patch.

Based on data collected immediately before the coronavirus pandemic caused nationwide supply shortages, Lidl’s prices were about 45 percent lower than those at Trader Joe’s and more than 30 percent lower than prices at other national retailers. The findings of the study show that Lidl’s price-cutting effect is offsetting the effects of the steepest increase in food prices seen by consumers in decades.

Gielens examined the prices of dozens of grocery products collected at Aldi, BJ’s Club, Costco, King Kullen, Stop & Shop, Target, Trader Joe’s and Walmart before and after Lidl entered the Long Island market. Prices were collected during visits of 27 stores on Long Island between April 2019 and March 2020.

"Given that U.S. households are facing the fastest-rising rise in food prices in a generation and a looming recession, understanding how supermarket competition can keep grocery prices at bay is more important than ever," Gielens said in a news release.

Key conclusions of the study include the finding that prices set at Lidl were "substantially lower" relative to competing retailers on Long Island. In addition to boasting food prices around 45 percent cheaper than Trader Joe’s, Lidl's prices were 39.6 percent lower than King Kullen, 33.8 percent less than Stop & Shop, and 18.5 percent and 10 percent lower than Target and BJ’s, respectively. No price differences were found between Lidl and Costco, Aldi and Walmart.

The study also found that Lidl’s competitive price-cutting impact is "substantially stronger" than Walmart’s. Retailers on Long Island decreased their prices considerably after Lidl opened stores, and this effect was “more pronounced than previous academic findings about Walmart’s entry into a new market where price decreases typically varied between 1 percent and 2.5 percent or 5 percent at most.”

After Lidl’s entry into the Long Island market, for instance, Aldi cut its list prices by 15 percent, Walmart lowered its prices by 9 percent and Costco decreased prices by 8.3 percent. Stop & Shop and King Kullen decreased their prices by roughly 4 percent and 5 percent, respectively, and Target and Trader Joe’s both dropped their prices by four percent each in reaction to Lidl’s entry.

Moreover, despite a general upwards trend of more than a 2 percent increase in grocery prices between April 2019 and March 2020, the study found that competing retailers on Long Island set their prices for individual products substantially lower after Lidl opened new stores. Higher priced items such as frozen seafood and olive oils, for example, were priced 15 percent lower.

The study further concluded that Lidl’s price-cutting effect is "enduring" and "eliminates observed food price inflation."

The referenced price inflation dates back to fall 2019, when retailers on Long Island increased their prices significantly as stores were being remodeled and Lidl had not yet opened. With less grocery store competition, King Kullen and Stop & Shop raised their prices by about 12 percent and nine percent, respectively. Target and BJ’s increased prices up to 8 percent, and Costco raised prices by 6 percent at the time. After Lidl entered the market, price increases were “completely wiped out.”

"From a consumer welfare point of view, this type of competition is really beneficial in the sense that it really translates into dollar-savings," Gielens said.