Dive Brief:

• Aldi’s entry into the Southern California market has contributed to a 3% average price reduction on basic grocery items throughout the region, according to the Orange County Register, citing data from Strategic Resources Group. Price deflation has also contributed to the price decline. 
• Since entering the Southern California market last March, Aldi has built 40 stores and plans to build 14 more by the end of this year. Next year, the discounter plans to build 20 to 25 stores in the highly competitive region.
• According to Tom Cindel, group director of operations and logistics for Aldi Moreno Valley, the company’s plan is to blanket the area and entice customers with its low prices. “If we throw that Aldi logo in your face enough times, you’re going to go ‘OK, I’m going to give it a shot.' And that’s when we got you,” Cindel told the Register.

Dive Insight:

Aldi’s tiny stores are having a very large impact on grocers across the country. The discounter has spurred a price war with mighty Walmart, whose stores are several times the size of Aldi’s locations, and teeming with popular national brands. Aldi has also put pressure on conventional and specialty grocers to lower their prices.

So far, Aldi isn’t dominating any of the markets where it operates. Its forty stores in Southern California pale in comparison to the number operated by legacy players like Ralphs and Vonns. In the very competitive Richmond, Virginia market, Aldi’s ten stores have a 1.6% market share, according to industry publication Food World. In Tampa Bay, another market that’s heating up, the discounter’s market share is just 1%, according to Chain Store Guide data.

With its industry-beating prices and private label selection, though, Aldi is forcing retailers to play on its turf. This is the true threat of the discounter format: While retailers like Walmart and Kroger spend loads of money to stay competitive, Aldi and Lidl remain in their comfort zone, free to grow seemingly at will.

“They're trying to steal share wherever they can, and let consumers everywhere know that Aldi is the place to shop,” Tim Barret, senior research analyst with Euromonitor, recently told Food Dive.

Aldi will continue to chip away at grocers’ market share as it grows. By 2022, the discounter plans to have 2,500 stores across the country. It’s moving into new markets like Arizona while also revamping its locations. As it elevates its store experience, Aldi will draw more high-value consumers. The company has focused recent promotions on these shoppers, including offering dirt-cheap pricing on fresh items like salmon filets, which retailed this summer for as low as $8 a pound.

Aldi increasingly looks like a retailer built for these times. Consumers are very price conscious these days. They’re also more willing than ever to try private label products, and are also looking for smaller shopping destinations that cater to quick trips. These advantages — coupled with Aldi’s decades of experience in the U.S. — means it will be a major player in the U.S. grocery industry for years to come.