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In Germany, a reduction in VAT leads to an unseen price war, with rivals Aldi and Lidl using comparative advertising to claim price leadership.
Price comparisons
In order to boost consumption, the German government has decided to temporarily reduce VAT rates: the standard rate decreases from 19% to 16% and the reduced VAT rate for food from 7% to 5%. The reduction applies from 1 July until the end of the year, and is part of a broader economic stimulus package. However, there is an unintended side effect: food retailers – and especially hard discounters – seize these measures to start a new price war.
Lidl cut prices in all stores early on 22 June: red price tags convey the message “Preis gesenkt! (Price reduced!). This immediately led to a reaction from Aldi: the discounter has lowered all prices by 3% and on top of that gives an extra discount of 1% for many food products. Both retailers publish price comparisons to prove that they are the cheapest. Lidl claims to be about 11 euros cheaper than the big rival with a shopping basket of about 70 items. Aldi Süd, however, says in another comparison to be about 9 euros cheaper than its competitors.
Catching up
Nice detail: Aldi has been calling itself ‘der Erfinder von günstig’ (‘the inventor of cheap’) in advertisements for some time now, while Lidl now profiles itself as ‘der Erfinder von beste Qualität und günstig’ (‘the inventor of best quality and cheap’). It is clearly a frontal confrontation…
There is a reason why both discounters are at the forefront of a price war: during the lockdown, they benefited less than the big supermarket chains from the change in purchasing behaviour, with consumers buying more fresh food. According to GfK, sales at supermarket chains such as Edeka and Rewe increased by 26% in April, while discounters such as Aldi and Lidl recorded an increase of “only” 20%. The discounters are now attacking mainstream supermarkets to catch up, thinks Lebensmittel Zeitung. The VAT reduction offers them a spectacular opportunity to strengthen their own price image.
