EDLP vs Hi-Lo in 2026
How inflation has rewritten the pricing strategy playbook — a briefing for VPs of Pricing, Commercial Directors, and CCOs in retail.
DATAQUANT RESEARCH TEAM · RETAIL PRICING STRATEGY · 8 MIN READ
For two decades the EDLP vs Hi-Lo debate in retail pricing has been a question of brand positioning. Everyday Low Price retailers (Aldi, Lidl, Walmart, IKEA) cultivated a customer base that valued predictability over excitement. Hi-Lo retailers (most major supermarket chains, department stores, fashion retailers) cultivated a customer base that hunted for the deal, lifted volumes on promotion, and accepted higher base prices in exchange.
Both models worked when inflation was modest and customers had stable budgets. Through 2022–2025, with persistent food inflation, declining real wages, and a fundamental reshaping of household budgets, the underlying customer behaviour that supported both models has shifted. The strategic question is no longer “EDLP or Hi-Lo — which positioning?” The question is whether either model in its traditional form is still viable, and what the operating playbook looks like now.
This piece is for the VP of Pricing or Commercial Director who is being asked, often by an anxious CEO or board, “are we on the right pricing strategy for the current environment?” The honest answer in most categories is “neither pure model is right anymore.” The more useful answer is what the hybrid looks like.
What inflation actually changed about consumer behaviour
Three structural shifts have reshaped retail customer behaviour over the past three years:
Shift 1: Cross-shopping has expanded
EDLP retailers used to be a destination format — a household either shopped Aldi or did not. Through 2023–2025, cross-shopping rates rose materially. Aldi and Lidl gained material trips from households who simultaneously continued to shop a Hi-Lo banner for specific categories — fresh produce, wine, prepared meals — where they perceived a quality or assortment advantage at the Hi-Lo retailer.
The implication for Hi-Lo retailers: their customer base is no longer captive. Promotional depth that used to be sufficient to maintain trip share is now competing not just against the next Hi-Lo competitor but against the EDLP base price. The benchmark moved.
Shift 2: Promotional fatigue is real
Sustained inflation produced a customer who learned to read prices much more carefully. Promotional pricing that previously worked through habit and impulse increasingly faces a customer who calculates the discount, recognises the inflated baseline, and treats the promotion as the actual price — not as a celebratory event. Promotional lift on commodity categories has compressed across most retailers since 2022.
The implication for Hi-Lo retailers: the price-setting mechanism that depended on a high list price absorbing customer attention while a steady stream of promotions delivered actual value is breaking down. Customers anchor on the promo price; the list price loses meaning.
Shift 3: Private label crossed the quality threshold
For most categories, private-label quality has reached parity with mid-tier branded products and now competes credibly with premium-tier products in many sub-categories. The price gap between branded and private-label — historically 30–40% — has compressed to 15–25% in many categories while the perceived quality gap has narrowed faster.
The implication: brand premium is harder to defend, especially during inflationary periods when customers are explicitly comparing alternatives. Hi-Lo strategies built on driving brand-loyal trips through brand-specific promotion lose effectiveness when customers are willing to substitute private-label.
What this means strategically The pure EDLP and pure Hi-Lo models worked when customer behaviour was relatively stable. In an environment where customers are cross-shopping, calculating, and substituting, neither pure model captures customer share efficiently. The strategic question for most retailers in 2026 is what hybrid actually works in their specific category and geography. |
What the working hybrid looks like
The hybrid that has emerged as effective at major retailers has three components, applied differentially by category:
Component 1: KVI rationalisation and EDLP discipline
Key Value Items (KVIs) — the 200–400 SKUs that drive customer price perception across the basket — increasingly require EDLP-style discipline: hold a credibly competitive price every day, refresh against competitor benchmarks weekly, accept lower margin in exchange for trip-frequency value.
The discipline part matters: most Hi-Lo retailers have a notional KVI list, but their operational pricing on the KVIs drifts because the planning systems treat them like any other SKU. KVI EDLP discipline requires weekly competitive benchmarking, automated price-corrections, and explicit margin-floor discipline.
Component 2: Promotional concentration on incremental categories
Promotional spend should concentrate on categories where promotion produces genuine incremental volume — typically categories with high impulse, occasion-driven demand, or strong brand-loyalty patterns where competitor switching costs are low. Categories where promotional lift is mostly forward-buying (basic groceries, household staples) should shift toward EDLP pricing.
This is a portfolio decision. Most Hi-Lo retailers run promotions across all categories at similar intensity. The shift is to concentrate promotional spend where it produces genuine incrementality and to retire promotions on categories where it does not.
Component 3: Premium-tier protection through differentiated experience
For premium-tier products competing against improving private-label, price-led promotion is decreasingly effective. The defensible position is differentiated experience — freshness, assortment, in-store quality cues, service — supported by selective rather than blanket promotion. The promotional spend that was previously distributed across the premium tier is more productively concentrated on the experience drivers that make customers willing to pay the price gap.
What this looks like in practice
A €1.4B grocery retailer we worked with had been running a traditional Hi-Lo model. Their KVI prices drifted weekly because the pricing system treated them no differently from long-tail SKUs. Promotional spend was distributed roughly evenly across categories. Private-label gap to brand was 28% nominal, but the perception gap was widening as private label improved.
A 14-week pricing strategy redesign produced three structural changes: a 380-SKU KVI list with EDLP discipline (weekly competitive monitoring, automated correction, explicit 22% margin floor); a promo portfolio rebalance that concentrated 65% of promo spend on the 35% of categories where promo produced verified incremental margin; and a premium-tier reposition that pulled promotional spend from premium dairy, bakery, and prepared meals and reinvested it in fresh-format quality cues.
After 12 months: trip frequency rose 6%, basket margin held at 0.4 points above prior year despite the KVI margin floor sacrifice, and private-label penetration within the premium tier declined for the first time in three years — the experience reposition was holding the price premium for branded SKUs in those categories.
Pitfalls
- Treating KVI selection as a one-time exercise. The 200–400 SKUs that drive customer price perception change with the seasons, with macroeconomic conditions, and with competitor moves. KVI lists need quarterly refresh against price-perception research, not annual.
- Underestimating the operational discipline of KVI EDLP. EDLP discipline on KVIs requires weekly competitive scraping, automated price corrections within hours, and a margin-floor decision that the commercial team is willing to defend even when category trade-spend pressure pushes for a temporary discount. Most retailers fail not in defining the policy but in operationalising it.
- Promotional rebalancing without measurement infrastructure. Concentrating promo spend on incremental categories requires a measurement system that can identify which categories actually produce incremental volume. Without that infrastructure, the rebalancing becomes guess-work and the team reverts to the prior allocation within two cycles.
Closing thought
The EDLP-vs-Hi-Lo question was always less a binary choice than a positioning shorthand. What has changed in 2026 is that the customer behaviour that made each pure model coherent has shifted, and the working strategy is structurally a hybrid — EDLP discipline on a defined KVI subset, concentrated promotion on genuinely incremental categories, and premium protection through experience rather than price. Retailers that maintain pure models in 2026 are increasingly out of step with the customer behaviour they are pricing against. Retailers that build the hybrid have a strategic advantage that compounds over the next 2–3 years.