Wal-Mart Stores, Inc. (NYSE:WMT) and Kroger Co (NYSE:KR) — two of the nation’s largest retailers — face a new challenge that could rattle both companies to their core. It’s a new competitor in the space that has already conquered one market, and now threatens to upend the American brick-and-mortar industry. Analysts have already expressed fear about just how much this would-be usurper could claw away from KR and WMT stock.

That threat is Lidl.

Who’d you think I was talking about?

Yes, yes. Amazon.com, Inc. (NASDAQ:AMZN) made its big splash on Friday with a nearly $14 billion deal to take over Whole Foods Market, Inc. (NASDAQ:WFM). It’s in fact a very serious threat, but anyone ignoring the potential headache that Lidl could cause is sorely underestimating just how bad things could get for Walmart and Kroger.

In fact, if you’re still long WMT or KR stock, I’d suggest you reconsider and sell now, because things are about to get even worse.

The European Front

A war is coming — a war for consumers’ dollars in the grocery aisle. Any good news is relegated to consumers, who could see a trip to the store get much cheaper in the coming years. But that will come at the expense of Walmart and Kroger, who are about to suffer even thinner margins as they fight a war not just against Amazon, but against European newcomer Lidl.

After years of conquering the European grocery market, retailer Lidl is set to plant roots in the U.S. The company was set to open 20 stores in Virginia, North Carolina and South Carolina later this year, but said last week that it plans to speed up its expansion, shooting for summer 2017 debuts.

Within a year, Lidl plans on having around 100 stores.

Lidl is the latest retailer targeting the value-oriented consumer. The store sells private-label and in-house-brand goods cheaper than the leading brands found at big-box retailers. If that sounds similar to Aldi, that’s because it is — it’s just larger.  Lidl’s average store is around 36,000 square feet and has around 23,000 square feet of selling space. This is much larger than the average Aldi store (10,000 to 15,000 square feet selling space).

As a result, Lidl offers much more non-grocery merchandise than what you find in Aldi — things such as kayaks and camping cabinets. The wider selection and selling space make Lidl more of a direct threat to WMT than Aldi, but KR sure benefit from the additional grocery competition, either.

Despite the value proposition, Lidl isn’t exactly selling junk. Lidl recently won 101 medals at the Los Angeles International Wine Competition, including 16 gold medals and five best-of-class awards. The retailer even features things such as fashion weeks, and has put an emphasis on clothing in U.S. stores, with an exclusive line featuring Heidi Klum — more of a shot at the bow of Target Corporation (NYSE:TGT).

Don’t Forget About Aldi

While Lidl is the exciting newcomer, don’t discount Aldi and its 1,600 stores across 34 states.

The retailer is investing $3.4 billion on remodels and store openings to claw additional market share in the U.S. grocery market. In fact, the company aims to reach 2,500 stores by the end of 2022 — a step up from its expansion plans of 2,000 stores by 2018. Tack on another $1.6 billion to renovate stores, and you’re talking about a $5 billion bid to become the No. 3 retailer in the U.S.

While Aldi currently has a 1.5% share of the U.S. grocery market, and Lidl none, analysts believe they could take up 7% of the market in five years.

That doesn’t sound like much, but add that to the potential advances by Amazon … then consider that Walmart leads a very fragmented market with just 22% market share.

A quick look at Lidl and Aldi’s success in Europe should be troubling for owners of WMT stock and KR stock. Similar to what it has had to do in the U.S., Walmart’s U.K. unit Asda has had to cut prices to fend off lower-cost rivals, hurting its bottom line in the process. Asda has seen seven straight quarters of sales declines.

Also keep in mind that in Germany, where Aldi and Lidl are both headquartered, Walmart threw in the towel on its German operations, selling 85 stores for a $1 billion loss after an eight year struggle.

Bottom Line on KR and WMT Stock

Walmart and Kroger aren’t without their own struggles, either.

In its most recent quarter, WMT reported sales growth of just 2.5% on a 1.4% improvement in same-store sales. Good, but far from robust, and the company also is being forced to spend billions of dollars to simply remain competitive on the e-commerce front.

Kroger is much worse off at the moment, lowering its full-year earnings guidance last week, the day before Amazon announced its Whole Foods buyout. KR stock dropped more than 25% in just two days thanks to the double whammy of bad news, and now trades near lows last seen in 2014.

The next few months are sure to be chock full of headlines detailing Amazon’s plans for Whole Foods and how that unholy partnership will tear Walmart and Kroger to shreds. But the AMZN-WFM duo represent more of an e-commerce threat that should take much longer to take root because of tech adoption.

Aldi is an established competitor and Lidl covers the exact same brick-and-mortar space where traditional consumers feel comfortable wading.

Fears that Walmart’s and Kroger’s businesses will immediately suffer because of Amazon’s latest buyout are a bit overblown and will need time to play out. But Aldi and Lidl are much more of a near-term threat to KR and WMT stock.

As of this writing, Chris Katje did not hold a position in any of the aforementioned securities. You can reach him at @chriskatje on Twitter.