Another Record Year For Aldi But Profits Hit By Price War; To Spend £300m Revamping Stores

Aldi has posted another year of record sales for operations in the UK & Ireland and pledged to invest £300m in store revamps to keep up the pressure on its rivals.

In the year to 31 December 2015, the discounter’s sales increased by 11.8% to £7.7bn, double their level three years ago following a relentless store opening programme. However, operating profits slipped 1.8% to £255.6m as it cut prices to maintain its competitiveness.

Aldi attracted 761,000 new customers last year, helping its market share grow to a record 6.2%. It said its strongest-performing categories included its premium tier of ‘Specially Selected’ products, which enjoyed a sales increase of 20% in 2015.

Meanwhile, Aldi outlined plans to spend £300m over the next three years refreshing its existing stores. The money will be spent improving its BWS, fresh produce and baby & toddler categories, as well as placing greater emphasis on food-to-go with each store also benefiting from an increase in chilled space. Other improvements include new in-store colours to signpost categories, signage focusing on quality, range and provenance, and product-specific lighting. It is expected that over 100 stores will be refurbished in 2017 with elements already being introduced into new stores this year.

Aldi also plans to open 70 new stores in the UK next year as part of its target of reaching 1,000 by 2022, up from the current 659. It operates 126 stores in Ireland.

Aldi stressed that its future capital expenditure plans would be unaffected by the Brexit vote with it redeveloping its UK head office in Atherstone, Warwickshire, and spending heavily to improve and grow its distribution network. Aldi also said it was continuing to source more products from British suppliers with locally made products accounting for 77% of total sales last year, up from 69% in 2014.

With the supermarket multiples trying to regain ground lost to discounters by making their offer more competitive, Chief Executive Matthew Barnes stressed that the continuing strength of its balance sheet Aldi meant it would continue to invest its margin in order to maintain a “significant price advantage” over rivals.

He added: “Regardless of what competitors may say or do, our price advantage will be maintained and our customers will always pay the lowest grocery prices in the UK.”

NAM Implications:
  • Where at: Aldi –and Lidl – continue to grow at the expense of the mults and brands
  • Where headed: Their 77% – and growing – of sales sourced locally means they will be less affected by Brexit-induced rises in import costs. Also their reduced margin of 3.3% is still better that most mults, leaving more scope for further price-cuts
  • How it affects you: Gradual dilution of brand equity – flatline demand, falling market shares of the mults – unless ways are found to optimise brands in the discounter channel
  • Action: Think through potential for single SKUs – even previous generation packaging – of key brands in Aldi/Lidl..?