Having just dethroned Morrisons as the fourth-largest grocer in the UK, Aldi is gunning for further growth despite a slump in profits. The discounter’s boss Giles Hurley discusses the key issues facing the business – and how it is planning to take further share in a fiercely competitive market.

Aldi header

This year more than 1.5 million customers have switched to shopping with Aldi

Aldi’s 2021 financial year paints a mixed picture for the discounter.

On the one hand, it is a business very much in the ascent – customer numbers are surging and its market share has reached record levels. On the flip side, however, operating and pre-tax profits were slashed, while sales inched up by less than a percentage point. 

Aldi’s UK and Ireland chief executive Giles Hurley is keen to emphasise that the business remains firmly focused on the present and the cost-of-living crisis affecting millions of households across the country. 

“It’s at times like these when our customers rely on us most, which is why we’re focusing on continuing to deliver our long-standing price promises by offering the lowest possible prices in Britain every day,” says Hurley. 

“In this new reality, value has replaced convenience as the number one consideration for customers when choosing where to shop, and this change in shopping habits has led to a major shift away from the traditional, full-price supermarkets.”

Having already invested millions in keeping prices low in the face of rampant inflation, just how low can the discounter go before even its pips start to squeak? And what effect might that have on how Aldi trades through the rest of the year and beyond?

Pricing cornerstone

Giles hurley index

Hurley says Aldi’s pricing is the ‘cornerstone of our business’

Hurley describes Aldi’s pricing as the “cornerstone of our business” and says its pledge to be the cheapest grocer in the UK is “our contract with our customers” – a contract he insists is “unbreakable” even in the current inflationary climate. 

That positioning in the market is as important as ever for the retailer at a time when the economy is in freefall and customers are flying to value in a way not seen since the late 2000s, during the global financial crash.

This year alone, more than 1.5 million customers have switched to shopping with Aldi. 

Yet, its 2021 financial results show that this relentless investment in price is hurting profit margins. Pre-tax profit, on sales of £13.6bn, plummeted 86.5% to £35.7m, while operating profits slumped 79% to £60.2m. 

Aldi UK and Ireland is a huge business of its own accord, but also it’s part of a much bigger beast – one of the largest food retailers in the world.

Although the Aldi group is well-placed to invest in price and withstand margin erosion at the expense of sales and market share growth, at what point will something have to give? 

“We’re a British-based business, with a British management team making decisions for our British customers”

Giles Hurley, Aldi chief executive

Hurley refuses to be drawn on whether Aldi would operate deliberately at a loss to defend its position as the price leader in UK grocery, but insists: “We’ll do whatever it takes, no matter what. That’s one guarantee I can always give our customers: we will always have the lowest prices in the UK.”

Aldi’s margins were already being squeezed coming out of the Covid crisis, but inflation, absorbing cost increases and raising staff pay have left its current operating margin at just 0.4%. How long will the ownership in Essen, Germany, continue to tolerate such wafer-thin margins? 

“We’re a British-based business, with a British management team making decisions for our British customers. So our vision is unchanged,” Hurley insists.

Hurley clearly feels he has carte blanche to push as hard as he can on price. With seemingly no floor on where Aldi can drive price, that could create more than a few headaches for its mainstream rivals heading into the crucial Christmas trading period.  

Fluid festivities

Aldi Christmas Advert Image

Hurley says he is ‘very confident that the public will celebrate this Christmas’

As the calendar prepares to turn into October, Hurley believes we are on the cusp of the most “fluid” golden quarter retail has ever experienced.

The traditional festive period is clouded in uncertainty over how consumers will spend amid a cost-of-living crisis, while the first-ever winter football World Cup represents a totally unknown entity. 

“If one of the home nations performs that could make for a really interesting celebration,” says Hurley. “I think our commitment to British customers is that, no matter what the future holds, they’ll always get the lowest prices at Aldi, and this Christmas that’ll certainly be true.”

Despite signs of shoppers tightening their purse strings and consumer confidence at a record low, Hurley says he is “very confident that the public will celebrate this Christmas”. 

“Aldi now boasts the largest average basket size in the sector”

With an eye on capturing further market share during that crucial trading period, Hurley says that Aldi has been investing more in its own-label food offer to entice customers.

“Since the start of the year branded grocery sales have fallen 11%, while own-brand sales now account for more than half of total grocery sales,” he explains. 

“For a business like Aldi, where over 90% of our sales come from exclusive brands, we’re seeing group growth in every category and across every tier.” 

Hurley suggests that Aldi now boasts the largest average basket size in the sector – at 20 items per visit – while sales grew 18.7% in the 12 weeks to September 4, according to the latest Kantar data.

He believes Aldi’s new festive ranges, combined with tightening budgets during a cost-of-living crisis, leave the discounter well-placed to capitalise, no matter how consumers choose to celebrate. 

Noisy neighbours

Aldi Super 6

Own-brand sales now account for more than half of total grocery sales

Aldi’s financial update came less than two weeks after the discounter officially leapfrogged Morrisons in Kantar’s grocery market share league table to become the UK’s fourth largest grocery retailer.

While Aldi may have battered down the traditional big four’s door, Hurley insists its traditional rivals Tesco, Asda, Sainsbury’s and Morrisons represent a “club we’ll never be part of”.

Describing them as a collective with “big shop floors, big brands and, frankly, big prices” may sound like a campaign slogan, but it also shows that Hurley and Aldi feel more emboldened than ever by the financial climate to go on the attack.

Not only is Aldi wrestling market share from the big four supermarkets, it is also starting to woo some away from discount rival Lidl, too.

Aldi customers

Aldi is starting to woo some customers away from rival Lidl

“I think shoppers are making the decision to visit us from all the more expensive supermarkets and discounters because of two things: the absolute commitment on the price and the second thing is that razor focus on quality,” Hurley boasts. 

Aldi is also expanding its physical stores network at a faster rate than Lidl or any of the big four. 

Hurley says the discounter will open a further 16 new stores before Christmas and is on track to open its 1,000th store at some point in 2023 – a milestone it had previously hoped to reach this year. 

“We’ve targeted 1,200 stores by 2025. No other supermarket has the ambition and will to expand their business like us right now,” says Hurley.

Shiny stores and new Christmas ranges are all well and good, but ultimately Aldi’s strategy lives or dies on offering the lowest price in the market.

As the pound tumbles to its lowest point against the dollar in living memory and consumers scrutinise their budgets and spending like never before, Aldi’s “unbreakable contract” on price must be as watertight as ever if it is to consolidate its newfound position in UK grocery’s elite. 

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