Aldi’s bosses are undaunted by the prospect of a grocery price war and have insisted the German discounter will “not be beaten on price”.
Aldi joint group managing directors Matthew Barnes and Roman Heini told Retail Week they would not be drawn into employing gimmicks to attract shoppers in the competitive trading environment.
In an exclusive joint statement to Retail Week they said: “Aldi attracts shoppers through a policy of simple, everyday low pricing. This means customers make savings on the products they typically buy each week and these savings can be made all year round rather than through gimmicks and misleading price promotions. We will not be beaten on price.”
The robust stance comes as the wider grocery sector creaks under the pressure of the German discounters, Aldi and Lidl. Morrisons, Tesco and Asda have launched price offences to fight off the intense competition from the discounters, and some observers fear a full-blown price war could result.
Leading grocery observer Shore Capital analyst Clive Black this week downgraded Tesco to Sell for the first time since 1996, and warned that the sector is almost “uninvestable” as profitability evaporates amid price-cutting and miserable volumes.
Sainsbury’s first fall in like-for-like sales for nine years, on top of Morrisons’ profit slashing last week, has led to brokers downgrading grocers. In less than a week, the three big quoted grocers have had £2.8bn wiped off their value amid fears of a price war.
Black said there is “very little visibility with respect to the financial outcome of the UK supermarkets”. Moody’s has also downgraded Morrisons.
Barnes and Heini said price is not the only reason why shoppers are increasingly choosing Aldi, and that the quality of its products are gaining traction with shoppers across the demographic spectrum.
“Aldi’s outstanding quality and leading value is going from strength to strength,” they said. “Because of this, the demographic of our customer has expanded, as positive word of mouth spreads and more people start to experience Aldi and its award-winning products. They understand why we keep taking home industry and consumer accolades.”
Last week Aldi took home the Retailer of the Year gong at the Oracle Retail Week Awards, along with the International Retailer of the Year prize.
Barnes and Heini said: “We’re pleased that more people than ever are discovering Aldi and are delighted by what they find.
“Our growth is due to more and more shoppers choosing Aldi for their main weekly shop. People want to, rather than need to, shop at Aldi, and it’s down to our exceptional quality, award-winning products, relevance to consumers across the UK and everyday low pricing.
“More than 40% of Aldi’s products are British and that number is growing every day. This has helped convert top-up shoppers into main weekly shoppers at Aldi. We are confident that our fresh products are among the best in the UK.”
When he unveiled Morrisons’ full-year figures, chief executive Dalton Philips said the rise of the discounters marks a key structural shift in the market.
“This is an issue which is affecting us and all the traditional grocery players,” he said. “Consumers have started to shop the discounters in the same way they would a traditional supermarket.”
He acknowledged: “Price is not the only determinant of store choice, but it is the most important factor.”
Morrisons’ £1bn price investment over the next three years, on top of Tesco’s pledge last month to invest £200m in lowering prices on basics such as eggs, milk and bread, has rattled the City. Unquoted grocer Asda also plans to invest £300m in price this year.
But departing Sainsbury’s chief Justin King dismissed the price investment “headline figures” his rivals have revealed. “What’s happened so far is just the usual cut and thrust of the sector,” he argued.
King, speaking as the grocer reported a 3.1% fall in like-for-likes in its fourth quarter, said he was not blasé about further price investment from rivals but added “we are well equipped if it does get worse”.
Black added that following Morrisons – which last week reported pre-tax losses of £176m and unveiled a restructuring plan to fight back against the hard discounters Aldi and Lidl – he had concerns about “the robustness of industry gross margins”. He feared that it would be “some time before we can call the end to the cycle of downgrades”.
HSBC Global Research analyst Dave McCarthy said: “This sector is in structural decline, with no end in sight.”
Tesco and Sainsbury’s have both argued that price is not the only factor in the fight for customer spend. The former is banking on its long-term digital transformation and the latter is confident the provenance of its food makes it stand out.