In the wake of the 2008 global financial crisis, Aldi and Lidl’s sales soared as cash-strapped customers switched. With the UK now facing the worst cost-of-living crisis in 30 years, which of the discounters is best placed to benefit?

  • Aldi was named the cheapest supermarket by Which? for 2022, although Lidl was a close second
  • Having doubled market share over the past decade, Aldi and Lidl are targeting new stores in London and the South East
  • Lidl has pinned its hopes on loyalty while Aldi is increasingly innovating with click and collect and new store formats

The UK is currently in the midst of a cost-of-living crisis that only threatens to get worse before it gets better. Food inflation is at a 30-year high and could reach 5% in the spring. 

As Kantar head of retail and consumer insight Fraser McKevitt noted: “Taken over the course of a 12-month period, this rise in prices could add an extra £180 to the average household’s annual grocery bill.

“We’re now likely to see shoppers striving to keep costs down by searching for cheaper products and promotions. Supermarkets that can offer the best value stand to win the biggest slice of spend.”

This will come at the same time as a 54% spike in energy prices, pushing the annual cost to more than £1,900 per household, alongside a planned hike in National Insurance and an increase in rail fares. 

It was in similar circumstances that the German discounters Aldi and Lidl were able to really establish themselves as a force within UK grocery retailing in the wake of the financial crash. 

However, the UK grocery market is in a very different place from where it was during the 2008 global financial crisis. Its big four rivals have learned hard lessons from the past, the pandemic has more than doubled the penetration of online shopping and there is simply less space in which to open new stores. 

As a result of all of this, the discounters are no longer just competing with the other supermarkets but, increasingly, with each other. As retail’s next great price war hots up, which of the discounters is best placed to win customers’ wallets?

Price

The raison d’etre of the discounters and the key differentiator that allowed Aldi and Lidl to steal a march on the competition during the global financial crisis was price.

It is worth pointing out that both Aldi and Lidl continue to be consistently cheaper in terms of an average basket value than the big four and the other supermarkets, according to Which? 

The consumer-choice brand drew data from 2021 across the eight major supermarkets and found that Aldi narrowly beat Lidl as the cheapest grocer for an average basket shop. 

Lidl Plus

Lidl has an edge over Aldi when it comes to loyalty programmes, with the latter the only grocer without one

Aldi triumphed in six of the months of 2021, whereas Lidl won in five months, with both tied for the lowest basket in January 2021 with an average value of £18.45. 

Shopfloor Insights founder Bryan Roberts believes the difference between Aldi and Lidl on price is fairly negligible. Given the relative price similarities, Roberts thinks Lidl might have gained an edge over its rival with the launch of its Lidl Plus loyalty app. 

“I think what Lidl has done around loyalty is really interesting,” he says. “Lidl Plus is very compelling and gives customers a decent rebate. If you spend £200 a month there you get personalised offers and vouchers. 

“Aldi is the only food retailer that doesn’t have some form of loyalty scheme and, in an inflationary environment, I think loyalty is going to become increasingly important for customers”

Bryan Roberts, founder, Shopfloor Insights

“Whereas Aldi is the only food retailer that doesn’t have some form of loyalty scheme and, in an inflationary environment, I think loyalty is going to become increasingly important for customers.”

The Which? data also found that neither of the discounters is immune from the inflationary market they’re operating in. Lidl recorded the sharpest lift in prices last year, second only to Waitrose, with Aldi right behind.

 

Clive Black, head of research at Shore Capital – house broker to Morrisons and Marks & Spencer – believes in an increasingly inflationary market, Lidl is in a stronger position to capitalise than Aldi. 

“Lidl has progressed to a level that Aldi hasn’t in recent years,” he says. “Lidl’s assortment is much fresher and in tune with the consumer, such as its fresh bread and chilled propositions and its premium private label.

“Its wine range embodies premiumisation and, Lidl carries more proprietary brands.”

Aldi store and carpark

In the past decade, both Aldi and Lidl have managed to more than double their overall grocery market share

Market share

In the past decade, both Aldi and Lidl have managed to more than double their overall grocery market share, according to the Kantar data. 

This relentless growth was halted during the pandemic when customers shied away from stores during lockdown. 

However, the most recent market share data shows what McKevitt calls customers’ “increasing confidence about heading out and about” which in turn “means we’re starting to see pre-pandemic shopping patterns once again”.

In the 12 weeks to January 23, Aldi and Lidl were two of only three grocers [with the other being Ocado] to achieve year-on-year sales growth. It was also the first time since June last year that both Aldi and Lidl achieved simultaneous growth.

Lidl was the fastest growing physical retailer, increasing sales by 1.2% and boosting its market share by 0.3 percentage points to 6.2%. Aldi grew sales 1.1% and increased its market share 0.4 percentage points to 7.8%.

Black believes that “If Lidl continues to evolve at the current rate, certainly in the medium term, it’ll become the biggest discounter in the UK.” 

Geographical store spread

Both Aldi and Lidl have made no secret they see their future growth in stores. Aldi has 950 stores across the UK, while Lidl has over 880. 

Both retailers have also made recent large commitments to expand their store estates in the coming years, with Aldi pledging £1.3bn last year to help it achieve its goal of opening 1,200 stores by 2025. Lidl is targeting around 1,100 stores in the same period. 

 

Having focused their expansion primarily in the north after the last recession, both Aldi and Lidl are increasingly targeting London and the South East in their quest for what Black calls “virgin territory”.

With the search for new geographic locations, Roberts says both Aldi and Lidl have also been far more innovative with new formats. 

“In the old days, both retailers would be insistent on a new build, not near many other supermarkets. Now both are opening smaller stores in high streets, shopping centres and stores with no car parks.”  

Aldi ShopandGo 8

Aldi recently opened its first-ever cashierless store in Greenwich

While Lidl in particular is eyeing shopping centres and high streets, Roberts believes Aldi’s focus on click and collect might give it the edge in this area. 

While Aldi recently halted its foray into grocery home delivery via Deliveroo, it has expanded its click-and-collect offering to more than 200 stores across the UK. Lidl remains steadfast in its assumptions that it does not need any form of online grocery sales channels to be successful. 

“I think they’re getting increasingly good at serving different shopper missions in different locations,” Roberts says, pointing to Aldi’s recently opened cashierless store in Greenwich. “They’ve got a lot more flexibility to play around with store formats and operations.” 

Revenue and profits

Estimates by Retail Week Prospect indicate that Lidl in particular has struggled to turn a consistent profit over the past five years and that its margins have fallen off a cliff since 2017. Aldi by comparison has delivered far more consistent profits and margins over the past five years – albeit still low given its climbing sales volumes.

 

With both being privately owned businesses backed by larger international arms, Black says both of the discounters can afford to prioritise low prices over profits in the short to medium term “with a long-term view that they will be somewhere where they can make money in the future”.

 

While sales volumes remain high and are likely to increase, as can be seen in Retail Week Prospect’s forecast above, Black ultimately believes that both will be more susceptible to the other supermarkets – particularly Tesco and Sainsbury’s. 

“These price matches are really grinding,” says Black. “Both have started this year with marketing campaigns calling out the fact they sell more goods at better prices than Tesco. They have a real vulnerability there and it exposes the narrowness of their assortments.”

While Aldi is the bigger of the two discounters, it will find market share harder to win off a more price-conscious and ruthless supermarket field than in the past. In a straight shootout with its rival, Lidl may finally have the momentum to eventually overtake its rival.

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