Aldi’s relentless assault on British grocery passed a new milestone today when it toppled the Co-op to become the country’s fifth-largest food retailer.
The discounter’s emergence as a force in UK grocery proved a slow-burn when it landed on British soil in 1990, but it has grown exponentially since the recession, enticing a new breed of value-hungry, promiscuous shoppers through its doors.
As this morning’s latest Kantar Worldpanel data cemented, Aldi – alongside its German grocery rival Lidl – has become ingrained in British grocery shopping habits by maintaining focus on a simple but effective strategy, driven by rock-bottom prices.
As Aldi’s UK boss Matthew Barnes tells Retail Week: “In these economically uncertain times, customers want certainty that the prices they pay for their groceries are the lowest in Britain and that they don’t need to compromise on product quality.
“We guarantee that’s always the case at Aldi and it’s driving our continued expansion.”
But while price is its key attraction to consumers and the rapid expansion of its store footprint has admittedly boosted revenues, attributing Aldi’s success purely to those two factors is to do it a disservice.
“Since early 2014, the size of Aldi’s store network has increased by over a third, but its market share increased by over 50% during that period.
“That underlines that like-for-like sales at existing stores have also played a huge part,” head of research at Retail Week Prospect, Philip Wiggenraad, points out.
Wiggenraad and Grocery Insight director Steve Dresser highlight a number of factors that have allowed Aldi to achieve such notable same-store sales growth, including its quality perception, strong marketing and expanded premium ranges.
“Aldi has conditioned the customer towards everyday low prices. Aldi’s competitors in the market have reduced promotions, mainly because Aldi are purely EDLP and have stuck to that model,” Dresser says.
“They have also shifted perceptions around quality. Their own-label stuff has almost become branded because they’ve been a bit naughty and played on loopholes in some respects by mimicking things like Ambrosia rice pudding, for example.
“Aldi has widened its product range and extended its premium lines, which have made it more accessible to the middle classes.”
Philip Wiggenraad, Retail Week Propsect
“Their marketing around that has been powerful, too. It might only be up for a few weeks, but even if they are forced to take it down by the ASA, it works with the customer and the message is still out there.”
Wiggenraad adds: “The other key things Aldi has done is widen its product range and extend its premium lines, which have made it more accessible to the middle classes.
“It has also benefited from the trend of time-pressed shoppers doing smaller top-up shops across a number of different retailers, allowing it to take a bigger share of the average consumer’s basket.”
Aldi’s unwavering efficiency drive has also reaped rewards.
Stocking just one variety of tomato ketchup, for example, allows it to purchase huge quantities in bulk and save on overheads such as transport costs.
Around 90% of its SKUs are own-label and cheaper to source, while Aldi claims having barcodes that wrap around its products make them easier for staff to scan, making the checkout process up to 40% quicker than its competitors.
The growth of Aldi’s British Empire
1990 Aldi makes its UK debut, opening its first store in Birmingham
1995 The discounter opens its 100th store in Britain
1999 Aldi reaches another stores landmark, launching its 200th UK shop
2004 Aldi’s annual sales in the UK and Ireland pass £1bn for the first time
2010 The retailer continues to gain traction amid the economic downturn, as sales pass £2bn
2011 Aldi’s UK grocery market share reaches 3%
2012 The grocer’s UK and Ireland revenues pass £3bn as its growth accelerates
2013 Having taken 20 years to reach £1bn in annual sales in the UK, Aldi takes just nine to increase that figure to £5bn
2015 Aldi’s market share reaches 5% as sales hit a record £7.7bn
2016 Not content with its bricks-and-mortar presence, Aldi launches online, selling wine and non-food special buys
2017 Aldi leapfrogs the Co-op to become the UK’s fifth-largest supermarket, with a market share of 6.2%
Next stop: the big four?
With such values at the core of Aldi’s successful strategy, should Britain’s fourth-largest grocer Morrisons now be looking nervously over its shoulder at its rampant rival?
The Bradford-based business is in the midst of a resurgence under David Potts, increasing sales 1.9% in the 12 weeks to January 29 as its market share inched up to 10.9%.
Aldi remains some way adrift at 6.2%, but has been slowly closing that gap over the past decade.
“To catch Morrisons, Aldi would have to double in size in terms of sales. That’s not very likely in the short to medium term,” Wiggenraad states.
“Its average growth rate over the past five years has been 25% per year. Even if they keep up that pace, it would take another four years for it to catch Morrisons.
“But what we’ve seen over the past two years is that its growth rate has basically halved. At some point cannibalisation from new stores may also become a factor.
“The interesting question is whether there will be a time when we start talking about the big five, but that could be a while off.”
Dresser agrees, suggesting that both Aldi and Lidl are closing in on their “saturation point” in the UK.
“You can’t grow infinitely in the UK, so I don’t think they will ever break into that big four,” he predicts.
“They will get to a point, then the wider group will dictate that they go elsewhere to expand in another market where it’s easier to do so.”
But in order to continue their growth and reach that point, Dresser thinks Barnes and his executive team may need to reassess their strategy.
“Aldi, for me, are still trying to appeal to everyone,” Dresser suggests, citing its growth into four different types of baby shampoo as one way it is leaving behind the hard discount model and becoming a “mini supermarket”.
“Can Aldi row back from being almost a mini supermarket and go back to that hard discount model?”
Steve Dresser, Grocery Insight
“With a discount model, I don’t think you can justify that,” he adds.
“In premium as well, you have to look at logical range extension in things that are seen as a nice treat.
“Yes, its share of the premium market has grown, but its range has grown astronomically. That level of complexity goes against their operating model.
“That’s the concern – can they row back from being almost a mini supermarket and go back to that hard discount model?”
With food price inflation seemingly just around the corner, if Aldi can rediscover those hard discount roots and woo even more shoppers, perhaps the big four could one day become the big five after all.