The relentless rise of Aldi over recent years has been one of grocery retail’s enduring success stories. The value giant, like rival Lidl, ate into the market share of mainstream grocers as consumers gorged on its low prices and tightly curated range.
Since 2018, Aldi has overtaken Waitrose and the Co-op to become the fifth-largest grocer in the UK, behind only the big four.
But the latest Kantar food retail data showed a reversal of fortunes that could never have been envisaged just a few months ago. Not only did Aldi’s sales growth lag behind that of some of its ‘establishment’ competitors, but it also lost market share.
Aldi’s revenues advanced 10.4% in the 12 weeks to May 17 – behind the gains of more than 12% achieved by Tesco, Sainsbury’s and Waitrose. Its market share edged down to 7.7% from 8% a year earlier. Just a couple of months ago, Kantar recorded sales growth at Aldi of 11%.
The slowdown reflected changes to food shopping habits precipitated by the coronavirus pandemic. There has been higher online spending and the return of the big weekly shop since the pandemic struck.
Similarly, lockdown played to the strengths of c-store groups with their networks of neighbourhood stores. That was exemplified by the Co-op’s sales surge that took its share to 7%, levels last achieved in 2011, and the 2.5% share accounted for by indies and symbol groups – a proportion last seen in 2009.
The importance of convenience was perhaps further highlighted by Tesco and Sainsbury’s strong sales performance, in contrast to more subdued sales growth of 6.5% at Asda, which has no convenience firepower.
To such pressures on the discounters, broker Jefferies added the “shift towards scratch cooking” and “reducing support from new space openings” – the latter described as “a headwind that is bound to accelerate in the coming months”.
Nielsen data for a four-week period painted a similar sales picture to Kantar’s. Broker Shore Capital noted that Aldi and Lidl might have been expected to show “positive sales momentum, not least because they have new and immature space, unlike the superstores, but also pretty good proximity to neighbourhoods”.
However, Shore observed: “Whilst so, such stores may be caught between the issues of limited range, few proprietary brands (global brands tend to perform well in challenging socioeconomic times), small car parks, tight checkouts and no online capabilities. As such, market share growth has notably slowed down.”
Inherent strengths
The question is to what extent Aldi’s comparatively lacklustre showing is likely to be a short- or long-term phenomenon.
It comes as Tesco, following its turnaround under Dave Lewis – including the launch of its ‘Exclusively at Tesco’ stable of value brands – increasingly takes the fight to Aldi. In March, for instance, Tesco unveiled an Aldi price-matching programme on hundreds of core grocery lines. Price-match products are prominently flagged in store and ’called out’ online.
Shore Capital analyst Clive Black issued a note earlier this week following a call with Tesco management, in which he wrote: “We see the Aldi Price Match as an important indicator of how the industry at large has worked on price in recent years, particularly lines that matter, whereby the differential with the German discount chains has been materially eroded so allowing choice, service, ease and pleasantness around the shopping experience to come through.”
During the lockdown, the big grocers have also upped the ante online. In its preliminary results at the end of April, Sainsbury’s, for instance, said it had increased the total weekly number of online slots available by 50% and was targeting the delivery of 600,000 slots per week. Morrisons has built its home shopping operations further through a partnership with Deliveroo and extending its tie-up with Amazon.
Despite the strong performances by some of those established players, Aldi’s latest Kantar performance should not lead competitors to underestimate its inherent strengths, nor indeed those of its discount rival Lidl.
“People’s thoughts are likely to turn towards value rather than shopping logistics as many tighten their belts in the months to come, with Aldi and Lidl well placed to capitalise”
Fraser McKevitt, Kantar
Kantar head of retail and consumer insight Fraser McKevitt says: “Aldi and Lidl’s focus on value and simplicity of offer has served them well over the past decade and, while the very recent shift in how we live and shop has not helped either discounter, this reputation for price and quality is likely to bear fruit as lockdown eases.”
He says although there were fewer shopping visits to Aldi and Lidl, this was offset by “record basket sizes” – customers spent an average of 20% more each time they visited.
Aldi has also enhanced its online proposition, teaming up with Deliveroo to offer home delivery – though the scale of that operation pales in comparison to the big grocers – and sharpening store operations to better manage the need for social distancing with, for example, the introduction of a traffic-light system for customers.
There is one big shadow hanging over the consumer, which may play to Aldi’s advantage – the threat of redundancies and recession in the aftermath of the pandemic. It was in the years following the 2008 financial crisis that Aldi and Lidl powered ahead in the UK after struggling for years to make inroads.
McKevitt says: “People’s thoughts are likely to turn towards value rather than shopping logistics as many tighten their belts in the months to come, with Aldi and Lidl well placed to capitalise.”
Aldi may have had a setback, but its grocery rivals would be well advised to assume it was a blip rather than a trend.
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