Aldi’s sales growth has been quite phenomenal and along with the likes of B&M Stores, Home Bargains, Lidl and Poundland it is sending shivers through the supermarkets and supply chain alike.
Aldi is benefiting from changing attitudes by many shoppers to procuring groceries. That it does not do promotions and like M&S is primarily dedicated private brands makes it a distinctive offer. Base pricing is strong but more important is the high quality of the products sold at an attractive cost.
For many customers Aldi’s products therefore offer a strong value proposition. The business has also been very effective in extending its appeal and reach, opening many stores in more affluent postcodes; Audi, BMWs and Mercs are not a rarity in Aldi’s car parks for the savvy shoppers.
For proprietary brand manufacturers Aldi should keep them on their toes with respect to innovation, promotions, marketing and pricing.
For the mainstream supermarkets, Aldi is asking questions about the specification and price of its offer. Again promotions in the value mix may need to be reassessed. Furthermore though we see the need for superstores to start to market their propositions much more effectively versus limited range discounters.
Aldi is a highly accomplished retailer but it is limited in range. The proprietary brand offering is modest. It does not have counters or range density; put another way, choice. Additionally, services are basic, with plastic bag charging already a feature and little help with packing.
There is also no online offer or fuel. This leads to us temper our expectations for Aldi as the novelty could wane and the low levels choice may tell. If economic recovery takes hold we could see a little momentum perhaps coming out of the underlying trading.
That said, Aldi’s trading is staggeringly strong and the sales have to slow down an awful lot before it starts losing market share.
Clive Black is an analyst at Shore Capital