An online offer might help Aldi lock in loyalty, but it has the potential to halt its growth trajectory and damage the business in the long term.
Aldi hopes its newly announced online shopping offer will increase its sales and lock in multichannel shoppers. But it also has potential to put a halt to its growth trajectory and damage the business in the long term.
The biggest issue Aldi will face in launching click-and-collect and home delivery services will be financial.
Compared with physical stores, online grocery sales have the extra costs of investment in the platform – £35m in Aldi’s case – plus costs of up to £60m to £80m per warehouse used for online shopping, plus the cost of logistics and a fleet of vans and staff.
These contribute to online grocers having a high breakeven cost due the erosion of already slim supermarket margins.
Aldi’s answer to this is to focus on selling cases of wine and non-food items initially (probably picked from store rather than costly dark stores).
The higher margins on these items, combined with the fact that Aldi can source direct from suppliers, make online sales feasible.
If and when Aldi broadens its online offer to grocery, its already low margins are likely to be a big barrier to entry in a market already crowded with large and established players – with Amazon Fresh also launching into the UK with extremely deep pockets.
An online offer might help Aldi to lock in loyalty in a market where large-format stores have decreased and convenience, online and discount store shops are continuing to increase.
But part of what makes Aldi interesting is the ‘treasure hunt’ aspect of the in-store experience – discovering an interesting product that wasn’t there last week and won’t be there the next.
It’s harder for online shoppers to discover new products as easily as they can in a physical store, so the Aldi treasure hunt experience would be hard to replicate online. And once that experience is eroded, an online Aldi would have to trade on price.
That cuts into operating profit, which has just declined £11m year on year in 2014, the first decrease in five years.
“It’s a close call whether Aldi has deep enough pockets, steely enough nerves and a clear enough position to succeed in online sales”
Viv Craske, Live & Breathe
Matthew Barnes, chief executive of Aldi UK, says: “The shopping habits of consumers are hard to ignore. We need to ensure we keep in step with consumers.” He adds that selling grocery and fresh food online is “not on our radar right now”.
In a market grown by Ocado and Tesco and facing disruption from Amazon, it is a close call whether Aldi has deep enough pockets, steely enough nerves and a clear enough position to succeed in online sales.
- Viv Craske, is head of digital at marketing agency Live & Breathe