Aldi chiefs celebrate record UK profits haul
29 September 2014 -
As Tesco licks its wounds, Aldi keeps the supermarket price war alive by announcing a 65% increase in UK earnings
Aldi bosses have announced record financial results, as the discount retailer continues to pose a clear and present threat to the UK’s major supermarkets. The German-owned chain’s UK turnover for 2013 hit an all-time high of £5.2 billion – well up on the previous year’s £3.89bn – while its group operating profit jumped by more than 50%. Moreover, Aldi UK’s pre-tax profit rose 65% to £260.9m in the year up to 31 December, with sales from UK stores that had been open for at least a year up by 30%.
Just one week on from Tesco’s overstated-profits scandal – in which senior managers were suspended and an investigation was opened into claims the chain overcooked its earnings by £250m – Aldi’s smooth ascendancy will strike fear into the hearts of competitors across the sector.
The budget supermarket’s success is largely down to how it has managed its space, facilities, customer service and product lines with incredible detail to maximise efficiency. For example, if the queue of customers waiting at any given checkout reaches a certain level, a new checkout aisle is formed automatically to prevent long waiting times. Aldi – together with fellow German supermarket Lidl – have cornered the market on providing everyday items for a much lower price than rivals and, with consumers signalling an apparently determined change in their behaviour, veering away from more expensive brands, traditional supermarkets such as Sainsbury’s and Asda have been hit hard.
Aldi, which has been operating in the UK for more than 20 years, says that it is finally witnessing the fruition of its long-term plan to leverage efficiencies and operational costs – such as shelf-ready packaging – to create lower checkout prices rather than boost profits. Group managing director Roman Heidi said: “We keep prices constantly low while keeping product quality consistently high, which is exactly what shoppers want. They had become used to thinking you have to pay more for better products. We've shown them this doesn't have to be the case.”
Heidi added that Aldi’s business model – based around approximately 2,500 products – is less than a tenth of the range sold in the average British supermarket, meaning that the major chains would never be able to match its prices. With hopes of opening 54 new UK stores by the end of 2014 and 65 in the course of 2015, the retailer is eventually hoping to become recognised as one of Britain’s premier shopping stores – with a projected 1,000 shops by 2021.
UK joint managing director Matthew Barnes said that attempts by Tesco and Morrisons to cut their prices to compete with Aldi have only served to help the chain, as it has only encouraged shoppers to prize the price of their goods over brand names. “Whatever our competitors plan to do,” he told the Telegraph, “we know exactly what our response will be and our competitors do as well. We will not let them compete on price. We will not let them close the gap.”
Aldi says that using the upcoming festive period to attract more customers is key to jump-starting its expansion plans. In addition to more marketing and fresh foods, Aldi will offer nearly a third more premium products this Christmas than last year – including caviar. That will support its strategy of gaining a significant market share among young families, and to tempt shoppers from the A and B socio-economic groups.
Identifying Aldi’s target consumers as either loyal Aldi customers, lapsed “big four” customers or outright rejecters of big-scale retail, Barnes argued that shoppers have been wary of the major supermarkets’ claims that they offer value: “Customers have become so much more sceptical since the recession about the grocery market in terms of value, transparency, and special offers. They have been bamboozled by price reducing from a very high level to a low level, and yet that low level is still more expensive than Aldi.”
Barnes added: “I think that has enabled us to stand out as a bit of a shining light in all of that. You can call us a consumer champion in that respect.”
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Image of Aldi sign courtesy of JuliusKielaitis / Shutterstock.
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