More than 300 people queued outside Aldi’s 1,000th UK store on Thursday – and their determination to be the first to walk through the door of the discount store in the affluent Surrey town of Woking proved The popularity of the chain.
The German group overtook Morrisons last year to become the UK’s fourth-largest grocer by market share, according to Kantar data, as sales boomed during a period of austerity in living costs. Today, £1 in every 10 pounds spent on groceries is at Aldi, and the retailer plans to open a further 500 stores.
It’s also been a noteworthy week for rival Lidl, another German group which has opened its largest ever warehouse in Luton, Bedfordshire. The £300m facility will support its growth ambitions, despite reports earlier this year that growth was slowing.
But after two decades of aggressive expansion, the two chains jointly control 17.9% of the total UK grocery market and some believe they have reached saturation, even as the ongoing cost of living crisis is driving their growth. point.
Analysts point out how they rely on a single selling point – being cheaper than rivals, or so it is perceived to be – and have a more limited online presence than rivals and are competing for good brick-and-mortar stores.
“Clearly there are fewer sites available now and most sites are also attractive to quite a few other operators,” said Ben Green of Atrato, adviser to real estate investment trust Supermarket Income REIT. ” Interestingly, Aldi could often end up competing with M&S for a site.”
Green believes their market share will stabilize at around 20%. “It’s very difficult for them to grow because they only have one customer proposition: quality value,” he said.
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Shore Capital’s Clive Black added: “I do think that, despite the rhetoric from Aldi and Lidl, we are past our peak.” The 500-store plan was described as “ambitious…”. . . It’s a totemic statement of ‘We’re not leaving’. ”
Not everyone is so pessimistic. Bryan Roberts, global head of insights at grocery analytics group IGD, said rival supermarkets had long believed Aldi and Lidl could reach 25% to 30% market share — — the size of Tesco, and their ambitions shouldn’t go unnoticed. Underrated.
“The fact that they are less dogmatic about their real estate requirements really unlocks their potential,” he said.
The couple used to favor rectangular sites on busy junctions or close to existing shops, but now they are opening slightly larger shops in more retail parks.
Although Aldi and Lidl are more flexible in building stores, they have not strayed away from the ultra-efficient business model that has contributed to their success since opening stores in the UK in the 1990s.
Their stores are much smaller than traditional supermarkets, have a limited range of products – around 2,000 compared to Tesco’s tens of thousands – and have fewer staff. The shelves are specifically designed to fit cardboard boxes filled with produce, making restocking more efficient than placing items on the shelves one by one. To combat high energy bills, they installed large so-called cooler doors on most refrigerators.
Lower operating costs and selling mostly own-brand products (90% in Aldi’s case) means they can beat the incumbents on price because they have the scale needed to negotiate better deals with suppliers. Aldi is selling Heinz brand baked beans for 22.6p per 100g, compared with its own price of 11p.
The two German discounters made significant inroads during the last recession, when Aldi or Lidl became culturally accepted. Lidl’s so-called ‘Bordeaux Wine Offensive’, which sells a range of premium Bordeaux wines and lobster for £5, as well as a middle-aisle offering of eclectic lifestyle, homeware and DIY bargains, has seen them attract more discerning buyers family attention. They responded by opening hundreds more stores, often in more affluent areas.
Tightening living costs have given them another boost, with more shoppers shopping at discount stores for a wider range of goods.
Kantar data shows that Aldi’s sales are growing the fastest among supermarkets, with a year-on-year increase of 21% in August, while Lidl’s sales increased by nearly 20% in the same period. Upmarket rival Waitrose saw sales rise by 4.4%, while Tesco and Sainsbury’s saw sales rise by 9.5% and 9.3% respectively.
However, once consumer confidence improves, wealthier shoppers are generally expected to upgrade again, as has been the case in previous downturns.
Further growth could also lead to more competition between Aldi and Lidl, as well as between their own stores. Aldi UK and Ireland chief executive Giles Hurley is aware of this, but ultimately unfazed. “I hope we can cannibalize ourselves in some areas . . . because our stores are over-traded,” he told the Financial Times.
Going private also allows Aldi and Lidl to be shielded from prying eyes and not be held to ransom by shareholders if sales or profit expectations are not met.
Hurley sees this as “an absolutely huge advantage for our business.” “That means we can make very long-term decisions, even if the road is bumpy.”
Its latest results show that its UK operating profit fell 79% to 60 million pounds in 2021, with sales of 13.6 billion pounds. Its operating profit margin was 0.4%, while Tesco’s adjusted operating profit margin in the same year was 4.6% %.
Lidl’s EBIT rose 80% to £79 million in the year to February 2022, on sales of £7.8 billion.
Aldi had previously aimed to open 1,200 stores by 2025, but has now revised its target and hopes to open 1,500 stores in the long term. Hurley said that while there was no longer a deadline for new openings, he was confident that suitable sites could be found – although he acknowledged that London, a key growth area, was a bigger problem.
Reaching the 1,000th store mark also took longer than initially expected: In 2018, Hurley said the grocer would “smash” its goal of opening 1,000 stores by 2022.
Lidl has opened nearly 20 stores this year, not far from Aldi’s milestone in Surrey, which has more than 960 stores. The goal is to open 1,100 stores by 2021 and by the end of 2025. Its German parent has pumped in more money, pushing the British chain’s sales to more than £400 million this year, according to recent filings with Companies House.
“There are no limits to our expansion plans and we see the potential to open hundreds of new stores across the UK,” Lidl UK chief executive Ryan McDonnell said.
He added: “As we continue to grow and invest in our infrastructure, we are more committed than ever to ensuring every home has access to a Lidl store.”
“They’ve been talking about 1,000 stores for a long time,” said one supermarket executive. “If you say your store opening rate is about 20 stores a year, then the next 500 stores is 25 years.”
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