Aldi UK prioritises prices over profits

Key figures from Aldi UK’s 2021 annual trading update

• Sales: £13.645bn from £13.531bn (+0.9%)

• Operating profit: £60.2m from £287.7m (-79%)

• Pre-tax profit: £35.7m from £264.8m (-86.5%)

• Customers: 14.2m from 12.7m (+1.5m)

Aldi said whilst sales growth in the UK and Ireland had slowed in 2021, trading had accelerated quickly in the past six months as pandemic restrictions were lifted and rising living costs affected shopping habits.

The latest results from Kantar showed sales growing at 18.7% with market share at 9.3%. This is the highest share at any point during Aldi’s 32-year history in the UK.

Prices over profits

CEO Giles Hurley has said:

The cost-of-living crisis is worsening, and it’s being felt by millions of households across the UK. It’s in times like these when our customers rely on us the most, which is why we’re focusing on continuing to deliver our longstanding price promise by offering the lowest possible prices in Britain, every single day. Preserving our price discount and rewarding our people will always be more important to us than short-term profit. Being privately owned means, we can keep our promises even when times are tough.

Premium private label sales climb

The retailer has said sales of its premium private label range, Specially Selected, have increased 29% in the last 12 weeks.

Private label has become a hot topic, as the challenging economic environment impacts shoppers, and retailers search for ways to drive volume in turbulent times. If you are interested in finding out more, subscribers can read our private label in the cost-crisis era report where we answer five key questions to help you understand the direction of travel of private label development.

Continued investment

The retailer has said despite the challenging times, it will continue to invest in expanding its estate. It plans to open 16 new stores in the next 12 weeks, as part of its ongoing £1.3bn expansion plan over the next two years. Alongside new store openings, it will be expanding or relocating dozens of existing stores and developing its network of distribution centres and technology infrastructure to support growth.

Short-term pain for long-term gain?

Sacrificing profit in the short-term, during a crisis seems to be a sensible move for Aldi, as price will be an ever-increasing motivating factor for shoppers in the coming months and years.

Our ShopperVista data shows shoppers focused on saving money over quality grew 10 points in August (-37 vs. -27 in July) and is consistent across all income groups. Whilst many shoppers have already begun saving and cutting back, this trend will snowball as the reality of energy bills impacts later in the year.

How long Aldi can maintain this profit sacrifice however is a different matter. Costs will continue to rise for the retailer, and it will be faced with some tough decisions. All retailers will face the choice of how much of rising costs to pass on to the shopper, and who can pass on the least, is likely to win.

The discounters have always had a barrier beyond price, the small range. Shoppers have traditionally found it difficult to conduct the big weekly shop at Aldi and Lidl. However, as each discounter continues to evolve its ranges, it can better serve the shoppers’ needs. This means we are likely to see less multi-channel shopping in the future. Aldi has already said more of its existing customers were consolidating their grocery spending and using Aldi as their first and only supermarket choice.

All in all, with the current trading environment and the retailer's ever-evolving proposition, this short-term pain for Aldi is expected to result in long-term gain.