The head of Aldi in Ireland and the UK has pledged to do “whatever it takes” to maintain the discounter’s price advantage despite a sharp fall in the group’s profits last year.
Giles Hurley, UK and Ireland chief executive, said the growing pressure on consumer incomes meant that “an unprecedented shift in shopping behaviour” was now taking place.
“People are being forced to change how they live and how they shop. We are seeing it in our stores every day,” he said, citing increased levels of price checking and budgeting. “Value has replaced convenience as the number one consideration as to where to shop.”
Aldi’s market share gains have picked up again during 2022 and the company recently overtook Wiliiam Morrison to become the fourth-largest supermarket in Britain, according to both Kantar and NielsenIQ data.
Mr Hurley said the company was “honoured” by the faith placed in it and pledged to do “whatever it takes” to retain its price advantage.
However, Tesco and Sainsbury’s have matched Aldi prices on hundreds of frequently-bought product lines and indicated they will forgo some profit this year to keep price rises to a minimum. Morrisons said on Monday it would spend another £100 million keeping the prices of 150 key lines in check.
The Covid pandemic, the end of the Brexit transition period, wage increases, problems in supply chains and the need to keep prices down for customers all weighed on profits in the year to December 2021.
Mr Hurley acknowledged it had been “a challenging year for us and the rest of the industry”. Aldi’s UK and Ireland revenue rose 0.9 per cent to £13.6 billion, while operating profit was down almost 80 per cent at £60.2 million.
That made for an operating margin of 0.4 per cent, compared with almost 5 per cent at market leader Tesco and 3.4 per cent at J Sainsbury in their latest financial years.
Mr Hurley played down the erosion of profits in recent years by Covid, price-cutting and the cost of the company’s store expansion programme, saying that “not being a private-equity owned or listed supermarket” meant it could focus on the long term.
“We are a British-based business with a British management team making decisions for British customers,” he said, when asked how long the company’s German parent could accept limited profitability in such a large market.
Aldi in the UK and Ireland is owned by Aldi Sued, which also controls operations in the United States, China, southern Germany, Switzerland and Italy.
Mr Hurley said it was “too soon to tell” what effect the appreciation of the dollar against the pound, which has gathered pace since last week’s mini-budget, would have on prices and over what time frame.
“Around three-quarters of what we sell comes from UK-based suppliers and producers, so as a result we are more insulated than many others,” he said, adding that “fuel, fertiliser and feed” were the three main input costs for food.
On the company’s non-food offering, much of which originates from Asia, he said orders were placed months in advance and that “it is too early to speculate on what the future holds”.
Aldi recently abandoned its grocery-picking arrangement with Deliveroo, introduced during the pandemic, but continues to run a click-and-collect service from about 200 larger stores.
“We are learning a lot from that and it’s worth noting that online is still higher than pre-pandemic ... we’ve always said we want to serve customers wherever they need us,” Mr Hurley said.
But store expansion will remain the focus, with a target of 1,200 shops by 2025 still in force. — Copyright The Financial Times Limited 2022
