It was Aldi’s nationwide expansion plans that made headlines after the discounter announced its full-year results this week.
But the store target is as it has been for some time: at 1,200 by the end of 2025. Perhaps more interesting was that it remains unchanged despite the now familiar annual story from Aldi of sales growth and shrinking profits. How long can it continue before its German parent reins in the “aggressive” expansion?
It was one of many questions Aldi’s UK & Ireland CEO Giles Hurley faced during the media conference. Here’s what we learned on the day.
Profits
For the financial year ending December 2018, Aldi’s UK & Ireland sales rose 11% to £11.3bn, driven by a 5% increase in customer numbers to 16.6 million.
But operating profits fell 26% to £197.9m and pre-tax profits were down 18% to £182.2m, which Aldi put down to price cuts and infrastructure investment.
During the year, £531m was invested, with a further £1bn planned over 2019 and 2020 for new stores, upgrades and distribution centres. Aldi is preparing to open its new RDCs in Sawley, Derbyshire, and Bedford, having recently opened Sheppey in Kent and completed extensions in Darlington, County Durham, and Bathgate, West Lothian.
Meanwhile, over half the existing 840-strong estate has now been modernised in Aldi’s Project Fresh programme, with the other half to be done by 2022. And price cuts have been made on about 500 products, almost a third of the range, to keep Aldi cheaper.
So how long can margins keep shrinking? In 2017, Aldi grew operating profits by 26%, but in each of the three previous years it fell, by 4% in 2014, 1.8% in 2015 and 17% in 2016.
“Confidence from our parent company is there,” insists Hurley. “We’re not like other supermarkets. We have a unique model. And we have a critical advantage of private ownership, which means we can run the business for the long term. We don’t have to answer to shareholders.
“We’re not and never have been focused on short-term profits. Our focus is growth, it’s on sales, stores and customer numbers.
“The figures we’ve released today show that our strategy’s working and delivering.”
London
The results revealed a new focus for that growth strategy, noting that Aldi’s market share in London was just 3.4%, compared with 8.1% nationally. Hence, the London estate would more than double by the end of 2025, from 45 to 100, including the expansion of the new, smaller, Aldi Local format.
It’s an opportunity also seen by Lidl, which, like Aldi, has wrestled with its preference for a standard store footprint despite a challenging London property market, a stance both discounters are now relaxing. In April this year The Grocer revealed Lidl had cut its minimum store size for central London from 10,000 sq ft to 7,000 sq ft, and in June the supermarket announced a £500m plan to add 40 new stores to its London estate of 88.
Hurley took the perhaps unusual move of predicting future London store numbers beyond those in the trading statement, revealing even greater ambition, particularly for Local.
“We currently have eight Local stores in London and if I said to you that I reckon we’ll end up with around 250 [stores in London], I could see around 50-plus of those stores being Aldi Locals,” he said.
Aldi Locals are around 6,000 sq ft, less than half the size of a typical Aldi. Bigger pack sizes are sacrificed to make a range better suited to the absence of a car park and Aldi’s usual centre aisle of general merchandise ‘Specialbuys’ is gone, while food to go and ready meals are prominently positioned in bays at the front of store. Three of the branches also have self-checkouts, a feature not found across most of Aldi’s UK estate.
The eight to open since March are all in London but for the first time Hurley revealed Aldi’s ambition for the format might not stop at the M25. “Let’s see,” he said. “I think the focus on London is paramount, is clear at this point, and we have experience I’d like to think across the rest of the UK that we’ll be able to target towns and cities with our standard footprint. But never say never.”
Brexit
Hurley also echoed warnings from other retailers of a risk of shortages of fresh produce and the difficulty of stockpiling for the 31 October Brexit deadline.
“There’s clearly a limit to what we can do,” he said, adding: “I can’t guarantee there won’t be shortages on some products but there’s no one in the industry who can.”
“We need to understand what our future trading relationship will look like and then I think we can speak with more clarity on what the impact will be.
“Our focus is in shielding customers the best we can.”
Online
Could Aldi be warming to the idea of selling online? It may have good cause: rival Lidl told The Grocer in June it was “actively exploring” an e-commerce launch. Aldi currently sells Specialbuys, wine, spirits and coffee pods online.
“We’re watching the online grocery market with a real degree of interest,” said Hurley. “We’re very excited by what we’re doing because we’re bringing our offer to more customers than ever.”
But he added a caveat. Almost half the UK population still didn’t shop with Aldi, not because they couldn’t online but because there wasn’t a store nearby. And though like-for-likes were up, by an undisclosed degree, “our target in many of our stores is to reduce our like-for-like sales growth” as they were “overtrading”.
“Take our store in Guildford. We’re causing traffic chaos in the town. We actively need another store in the town to reduce the pressure on the car park.”
So “online grocery remains an opportunity” but “our focus should be on bringing our stores to more customers”.
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