If they ever bring out a Matthew Barnes talking doll, when you yank the string at the back it will squawk: “We will not be beaten on price.”
That was certainly the message again this morning as the Aldi CEO announced its 2015 results. And it was a familiar story in other ways too.
Just like 2014, sales were up but profits were down. Now ordinarily falling profits are not supposed to be a good look, but there is at least a relatively simple explanation. Cutting prices has meant, no matter what the big four have done, Aldi remains cheaper: it’s the cheapest supermarket in the UK, claimed Barnes, with its 1.8% dip in operating profit a direct result of the price war, and 30% of skus falling in price over that period). At the same time, Aldi has been investing heavily in new stores (£536m in 2015) to reach more customers, in the belief that Aldi still has room to grow, expanding to 1,000 stores by 2022 (it currently has 785).
So at this stage of Aldi’s development in the UK, is winning new customers and increasing sales (they’re up 11% to £7.7bn and have doubled in three years) more important than profits (which fell 15% to £212.6m)?
“Both are very important to us,” CEO Matthew Barnes told The Grocer this morning. “But we are here for the long term and building for future growth. We will keep listening to customers and adapting our business accordingly. We have shown again and again that to put customers at the front of everything we do requires investing in margin to maintain that critical price gap. And we will continue to do that.”
So: expect more profits to be gnawed away over the coming years, then. But is that a bad thing? Asda focused on a profitable 2015 by cutting out resource all over the shop (while not only failing to close the gap on the discounters but allowing big four rivals to catch up). Its reward was a 6% rise in pre-tax profits to £975m. And a slump in sales as customers deserted them, plus a P45 for Andy Clarke.
“We’re doing what I have always said we would do,” said Barnes. “Investing our margin to maintain a significant price advantage over our competitors, keeping Aldi the lowest-price supermarket in Britain with outstanding quality products.
“This is the secret behind the bond we enjoy with our customers and it is why people keep coming back to Aldi, time and again. Regardless of what competitors may say or do, our price advantage will be maintained and our customers will always pay the lowest grocery prices in the UK.
The announcement this morning also promised significant in-store improvements to the existing estate, with 100 stores to be refurbished, including a new food to go solution, more chillers, new lighting and a revamp of its BWS and baby and toddler fixtures. But again the message was very much that it was business as usual.
“Our future capital expenditure plans are unchanged – we will continue to make significant investments in our business – paying our employees more than any other supermarket, treating our suppliers fairly and delighting our customers daily.”
Ultimately, even if it’s costing it dear right now, Aldi is playing the long game. And that’s rarely a bad move. There are certainly other grocers out there looking a lot less healthy than Aldi.
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