At the end of 2008, Aldi appeared immune to the recession. Sales were growing at 25% and it was winning customers across the country.
But 2009 is proving more difficult. Sales growth has declined consistently, slumping to 8.1% [TNS 12w/e 10 August]. If it weren't for Aldi's GB store estate growing by 35 to 415 in the past year, that growth would translate into a decline of 0.9%, its rivals claim.
The stellar growth was always going to tail off at some point, but the decline in sales comes as a surprise. And while Paul Foley's shock departure as MD of UK and Ireland seems to point the finger at his leadership, it doesn't explain why sales are suffering ('Aldi begins search for new MD after Foley's shock exit', 15 August, p4).So what is the real explanation for falling sales? Could it be an issue as fundamental as price?
Discounted but not cheap
A discounter Aldi may be, but cheap it is not. The latest data from market research company ESA shows Aldi is significantly more expensive than the big four and indeed the rest of the discounters on 'cheapest on display' staple items (see table).
At the Aldi store ESA visited on 10 August, it was cheapest on only four of the 50 items and didn't stock nine of the lines. And when comparing the total price of those items that were stocked by all the retailers, Aldi's cost £31.19, over £11 more than the equivalent at Asda, nearly £9 more than Sainsbury's and £7 more than Tesco.
Foley believed such unfavourable price comparisons were inappropriate, insisting Aldi's products were superior to the mults' cheapest offerings. Indeed, he vehemently protested about the word 'cheap' being used to describe its products and went to great pains to stress the quality of Aldi's offers. "We don't have anything that you would describe as 'economy'," he regularly claimed.
But Aldi has been rattled. An infamous letter sent to suppliers last month demanded a 5% reduction in prices in return for the greater volumes it would need for its plans to open a store a week. Unimpressed suppliers have responded by giving a small reduction at best, but, according to one, "nothing like 5%".
As well as trying to cut prices, Aldi has also been working on its price perception in other ways. While rolling out a range of 29p fruit and vegetable lines, it has started to run its first promotions. This is a big deal for a retailer that previously eschewed promotions, having claimed its prices were already discounted.
In April it reduced the price of a number of items for an ad campaign that claimed it had 140 lines at 99p, all of which were 30% cheaper than their equivalent at Tesco and Asda. In July it launched The Big Deal a range of reduced 'when it's gone it's gone' lines.
In the past, these were typically non-food lines, but the mix has changed notably in recent months on its Special Buy tables (The Grocer, 4 April, p14).
But although Aldi is dipping its toe in the promotional waters, it has yet to get to grips with shouting about it. So far, with the exception of The Big Deal, it hasn't used any PoS material to flag up its offers.
This is a mistake, says Kay Staniland, MD of promotional consultancy Assosia. "If it is not promoting reduced prices, how are consumers supposed to know?" she says. "Price perception is as important as price and Aldi has been left behind. It's arrogant to say 'we don't need to promote because our prices are already discounted'. The amount of promotions at the moment is phenomenal and consumers want them they need to think they are getting a good deal."
Aldi is strong on everyday low pricing, Staniland adds, but the lack of clearly signed promotions could leave deal-hungry customers feeling "a little cheated".
Netto also started to promote last month. But both Aldi and Netto lag behind Lidl, which has long run promotions in store, with gaudy shelf-edge markers bearing messages such as 'Cheaper'.
Aldi has instead been addressing price perception through its marketing. In the past year it has put itself on TV for the first time and signed up celebrity chef Phil Vickery to endorse its products. The TV advertisements used straplines including 'Spend a little, live a lot', and 'Don't change your lifestyle change your supermarket'.
Foley and the media
Foley also broke with the retailer's tightlipped tradition to court the press and generated priceless media coverage that encouraged curious consumers to try Aldi.
But Foley's success with the media has led to accusations he targeted the wrong audience. He started actively enticing upmarket shoppers with premium own-label range Specially Selected in November 2005. And when recession hit, he stepped up his efforts. It would provide a "jolt" to consumers' buying habits, he said. Once people tried Aldi's products, they would continue to shop there. However, sales figures suggest the shoppers who discovered Aldi in the broadsheets' 'credit crunch tips' articles have not converted on a permanent basis. Foley's aspirations of Aldi becoming a full weekly destination shop appear to have been dashed. A survey carried out in March by market researcher Him! found average spend was just £13.66.
It also found Aldi's customer approval ratings had slipped between September and March, partly as a result of having attracted more harder-to-please ABC1 shoppers.
It may be of small comfort to head office, but Aldi is not alone in experiencing a slowdown. Him! estimates the percentage of the population visiting a discounter had dropped to 13% in March, down two percentage points from the estimated September figure.
"Consumer confidence means more people will revert to what they know," says Colin Harper, MD of marketing agency Storecheck. "The move towards discounters may have been just a phase."
With suppliers refusing to drop their prices and consumers unconvinced as to why they should switch allegiance to a discounter that only stocks about 1,000 SKUs and doesn't provide the endless deals or scream about its low prices, Foley's successor will have his work cut out.