Aldi has been trading in the UK for nearly 20 years. In the last three or four it has gone through the gears and delivered phenomenal sales growth.
That growth has been helped by a healthy store opening programme, extending its reach into ever-more and often increasingly affluent postcodes, as well as sustained inflation. However, Aldi has also delivered sustained like-for-like volume growth in an industry suffering volume decline - a great achievement.
So, why has it outperformed UK grocery so much and in particular the big three value-based supermarkets: Asda, Morrisons and Tesco?
“Aldi offers better overall value than the own labels of the supermarkets”
Clearly, the recession has made Aldi’s strong value proposition more relevant to punters and its small stores are more suited to the times. However, we also believe there is another key variable that many shoppers quickly identify when they try Aldi out the supermarkets understand this point too, but they do not yet or cannot bring themselves to deal with the competitive challenge.
That variable is Aldi’s range, which is primarily own label, and tends to offer better overall value than the own labels of the supermarkets. Aldi’s ranging and product development strategy also demonstrably target key proprietary brands too (although we do wonder at times how reasonable it is for some of its lines to so closely mimic the branding).
As a result, Aldi often offers better value even than proprietary brands, taking both quality and price into account. It is certainly not always the cheapest versus entry own-label (it does, however, seem to ‘accept’ a lower margin to our minds).
So what can the majors do? Well, it may be the case that retail, not supplier, margin structures will have to be revisited further, with higher-quality own-label lines at the same or lower prices.
Extolling key points of difference such as breadth and depth of range, proprietary brands and superior service may also merit consideration.
Economic recovery and tough comparatives should take some of the momentum out of Aldi’s trading strength, but if the value-based majors do not learn from other markets, they may pay a heavy price down the line.
Dr Clive Black is head of research at Shore Capital Stockbrokers