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January 14, 2014

Talking shop: Aldi will face pressure from UK Big Four in 2014

Reporting a whopping 31% increase in its Christmas sales and the busiest ever festive period since opening in the UK, Aldi was no stranger to celebration last week. However, the discount giant is likely to see its major rivals, smarting from losing share, up their game in 2014. Hannah Abdulla reports.

Reporting a whopping 31% increase in its Christmas sales and the busiest ever festive period since opening in the UK, Aldi was no stranger to celebration last week.

But, according to industry watchers, Aldi’s larger competitors are unlikely to stand by and watch the discount giant steal yet more of their trade in 2014?

“We will see the big four fight back – it has to happen,” Shore Capital analyst Clive Black says. “Online, convenience and hard discounters are taking too much of the share out of the big four. It’s not sustainable. What that will mean is more aggressive pricing and possibly more aggressive marketing which in particular highlights what the discounters don’t have.”

But in Aldi’s opinion, the big four have already lost out and aggressive pricing will not lead customers to return to the major multiples.

Speaking to just-food, a spokesperson for Aldi says: “The Aldi way is about always offering shoppers outstanding quality products at the lowest prices every day of the year. We combine this with product innovation, focusing on meeting the needs of shoppers. They are shopping with us because we save them money every week and because they like the quality of what Aldi offers.”

Aldi’s success has, in part, been put down to the broadening of its range, which has enticed more consumers into its store, who, with consumers under pressure, have looked to add the discounter to the number of chains at which they shops.

Edward Garner director at Kantar Worldpanel, insists Aldi has done well in moving away from simply selling “cheap” stuff, to “selling stuff for cheap” as quality continues to be of importance. “It has peppered its range with higher-end products, introducing things like its deluxe range, which changes perceptions,” he says.

Daniel Lucht, research director at industry analysts ResearchFarm, says consumers’ promscuity has suited Aldi.

“Incomes are squeezed and so since 2008, people have been looking around for their shopping needs. What’s helped Aldi is that people’s attitudes have changed sine the recession. But it will never have the monopoly – its lack of choice means people won’t commit to Aldi as their main shop. They will split their spend across one of the Big 4 and Aldi – but Aldi’s business model is completely different. It doesn’t rely on a person’s full weekly shop and is happy being one of the other retailers people choose to shop at.”

However, there are some concerns over the introduction of more high-range foods and fresh foods. Black cautions Aldi must be careful not to alienate its core shopper. “So far they have been successful in broadening their appeal cross-sector. It’s not just people with the low incomes that are attracted to Aldi anymore. That will continue, but what they need to do is work out what they’re all about. They need to maintain their appeal to both types of shopper and not ostracise the value shopper.”

Aldi kicked off 2014 with the launch of its Swap & Save campaign, which challenged shoppers to switch from their regular supermarkets to see what they could save – a move to emphasise the retailer’s focus on low prices. It could be seen as a defensive move – pre-empting any keener pricing or promotional activity at the likes of Tesco and Morrisons.

It is unlikely that Aldi and the other discounters will have a free run over 2014. There are, some say, a number of boxes it has yet to tick. Garner notes Aldi does not score highly in the “pleasurable shopping trip” category thanks to swarms of people taking advantage of its low-price offers. Similarly, its “lack of online presence, choice, fuel or service counters, and the fact that you have to pay for bags” as Black points out could see a drop in customer numbers.

Another challenge Aldi could face is competition in terms of properties.

“Until now, its been successful in looking at the position of its stores, picking locations better, closing down under performing stores – this has helped. Over 2014 we’re going to see increased competition from the big four, which are on the look-out for convenience stores. That could cause a problem for Aldi,” says Lucht.

And of course there is the state of the economy. As economic conditions improve, Aldi could see its consumers use its stores less.

“Until now, Aldi has been a square peg in a square hole. If the economy recovers, and people put less emphasis on value and shopping around, then that may help the bigger stores which ultimately have more choice. At the moment, Aldi is winning because needs-must and the economy is suffering,” Black says.

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