It hardly even seems to count as news: the German discounters continue to make strides in the UK. The trend has been in evidence for years now, as a tight focus on price and improved ranging enable Aldi and Lidl to continue to win shoppers in their droves. This week’s announcement that Aldi plans to invest heavily in the market should be viewed as a signal of intent. The Germans are coming – and their advance is likely to put even more pressure on pricing for food makers. Katy Askew reports.
I groan inwardly whenever I have to drive past my local Aldi. It doesn’t really matter what time of the day or what day of the week it is. There is always traffic clogging up the road as people line up to enter the car park. That’s right: Aldi is so popular people will actually queue before they even get in the store.
Go deeper with GlobalData
Access deeper industry intelligence
Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.
Poor town planning aside, this says a lot about just how significant a force Aldi has become in the UK grocery space. The shopping experience on offer isn’t great. Minimalist is probably a good description. But a lot of people don’t care. The quality of food has improved significantly, ranging has expanded and they have started carrying “must have” brands. As a result, many people are willing to waive some of the frills you would get at the big four because the price is right.
According to Kantar Worldpanel, Aldi and Lidl’s joint market share has risen to 8.3% of the UK grocery sector. With growth expected to continue, it is clear the UK is following in the footsteps of the German market where the discounters are viewed as mainstream retailers rather than a specific niche.
As Conlumino’s George Scott observes: “The recession-legacy consumer mindsets and sustained fickleness of UK shoppers certainly appears here to stay, with the swing to the discounters showing no sign of reversing. Conlumino forecasts that the discounters will grow their share of the market by a striking 143% over 2013-18.”
This growth rate will, in part, be supported by some aggressive store-opening plans. Earlier this week, Aldi revealed it will invest GBP600m ($959.6m) in the UK over the next eight years. The company wants to more than double its current store count, with plans to grow its network to 1,000 outlets and create 35,000 new jobs.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataAnnouncing the investment, Matthew Barnes, group managing director of Aldi UK, said: “Our expansion plans mean that we can accommodate growing shopper numbers, while ensuring that there is an Aldi store only a short drive away from people, no matter where they live in the country.”
Aldi’s expansion drive is likely to put even more pressure on pricing for food manufacturers supplying the countries largest retailers. The UK multiples – notably Tesco, Asda and Morrisons – have (somewhat belatedly) responded to the incursion of the discounters by increasing their own price focus. The result has been a high-profile price battle as they attempt to claw back lost market share.
Even Sainsbury’s, that bastion of middle England, bent the knee to the prevailing dialogue around price this morning (12 November). The company revealed it has set aside GBP150m to invest in pricing over the next 12 months.
While much of the drive to discount is being funded by the retailers themselves, it would be somewhat naive to expect this trend not to have far-reaching implications for pricing negotiations with suppliers. Sainsbury’s has said it will work closely with suppliers to deliver value-chain efficiencies to fund its latest investment. Price is going to be of ever greater import for the UK food industry going forward.
The trick, for food manufacturers, will be to identify the areas where they are still able to profitably grow their businesses. For instance, Premier Foods plc – which is admittedly struggling to maintain sales and margins – has said it will try and leverage the growth of discount channels by introducing its smaller brands into high street discounters. Oxo beef stock cubes – one of Premier’s “power brands” – also adorn Aldi shelves.
For its part, Aldi argues its own model offers suppliers some worthwhile benefits. The company claims its EDLP strategy allows the group to order “consistent quantities”. Aldi claims: “Our suppliers can be prepared for significant steady volumes as an Aldi partner.”
A high volume, low price strategy does have some advantages. The necessity to fund promotions or manage production runs around difficult to predict spikes – or drops – in demand removes a layer of cost. A draconian promotional strategy is, after all, one of the key gripes suppliers frequently raise against the major supermarkets.
For better or worse, price is becoming more of a watchword in UK grocery. Manufacturers – both branded and private label – need to adapt. Food makers must deliver products that connect with consumers, drive demand and convince shoppers to part with their pennies.
As to the discounters, many a manufacturer is likely to adopt a policy of ‘if you can’t beat them, join them’. The impact this will have on sector margins and the contribution it will make to the spiral of lower industry-wide pricing remain to be seen.
