Aldi boss: Shoppers are ‘switching in their droves’

The Aldi boss said customers were switching to the discounter “in droves” as the cost-of-living crisis continued to hit struggling households.

Aldi has gained more than 1.5 million customers in 12 weeks, British CEO Giles Hurley told the BBC.

The discounter has recently overtaken Morrisons and is now the fourth largest supermarket in the UK.

Rival discounter Lidl has also gained ground as shoppers look to lower their bills.

There has been an “unprecedented” change in consumer behavior as inflation has soared, Mr Hurley said.

“We’re seeing customers switching in droves,” he said. “Customers are prioritizing value like never before and switching their purchases to Aldi.”

Mr Hurley said shoppers from “all traditional full price supermarkets” would come to Aldi.

Aldi sales rose 19% in the 12 weeks to September compared to the same period last year, according to retail research firm Kantar. If it continues to grow at this rate, it will add an extra billion pounds in sales this year.

“We haven’t seen growth rates like this since the last recession,” Mr. Hurley said, referring to the 2008-2009 recession.

The competitive discounter Lidl is also recording rapid sales growth.

Both companies are still opening new stores, resulting in additional sales. Prices also go up, which drives up the retail value.

But Mr Hurley insists Aldi’s popularity is broad-based.

“There’s no doubt that some of our sales may come from new business,” he says.

“But the majority is coming from existing business as customers reevaluate their search for value. It’s not just about new buyers, it’s also about existing buyers consolidating their business with Aldi and using Aldi as their first port of call.”

Consumers are buying fewer big brands and instead adding cheaper private label products to their shopping baskets.

According to retail research firm Kantar, private label assortments now account for 51% of the market compared to branded products.

Sales of the cheapest private label ranges have increased by a third compared to the previous year.

Over 90% of Aldi products are unbranded.

Mr. Hurley says the company has seen growth in all categories, from a 20 percent increase in sales of its diaper line to a 29 percent increase in its premium Specially Selected line over the past three months.

Mr Hurley was speaking as the chain released its results for the most recent fiscal year, which covers the 12 months ended December 2021.

Aldi, with sales of £13.6 billion, was down slightly on a year earlier as it missed out on the online grocery boom during the pandemic.

Pre-tax profit fell 87% to £36m. That’s a net profit margin of less than a third of 1%.

Aldi says the drop is due to Covid-related costs, hikes in staff pay and investments in prices.

Aldi is privately owned, which Hurley says gives it a major advantage.

“We can look very long-term and not worry about short-term results.”

Like Lidl, the chain is owned by a much larger German-owned retailer. Both discounters continue to expand, in contrast to traditional supermarkets, which add little or no new space.

Supermarket grocery sales is a highly competitive market, an industry driven by volume and market share.

“The bigger your sales, the more you can invest in your pricing, and the better deals you get from your suppliers, in turn,” said Duncan Brewer, head of retail and consumer strategy at EY-Parthenon

“It’s that flywheel effect. And of course things can quickly get trickier as your volume drops. The food pie isn’t getting any bigger, so for the big supermarkets it’s just a matter of taking a slice off someone else’s hands.”

Aldi now has just over 970 stores. It plans to open another 16 by the end of the year, with a goal of reaching 1,200 stores by 2025.

It may amass a lot of buyers, but Adam Leyland, editor-in-chief of Grocer magazine, says Aldi won’t get things its own way.

This is unlike during the financial crisis, when the big four chains hiked prices too much, allowing the discounters to march and begin their breakneck expansion.

“Pricing is much more nuanced than it used to be,” he said. “It is not easy. All the established players have made their entry-level ranges more competitive, with some price adjustments to the discounters on hundreds of lines.

“In order to maintain a price difference, discounter prices are about 15% cheaper than in continental Europe. It shows they have to work a lot harder,” added Mr. Leyland.

Tesco and Sainsbury’s have matched the prices of Aldi on key products.

Asda recently launched a revamped core range, Just Essentials, and has had to temporarily limit the number of products customers can buy to keep up with demand.

Aldi’s big competitors are determined not to make the same mistakes again, but cost pressures are huge for any supermarket. Grocery prices on the shelves are rising at their fastest rate in more than a decade.

Undeterred by how much more food price inflation is still to come, Mr Hurley said the past few years have taught him that it is “very, very difficult to predict the future”.

Aldi’s more efficient business model, he claimed, is better suited to protecting customers throughout the food supply chain from rising prices.

So how much profit margin is Aldi willing to sacrifice this year to protect shoppers?

“We always make value the cornerstone of our business. No matter what it takes,” Mr. Hurley says, a sign that he is determined to keep up the pressure.