Falling profit no bar for Aldi to continue expansion in UK
London — Aldi is pressing on with its expansion in Britain despite a third consecutive year of falling profits there, the German discount supermarket group said on Monday, signalling no let-up in the pressure on UK rivals.
The rise of privately owned budget chains Aldi and Lidl has transformed UK food retailing in the past decade, driving down the returns of Britain’s big-four players — market leader Tesco, Sainsbury’s, Asda and Morrisons. The big four have been fighting back by cutting prices, reducing multibuy promotions and improving service.
For 2016, Aldi UK and Ireland reported a 13.5% rise in sales to a record £8.74bn.
But operating profit fell 17%, to £211.3m, reflecting its strategy of maintaining a price gap over larger rivals as well as investment in infrastructure — mainly a large store-opening programme. "The owners of our business see such a huge potential for future growth in the UK market," Matthew Barnes, CE of Aldi UK, said.
Discount supermarkets still account for a much smaller share of the UK market than in Germany. "Our investment in the UK is ramped-up if anything," Barnes said.
He noted that £450m had been invested in stores and distribution centres in 2016 and £459m was planned in 2017.
Barnes added future capital expenditure plans had been "entirely unaffected" by Britain’s decision to leave the EU.
The German parent, Aldi Sud, was "very happy" with the UK performance in 2016 despite a fall in the operating profit margin to 2.42%, from 3.3% in 2015.
"Our owners very much see that [margin decline] in the context of long-term growth. It’s about investing for the future, it’s not about working quarter to quarter and delivering short-term gains to our shareholders," Barnes said.
Analysts at Barclays said lower profit margins at Aldi would be read as a positive for Britain’s big-four grocers.
"The lower that margins go — and the more the company has to invest in refurbishments — the sooner the point will be reached when store openings start to diminish," they said.
Aldi, which in February overtook the Co-operative to become Britain’s fifth-biggest supermarket, trades from 726 UK stores, giving it a market share of 6.9% in the UK grocery market, according to the researcher Kantar Worldpanel.
It plans to have more than 1,000 stores by 2022.
Aldi said like-for-like sales, which strip out the effect of new space, were "strongly positive" during 2016 and had accelerated in 2017. "The fact that more and more customers walk through our doors every day of the week gives us the confidence to carry on investing," said Barnes.