Yahoo Finance Aldi profits fall by almost a fifth as supermarket price war takes toll
Aldi’s profits have dropped for the third year in a row after the budget supermarket ploughed money into opening stores and was forced to invest heavily in price cuts in the face of rising competition.
The German discounter has been credited with radically shaking up the UK’s food retail market by undercutting the ‘big four’ supermarkets of Tesco, Sainsbury's, Morrisons and Asda on price.
Since the recession, which saw droves of cash-strapped consumers flock to its stores, Aldi has sought to open hundreds of new shops while its rivals have scaled back store numbers. At the same time, it has lured middle-class customers with more upmarket products, such as Prosecco and pastrami.
Aldi, which now has 726 stores across the UK, grew sales by 13.5pc in the year to December 31 to a record £8.7bn, after attracting 1m new shoppers. It took its market share to 6.9pc, according to Kantar Worldpanel figures.
However Aldi's focus on lower prices and its rampant store expansion programme dragged operating profits 17pc lower to £211.3m.
“In terms of the impact on our profits, we are very happy with our performance this year," said chief executive Matthew Barnes. "Since 1990 when we arrived in the UK our approach has been based on the long game, not short-term profit."
Last year Aldi committed £450m to opening new shops and improving its UK and Ireland distribution centres. The grocer is planning to open a further 70 shops next year as part of its target to have more than 1,000 shops in the UK by 2022.
Despite concerns that its aggressive shop opening programme is cannibalising sales at its older stores Aldi said that like-for-like sales growth remained “strong”. It did not disclose the figure and has previously argued that the industry-wide measure is an inaccurate yardstick for the fast-growing supermarket.
Aldi has also faced pressure from the revival of Tesco and Morrisons, with both supermarkets focusing their turnarounds on becoming more competitive.
Mr Barnes said that Aldi would do “everything and anything” to beat its rivals on price, indicating that the German supermarket was prepared to face another hit to profits.
"The lower that the discounters’ margins go, the less oxygen is arguably available to fight against the big four – so this could be read positively for the 'conventional' big four grocers,” said James Anstead, analyst at Barclays.
The supermarket claims to be 12.5pc cheaper than its nearest competitor in the big four, Asda, but Mr Barnes acknowledged that some of its products had risen in price because of increased import costs associated with the weaker pound.
“Yes we have had to raise prices too, but we are focused on that price gap. Where inflation goes, who knows?” Mr Barnes said.
The supermarket chief said that Aldi was well placed to handle the uncertainty from Brexit and rising costs because “our business is leaner then it has ever been and it’s cheaper to run than it has ever been”.
Mr Barnes said that Aldi was widening its appeal to more shoppers by increasing the number of products it sold from 1,500 to 1,800 and adding more premium lines, such as a sirloin beef with porcini, shallot and white truffle stuffing, to its Christmas ranges. The supermarket is also gearing up to invest more in its fresh food offer in a bid to address some customer perceptions that its shelves are only stacked with canned goods.
