Profits Slide At Aldi But Pledges To Prioritise Lower Prices Over Short-Term Gains

 Namnews, 26th September 2022

Aldi saw its profits slump significantly last year due to rising costs and investment in pricing. However, the discounter stated today that it was willing to sacrifice margin to maintain its focus on “providing the lowest grocery prices in the UK” amid the worsening cost-of-living crisis.

Over the year to 31 December 2021, Aldi’s operations in the UK and Ireland saw pre-tax profits fall 86.5% to £35.7m on sales up 0.9% to £13.65bn.

Aldi blamed the fall in profits on Covid-related costs, increasing staff pay and investment in prices. Meanwhile, the small increase in sales came after the chain missed out on the online grocery boom during the pandemic.

“Preserving our price discount and rewarding our people will always be more important to us than short-term profit,” said Giles Hurley, Chief Executive Officer for Aldi UK and Ireland. “Being privately owned means we can keep our promises even when times are tough.”

The company noted that it had attracted 1.5 million extra customers to its stores over the past 12 weeks when compared to last year as cash-strapped shoppers switched from traditional supermarkets amid surging inflation. This helped boost sales of the discounter’s Specially Selected own-label range by 29%.

Aldi highlighted the recent industry data from Kantar that showed its sales growing at 18.7%, with it overtaking Morrisons to become the UK’s fourth largest supermarket.

The company stated that its buying teams were “working tirelessly to counter the impact of inflation and maintain its discount against traditional full price supermarkets”.

Aldi, which currently operates over 970 stores, said it planned to open 16 more in the UK before the end of the year as it works towards its target of hitting 1,200 outlets by 2025. Other investment – part of its ongoing £1.3bn two-year pledge – will include expanding or relocating dozens of existing stores and developing its network of distribution centres and technology infrastructure.

Noting the cost-of-living crisis, Hurley said: “It’s also a time when Aldi comes into its own. From our carefully selected range to our smaller format stores to our trademark efficiency, we can leverage our unique approach for the benefit of all of our customers.

“Independent research shows our discount is as compelling as ever, and that’s why more and more people are switching to Aldi. We will do whatever it takes to maintain our discount to the traditional full-price supermarkets and keep grocery prices as low as possible for the millions of customers that shop with us.”

Unlike the financial crisis in 2008 when the discounters made significant gains, the supermarket multiples are trying to combat Aldi and Lidl by price matching key lines and introducing expanded budget ranges.

Hurley noted that Aldi’s private ownership gives it an advantage as it can take a longer-term view and not worry about short-term results to appease shareholders. The German-owned chain is also part of a global business with huge buying power.

Hurley wouldn’t be drawn on how much more food price inflation is still to come, saying that the last few years had taught him it was “very, very difficult to predict the future.”

He claimed Aldi’s more efficient business model is better placed to insulate customers from rising prices right across the food supply chain.

When asked how much profit margin is Aldi prepared to sacrifice this year to protect shoppers, Hurley said: “We always make value the cornerstone of our business. No matter what it takes.”

NAM Implications:

• Aldi are able and willing to take a profit-hit to grow share…
• …as they continue to operate ‘on a roll’ in the UK.
• And given that they rarely sacrifice share gains…
• …not a bad strategy.
• Suppliers and retail rivals need to watch for Lidl pursuing similar policies.
• Aldi and Lidl can afford to run at a loss, supported by their global operations…
• …for as long as it takes!