Grocery market squeezed
• German discounters transform British supermarkets and they are poised to keep on growing
German-owned discount supermarkets Aldi and Lidl are ploughing ahead with a rapid expansion in Britain and are on course to grab more market share from the traditional bigfour players.
A top Aldi executive told Reuters it aimed to have 1,000 UK stores by 2022, up from 762. Lidl said it saw potentially 1,200 to 1,500 stores in the long term, up from 710.
Meanwhile, store openings at market leader Tesco, Sainsbury’s, Asda and Morrisons have slowed to a trickle. They are shedding thousands of jobs so they can save money and better compete with the discounters.
Aldi and Lidl’s cut-price model has turned them into two of the world’s biggest retailers. They have expanded abroad as growth stagnated at home.
Aldi launched in Britain in 1994 and Lidl in 1990 and they have changed the shape of the UK grocery market. But their profits have fallen and traditional retailers have questioned whether the model is sustainable. The discounters have little presence online and could face competition there from the big four and grocery newcomers such as Amazon.
For now, Aldi and Lidl’s combined share of the £200bn UK grocery market is set to grow.
It will be 15% by 2020, up from 12.1% now, according to Ashley Anzie, strategic insight director for grocery at researcher Kantar Worldpanel.
“That’s largely driven by the fact that Aldi and Lidl will just physically be opening more stores,” he said.
Aldi and Lidl are also modernising existing stores and making a push into premium ranges that chime with British shoppers, who, squeezed by inflation and subdued wage growth, have become more cautious in their spending.
“What we’re doing is investing very carefully in things that add to our customer offer, our store portfolio, our infrastructure,” said Jonathan Neale, an Aldi MD.
Aldi’s £1bn investment programme to the end of 2018 would create 8,000 jobs. Britain’s departure from the EU had not changed the company’s plans, Neale said.
In 2018, a total of 70 new stores would be opened and by 2020 a total of about 850 stores would have Aldi’s updated format, from 138 now, Neale said.
Lidl is investing £1.45bn in Britain across 2017-18. It plans to open 50 stores and revamp 30 in 2018.
“To further strengthen our position as a British retailer, we will continue to invest in our UK expansion,” said Christian Härtnagel, Lidl UK’s CEO. Though Britain’s big four have narrowed the price gap with the discounters they have not reversed the trend.
Tesco and Morrisons have reported annual profit growth but partly because their profits were rebased after huge restructuring in 2014. Sainsbury’s has reported three straight years of profit decline and analysts forecast a fourth. Asda has had two years of falls.
Over the past year Sainsbury’s and Morrisons shares have fallen 15% and 12%, respectively. Tesco’s shares are up 6% but are still below the level they were when Dave Lewis took over as CEO in 2014.
The big four hope to compete by broadening their businesses. Sainsbury’s purchased general merchandise retailer Argos in 2016, Morrisons has struck wholesale deals with Amazon and McColl’s, and Tesco spent £4bn on wholesaler Booker.
A senior director of one of the big four said the discounters’ prices were unsustainable. “The underlying brand equity proposition isn’t actually there, it’s just that they are giving it away below economic rational behaviour,” the director said.
Nevertheless, Tesco, Asda and Sainsbury’s have all dabbled with their own discount formats, without success.
Tesco is reportedly considering having another go, utilising Booker’s assets.
Aldi, owned by Germany’s Aldi Sud, the world’s No 5 retailer, has a 7% share of the British market, according to Kantar data.