Aldi and Lidl’s 2022 results reveal where the two brands are enjoying similar success and where the pair are out of lockstep.
Given the cost-of-living crisis has defined the past few years, it’s perhaps no surprise that both Aldi and Lidl delivered strong sales and market share performances.
Aldi’s sales climbed almost £2bn to £15.5bn – a new record in its 33-year history of trading in the UK. Lidl’s sales were up 18.8% to £9.3bn in the period.
Both discounters also trumpeted their respective Kantar grocery market share growth over the 2022 financial year. Aldi was the fastest-growing supermarket then, with a 17.1% growth rate pushing its market share to 10.1%.
Lidl’s sales by comparison advanced faster than Aldi’s – up 18.8%, while its market share grew from 6.1% to 7.1%.
Shoppers switch
Aldi chief executive Giles Hurley and his Lidl counterpart Ryan McDonnell have flagged the successes both discounters have had in luring customers away from more established supermarkets and convenience store competitors during the past 18 months or so.
“I’m very happy with our momentum at the moment,” said Lidl’s McDonnell. “Our market share and customer growth numbers are really healthy and point to good signals for us that all of our investment we’re putting in is reaping rewards.”
Lidl added more than 1.4 million new customers during the period, compared with Aldi notching up around 1 million.
Aldi’s Hurley believes such growth is only going to continue in the foreseeable future. “Discount grocery is expected to grow by more than 27% over the next five years, almost twice the rate of the traditional grocery sector,” he said.
“Value is king. And what we’re seeing is a shift in consumer behaviour – a new generation of savvy shoppers, turning their back on traditional, full-price supermarkets.”
The level of growth has been achieved despite increasingly focused attempts by established supermarkets to compete with the discounters on price.
According to Retail Week data and insights director Lisa Byfield-Green: “Aldi in particular is benefiting from price matching from Tesco and Sainsbury’s, as it effectively positions the discounter as the benchmark for price.”
Retail Week’s most recent grocery forecast predicts that Aldi and Lidl will enjoy the fastest compound annual growth rates of the 13 UK food retailers over the next five years – with Aldi to grow 9.7% by 2027/28, followed by Lidl with 7.3%.
By contrast, Tesco is forecast to grow annually by 5.1%, Sainsbury’s by 4.6%, Asda 4.1% and Morrisons just 2.7%, making it the slowest-growing supermarket in the UK over the next five years.
Profit vs loss
For all the new customer acquisition and sales growth Aldi and Lidl have enjoyed, the financials tell two separate stories. Lidl finished 2022 in the red, whereas Aldi was in the black.
Lidl blamed its £75.9m loss before tax on “significant investments in prices, colleagues, suppliers and future growth”, which McDonnell expanded on – an EBIT margin of just 0.3%.
“We invested heavily in increasing hourly rates for our staff, which equated to a £50m investment. We spent over £4bn with British suppliers as well, further building out our local supply base.
“We also invested heavily in our infrastructure. We opened 50 stores in that period, which is more than any other supermarket.”
Commenting on its performance, Shore Capital analyst Clive Black called Lidl “a strong retailer” but one with “terrible economics”.
“Assuming no distortive transfer pricing or allocation of central costs, these are dreadful figures if compared to other UK supermarkets, closer to Ocado than Marks & Spencer, Sainsbury’s or Tesco,” he added.
Aldi profits by comparison surged to £178.7m, up from £60.2m the previous year – momentum that Hurley says has continued, with sales growing 17.1% over the most recent month.
To head off any accusations of profiteering during the extended period of historically high inflation, Hurley said that Aldi’s profit margin was “notoriously tight” at just 1.2%.
“That’s just over a penny in every pound spent in an Aldi store,” he said. “The CMA has said that the British grocery retail arena is competitive and, actually, Aldi was specifically mentioned as helping create that high level of competition.”
Hurley also flagged that Aldi was “focused on investing profits into low prices” ahead of the run into Christmas. “We’ve invested £350m in reducing 650 prices over the last 12 months. Just 10 days ago we reduced the price of 25% of our fruit and vegetable range.”
Aldi’s boss also pledged to invest £1.4bn in operations over the next two years in its existing stores and distribution network.
While Shore Capital’s Black welcomed the investment, he slammed the 1.2% profit margin as “quite simply dreadful”, adding “Marks & Spencer, Sainsbury’s and Tesco UK will be very respectful but not fearful of their German discount competitor” in the future.
Store wars
In the 2022 financial year, Lidl outpaced Aldi in terms of stores. It added 50 new branches, which McDonnell said shows “no limit on our expansion plans, because we still see the potential for hundreds of new stores as we look to drive market share further”.
Aldi, by contrast, only added 18 new stores in the period. The slow progress has effectively seen Aldi drop its long-term goal of having 1,200 stores by 2025. He says now that the longer-term goal is for Aldi to have 1,500 stores, but he refused to give a date for when this would be completed by.
According to GlobalData senior retail analyst Eleanor Simpson-Gould: “Lidl’s expansion perhaps comes as a cautionary tale for Aldi’s proposed investment in store and distribution plans for the coming two years.
“With 18 new stores set to open by the end of 2023, as part of its commitment to increase UK stores by 500 sites and with inflation forecast to ease to single digits in 2024, Aldi must ensure the viability of further expansion is well thought through, to reduce the pitfalls incurred by Lidl and refrain from diluting its operating model strengths.”
While the discounters both remain in growth and market share acquisition mode, razor-thin profitability margins do appear to have caught up with them. However, with bold long-term expansion plans and a new breed of price-conscious shopper, the grocery sector would be unwise to take their feet off the accelerator.
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