Oracle Retail Week Awards: Value supermarket retailer Aldi scales new heights

In a grocery market where every fraction of share is brutally fought over, the growth of Aldi is nothing short of phenomenal.

Two consecutive quarters of around 30% growth in like-for-like sales have propelled the German-owned discounter’s UK market share to a record 3.2%, and key metrics such as shopper numbers and basket value have shown strong double-digit growth.

In its most recent full-year results, Aldi’s UK & Ireland business achieved a 450% surge in operating profit to £103m in the year to December 2011 - a figure skewed somewhat by a £57m property writedown the previous year - and turnover rose 29% to £2.7bn.

In this context, it’s little surprise that the retailer has triumphed in the inaugural Zolfo Cooper Growth Retailer of the Year category. So what’s driving this remarkable growth at Aldi?

It’s no secret that the discount grocery proposition of tight, private label-dominated ranges and everyday low prices has appealed to shoppers during the economic downturn, although this hasn’t always been the case.

Having delivered soaring sales in 2008 when the effects of the credit crunch first took hold, 12 months later the sales growth of discounters slowed to a near-standstill as Tesco, in particular, took the fight to Aldi and Lidl, aping their propositions with a range of tertiary brands of its own and adopting the tagline ‘Britain’s Biggest Discounter’. Since then, however, Aldi has regained momentum thanks in particular to its ability to adapt its offer to the demands of the UK consumer.

In order to make itself a one-stop grocery shop destination, Aldi has had to tweak its traditional business model in recent years. For starters, the retailer has revamped its product offering in order to broaden its appeal, and the range was extended to around 1,350 lines, including a limited number of well-known brands such as Coca-Cola and Heinz.

Its stores were previously stripped down to focus on simplicity, with display and presentation kept to a minimum, but they have now also received investment to bring them more in line with competitor standards, including upgraded lighting, graphics, merchandising and layouts.

Nonetheless, Aldi’s primary investment remains in keeping prices permanently low, a proposition that has proved a strong point of differentiation from the high-low promotional tactics employed by mainstream peers.

The product range has also been amended to make it more appealing to the UK consumer, with a particular emphasis on introducing more fresh produce. Aldi added 30% more products to the range in 2012, and the discounter says that its average basket is now only one or two items smaller than a typical Sainsbury’s basket.

In a further sign of Aldi aligning itself with the big four grocery retailers, it recently introduced a selection of Fairtrade products and, in 2012, expanded its Specially Selected range, which has been key in attracting consumers at the upper end of the socioeconomic spectrum.

Aldi UK managing director of buying Tony Baines recently told Retail Week that the retailer had managed an 18%rise in the number of AB households shopping at Aldi in 2012 compared with 2011. “People across the country are interested in saving money and are attracted to Aldi because of our brand-like quality products and consistently low prices,” said Baines.

This move to position Aldi’s product quality alongside that of the big grocers’ is reflected in its latest advertising campaign. The campaign, which shows consumers comparing Aldi products with more expensive branded substitutes and carries the strapline ‘Aldi. Like brands. Only cheaper’, has done much to reinforce the perception that consumers can get the same quality goods for a keener price from the retailer’s stores.

Building on this position, Aldi’s Christmas campaign ignored its direct competitors in the hard discount sector and made comparisons between its goods and those of upmarket retailers such as Fortnum & Mason and Harvey Nichols. During the vital Christmas trading period, Aldi also increased its TV and press Christmas ad spend by 36% year on year at a time when the big four supermarkets reduced theirs, according to media research company Nielsen.

The store estate has also expanded in recent years. Having grown rapidly in the mid-2000s to reach 450 stores, this fell back to 414 in 2010 as Aldi prioritised refurbishments and closures of older shops. However, in the past two years store openings have accelerated and the estate stood at 460 at the start of 2013.

Plans are in place to grow the number further in the coming years. The discounter is to invest £181m in opening 40 stores by the end of 2013 and aims to open 35 to 40 each year after that. It believes that it could potentially double its UK store base to 1,000 in the next 10 years.

Format diversification has also been on Aldi’s agenda. Its latest aim is to grab a share of the lucrative convenience market, to which end it is planning to open a string of small stores in prominent London locations.

At the same time, Aldi is opening more stores at the top end of its size scale. Some recent openings have come in at almost double its traditional size of 8,000 to 9,000 sq ft.

Whether Aldi can maintain its stellar growth remains to be seen. Certainly the comparables will be tougher, but the momentum is such that it’s surely not fanciful to suggest that Aldi will once again be in the mix for another growth award in 2014.