Published in The Times newspaper on 9th October 2010
Aldi’s losses betray end of Britain’s cut-price boom
The dramatic turnaround in the fortunes of cut-price supermarkets was exposed by Aldi swinging to a sharp loss last year in the UK.
The famously secretive German grocery chain’s British subsidiary lost £54 million in 2009, compared with a £93 million profit in 2009.
The company grew rapidly through the recession as consumers sought to save money and it opened a wave of new stores. Such success prompted the company to aim for 1,500 stores, up from about 400.
But since then progress has ground to a halt. A year ago Paul Foley, its longstanding UK managing director, left abruptly. His successor, Armin Burger, lasted only a few months.
Its travails have been matched by its continental European peers Netto UK and Lidl. Like Aldi, Lidl’s sales slowed dramatically as the mainstream supermarkets fought back with more own- label ranges. Lidl has also had difficulties with its British management. Michael Mros stood down after only a year in the job.
In May, Netto pulled out of Britain by selling its 194 stores to Asda.
Aldi said: “We have invested significantly in upgrading existing stores and this had an impact on the 2009 result. “Sales edged up by a mere 1.6 per cent to just over £2 billion, despite a clutch of new stores.
Aldi — short for Albrecht Discount — was founded by the Albrecht brothers in Germany in 1946. It was a pioneer of discounting, focusing exclusively on selling one only variety of each product and shunning branded goods in favour of its own-label.
But the retailer has been frustrated by the lack of progress in Britain. In Germany, discounters control nearly half of the market. In the UK, they represent only 5 per cent .
In 2008 Tesco introduced a new tier of own-label “discount” ranges, claiming to be “Britain’s biggest discounter”. Asda cut the number of brands it listed to improve buying scale, while J Sainsbury introduced a “Switch and Save” campaign to encourage customers to buy own-label items instead of branded goods.
The British grocery market is unusually consolidated, with the Big Four — Tesco, Asda, Sainsbury and Wm Morrison — commanding 75 per cent of the market.