Aldi’s plan to squeeze profits to keep prices low and win over new customers has proven successful, as it attracted 1.5 million extra customers to its stores over the past 12 weeks.
Following the release of Aldi’s figures for FY2021, the discount grocer reported an 86.5% drop in profits to £35.7 million last year, which it partly blamed on ‘pandemic-related expenses’ as it pledged to prioritise lower prices over short-term profits.
Amira Freyer-Elgendy, consumer analyst at GlobalData, predicts that the gamble will pay off, with Aldi’s market share likely to increase by a large margin in the near future.
She said: “2021 results are marked by slow sales growth and a hefty profit decline, but the retailer has been gaining share in 2022 due to the cost-of-living crisis, as shoppers are flocking to the retailer for its value proposition.
“GlobalData estimates that Aldi will increase its food and grocery market share to 7.1% in 2022, overtaking Morrison’s (7%) and therefore becoming the fourth largest grocer in the UK.”
Aldi has pledged to continue to keep prices low as shoppers have been turning to the supermarket in a hunt for the best deals as the ongoing cost-of-living crisis worsens for many UK households.
Aldi officially overtook Morrisons earlier this month, claiming 9.3% share of the UK supermarket sector. 14.2% of UK grocery shoppers say they are switching to cheaper retailers because of rising prices.
Freyer-Elgendy pointed out that value players are at an advantage in downturns, with “14.2% of UK grocery shoppers switching to cheaper retailers because of rising prices”, according to GlobalData’s Monthly Tracker from August.
The retailer absorbing the biggest proportion of those switchers is Aldi (37%), followed by Lidl (33%). Many of Aldi’s new 1.5m customers came directly from Morrisons, which was abandoned by 12% of those who had switched their supermarket.
Aldi also registered a 29% increase in sales of its Specially Selected range, illustrating that its new shoppers will switch to a cheaper retailer, but may still want to invest in more premium tier products.
“We expect Aldi will continue to add new products to its premium lines to cater to shoppers who want to save money overall, but who will still be tempted to trade up occasionally,” said Freyer-Elgendy.
“Aldi is planning further store openings, but its rate of expansion had slowed. It expects to open 16 further stores by the end of the year, though, and it is clearly determined to become not only the affordable option, but also the convenient one.”
Morrisons responded yesterday with price cuts and offers on 150 popular items, offering an average saving of 14%, but Freyer-Elgendy noted that “it has a way to go before shoppers will recognise it as price competitive with Aldi”.