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Price cuts eat into Aldi profits Aldi UK and Ireland chief pledges to win price war after profits fall
(about 5 hours later)
Aldi’s profits in the UK and Ireland fell last year after the discount supermarket chain was forced to cut prices to maintain its reputation for cheap groceries. Aldi will continue to cut prices to ensure it is cheaper than the traditional supermarkets, even if that means crashing into the red, its UK boss has pledged.
Operating profit dropped 1.8% to £255.6m in the 2015 calendar year. Sales rose 12% to £7.7bn as Aldi opened more stores. The German company does not publish like-for-like sales figures showing the performance of established stores. The discount supermarket chain has revealed its second consecutive year of falling profits after being forced to cut prices in the face of a price war partly driven by the success of Aldi and its German discount rival Lidl.
UK supermarkets are locked in a price war prompted partly by the success of Aldi and its German discount rival Lidl. After Tesco and other supermarkets cut prices, Aldi responded with its own reductions. Operating profit dropped 1.8% to £255.6m in the 2015 calendar year as the German retailer said it had cut prices on about 30% of products last year. Sales rose 12% to £7.7bn Aldi as opened 65 more stores.
Matthew Barnes, Aldi’s chief executive for the UK and Ireland, said it would keep cutting prices to stay cheaper than the big grocers. He also announced a £300m investment to make its no-frills stores easier and more pleasant to shop in. Matthew Barnes, Aldi’s chief executive for the UK and Ireland, said he had already cut prices on 30% of products this year and was determined to keep them below the likes of Asda, Sainsbury’s, Tesco and Morrisons, even “if losses are an inevitable consequence”.
Barnes said: “We continue to deliver on our promise that whenever you shop at Aldi, you are paying the lowest prices in grocery. Regardless of what competitors may say or do, our price advantage will be maintained and our customers will always pay the lowest grocery prices in the UK.” He said: “Regardless of what competitors may say or do, our price advantage will be maintained and our customers will always pay the lowest grocery prices in the UK.”
Aldi, which has 659 stores in the UK, said it had cut prices on 30% of products this year. The store revamps will include clearer signs, more fridges and new fixtures for alcoholic drinks, fresh produce and children’s products. Aldi does not release like-for-like sales figures, which measure the pace of growth at established stores, but Barnes said that stores that had been open more than a year continued to see growth. He admitted growth had slowed, but said this was down to the group opening third, fourth or seventh stores in areas where its older outlets were very busy.
UK supermarket sales rose 0.3% in the 12 weeks to 11 September as warm weather and UK success at the Olympics and Paralympics increased spending on alcohol. Aldi, which sponsors Team GB, and Lidl continued to perform better than their UK rivals as sales rose 11.6% and 9.5% respectively. He said there had so far been no impact, in terms of rising costs or slowing sales, from the Brexit decision.
Barnes said Aldi would open 70 more shops in Britain next year as part of a plan to reach 1,000 units by 2022. It plans to refurbish more than 100 stores next year. Dave McCarthy, an analyst at HSBC, said: “The discounters are not having it all their own way. On the figures released today, it seems that Aldi is feeling some pressure from increased price competition by the big four [supermarkets].”
Barnes said the price war was “a real challenge for us and everybody”, and profit margins might fall further but he couldn’t foresee a scenario in which Aldi would move into losses in Britain. He said Aldi’s simple and efficient operations meant it had lower costs and so could cope with lowering prices more effectively than its bigger rivals.
The group, which has 659 stores in the UK, plans to open a total of 70 stores this year. It will open a new distribution centre in Cardiff and 70 more stores next year, as well as refurbishing 100 stores.
Aldi plans to spend £300m over the next four years to make its no-frills stores easier and more pleasant to shop, expanding fridge space for fresh fruit, vegetables and meat and improving the look of its baby and alcoholic drinks sections – all areas which have seen double-digit growth.
Fruit and vegetable sales rose 18%, and fresh meat rose 20% last year as Aldi expanded its ranges.
UK supermarket sales rose 0.3% in the 12 weeks to 11 September as warm weather and Britain’s success at the Olympics and Paralympics increased spending on alcohol. Aldi, which sponsors Team GB, and Lidl continued to perform better than their UK rivals as sales rose 11.6% and 9.5%, respectively.
The retailers are outpacing the market, despite selling a limited amount of products online, one of the fastest-growing grocery markets. Barnes said Aldi’s experiment with selling wine and non-food items was going well and the company was looking at extending into new areas. But he said: “That doesn’t include groceries at the moment.”