Retail

Aldi profits dented by grocer’s expansion in London

 

Aldi, the discount food supermarket, said it plans to more than double the number of stores in the London area to 100 after smaller-format shops proved more successful than expected.

It said its market share within London’s M25 orbital motorway was 3.4 per cent compared to just over 8 per cent nationally. “London shoppers regularly tell us they would switch to Aldi if there was one nearby, so there is clearly a significant growth opportunity for us in the capital,” said chief executive Giles Hurley.

The company added that trials of its Local format — which measure around half the floor area of a typical store and stock around 1,500 products — had exceeded expectations since they began in March.

Most of Aldi’s sales growth is coming from new store openings. The group has set itself a target of opening 1,200 shops in the UK by 2025. The total estate currently stands at 840, of which just 45 are in London.

Store openings will continue at a rate of around 50 a year for at least the next two years, it added. Typically adding 50 stores will require an additional distribution centre too.

However, the costs of the expansion are evident in full-year results released today. Sales rose 11 per cent in the year to December 2018, but operating profit fell 26 per cent to £198m — an operating margin of just 1.7 per cent. The big four supermarkets typically have margins of around 2.5 to 3 per cent.

It said the fall in profit was a result not just of £531m investment in infrastructure but price cuts for consumers, and that its price advantage over conventional supermarkets had been maintained at 24 per cent. Others have disputed this differential, saying the company is not comparing like with like.

However, the rise in sales was greater than the 6 per cent increase in customer numbers as estimated by Kantar, suggesting that each customer is spending more with the company as it introduces more upmarket ranges targeted at middle-class shoppers. Its UK market share is currently estimated at 8.1 per cent, making it the UK’s fifth-biggest supermarket.

The German-owned company discloses relatively little financial information, but unlike rival Lidl, its British subsidiary is a UK-domiciled company and so obliged to file accounts to Companies House.