Aldi profits dive as firm focuses on expansion and price cuts

Sarah Butler
Photograph: Peter Byrne/PA

Aldi’s profits dived by nearly a fifth last year as it poured money into new stores and cut prices to boost sales in the UK and Ireland.

Sales at the German discounter rose 11% to reach £11.3bn in the year to December 2018 as it opened more than a store a week and pulled in 800,000 extra shoppers. But pretax profits fell 18% to £182.2m as the retailer invested £530m in expansion and cut prices on 500 items, about a third of its range.

The chief executive, Giles Hurley, said the profits decline was not a concern. “We are a long-term business not like other supermarkets. We are focused on sales, stores, customer numbers and growth,” he said.

More than half of British households shop at Aldi at least occasionally and Hurley said the chain accounted for 40% of the growth in the market. He said it was focused on gaining new shoppers rather than increasing profits.

Related: The Aldi effect: how one discount supermarket transformed the way Britain shops

While sales growth slowed to 11% from about 17% the previous year, Hurley said sales at established stores continued to rise, unlike at several rivals.

In the next two years, Aldi plans to invest a further £1bn in about 100 new stores, as well as distribution centres to serve them. It will also upgrade dozens of existing outlets. The group, which opened its first UK store in 1990, is aiming to increase the number of stores it has from 840 to 1,200 stores by 2025. It has also teamed up with the online electrical retailer AO.com to deliver more non-food goods.

Online sales for the group reached £100m as it expanded beyond selling wine and non-food special buys for home delivery of spirits and packaged items such as coffee pods.

Hurley said: “We are watching the online grocery market with a real degree of interest.” But food delivery – loss-making for several rivals – was a very challenging area, he said.

Hurley said it was still too early to say how Brexit might affect the business and Aldi wanted more “clarity and understanding of what our final relationship with the EU might look like”. In the short term, he said the chain was building stocks of some goods it imported from Europe, such as olive oil and tinned tomatoes.

“Seventy-five per cent of what we sell comes from British suppliers and manufacturers. That might give us a bit of an edge on some competitors,” he said.

But according to Hurley, problems could arise as it was not possible to stockpile short-life products such as fresh produce. “I can’t guarantee there won’t be shortages in some products. No one in the industry can guarantee that so we’re not alone. Our focus is on shielding customers the best we can.”

He said the retailer was shaking up the British grocery market with its promise to be significantly cheaper than mainstream rivals who had been forced to “sharpen their game”.

Aldi’s figures were published as Asda revealed a 3.2% rise in sales to £22.9bn and near 13% rise in pre-tax profits to £804.9m for the year to 31 December 2018. The company said sales at established stores were up 1.6% for the year as it had cut prices and improved availability of fresh foods. Accounts filed at Companies House also showed a 5,765 fall in the number of staff employed by the group in the past year, helping to cut the group’s wage bill by more than £38m.

Asda recently revealed a 0.3% fall in underlying sales in the first half of 2019. The supermarket’s chief financial officer, Rob McWilliam, said: “The challenges faced in the market during 2018 have only intensified as we move through 2019.”

Aldi lowered prices in the past year as it responded to reductions by rivals including Tesco, Asda and Sainsbury’s. Hurley said the chain would always maintain a significant price gap with the big chains as part of an “unbreakable contract” with customers.

Aldi is focusing on opening stores in London, where it has 45. It aims to have 100 by 2025 and potentially 250 within the M25 in the longer term, about 50 of which could be in the group’s new small format. These are, on average, only about 600 sq metres (6,400 sq ft), just under half the size of a typical Aldi.

“Our market share is only 3.4% in London compared to 8.1% nationally,” said Hurley, “Clearly there is a significant opportunity.” Stores are planned in Sydenham, Blackheath and Watford in the coming year.