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Abu Dhabi, UAETuesday 22 October 2019

Aldi focused on British sales with Dh4.6bn growth plan

German discount retailer targeting more store openings despite decline in profit
An Aldi superstore in London. The discount retailer is planning to increase store numbers in the UK's capital to 100 by 2025, from 45 currently. Reuters.

German discount supermarket group Aldi plans to pump £1 billion (Dh4.6bn) into Britain, chasing market share at the expense of profit, which dropped by 26 per cent last year as it pursued sales growth, store openings and new customers.

Britain's fifth-biggest supermarket, which is privately owned by Germany's Aldi Sud, signalled no let-up for its larger rivals as it reaffirmed a commitment to investing in the UK, despite a low price pledge denting its 2018 profit.

"We’re not and never have been focused on short term profits. Our focus is on growth, it’s on sales, stores and customer numbers," chief executive Giles Hurley told reporters.

"Private ownership means we can run the business for the long term and we don’t have to answer to shareholders. Plans are not going to change … confidence from our parent company is there," Hurley added on Monday.

Aldi UK, which trades from about 840 stores and has a grocery market share of 8.1 per cent, said sales increased 11 per cent in 2018 and it gained 800,000 new customers.

It is targeting 1,200 stores by 2025 and plans to invest £1bn in stores and distribution centres across Britain over the next two years.

Aldi trails market leader Tesco, Sainsbury's, Asda and Morrisons, but along with fellow German-owned discounter Lidl has been winning market share from the big four with new store openings.

Britain's food retailing sector has been transformed in the last decade by the march of Aldi and Lidl which has driven down the returns of the big four players.

They have fought back by trying to narrow the price gap, improving service and chasing greater purchasing power.

Last year Tesco bought wholesaler Booker and launched its own budget chain. Sainsbury's tried and failed to take over Asda, while Morrisons has struck wholesale deals with Amazon and convenience chain McColl's.

Aldi UK reported an operating profit of £197.9 million for the year to December 31, 2018, down from £265.9m pounds in 2017. Sales were £11.33bn, with customer numbers up 5 per cent to 16.6 million.

Aldi's operating margin fell to 1.75 per cent in 2018 from 2.6 per cent in 2017, which analysts at Barclays said was the lowest since 2010.

"The lower the margin goes then the sooner the point will be reached when it is harder to justify so many new store openings," the Barclays analysts said.

Aldi attributed the profit fall to price cuts, saying its price advantage over the big four was 24 per cent on an average basket of everyday items. It said while its operating margin had fallen, it had improved in the current year.

Hurley said like-for-like sales, stripping out the impact of new space, were positive in 2018 and so far in 2019.

Aldi said it would step up the pressure on rivals by increasing store numbers in London from 45 to 100 by the end of 2025, by opening more standard-sized Aldi stores and new, smaller-format 'Local' stores on London high streets.

While Aldi's London market share is just 3.4 per cent, Hurley said there was scope to eventually have 250 stores in the capital.

He said Aldi was better placed for a disorderly Brexit than rivals because it has a much smaller range of products, while 75 per cent of what it sells comes from British-based suppliers and manufacturers.

Like its rivals, Aldi has stockpiled ambient goods, such as tinned tomatoes and olive oil, said the chief executive, adding that he could not guarantee there will not be shortages of some fresh products.

Updated: September 16, 2019 06:03 PM