Aldi Plans Rapid Expansion Despite Profit Drop

Aldi’s profits have declined in the midst of a fierce price war among supermarkets despite last year’s reported record sales in the UK and Ireland.

The fall of the chain was blamed on its “continued investment in prices and infrastructure” as Aldi’s said sales rose in 2016 to 13.5% (£8.7bn) but operating profit plunged 17%.

Matthew Barnes, Chief Executive Officer of ALDI Einkauf GmbH & Co, said in an interview that it had invested “a huge amount” to retain its prices the lowest in the sector.

“We view that position of having the lowest price in the market as the contract we have with our customers, and whatever happens and whatever challenges arise we maintain that price gap,” Barnes added.

Aldi, which currently has a 6.9% share of the market and 726 stores in the UK, expressed its plan to expand 70 this year and eventually invest a further £459m. The data released makes it the fifth-biggest supermarket in the UK after Tesco, Asda, Sainsbury’s and Morrisons.

Analysts have seen discounters’ growth slowdown over the last four years and they expect it to continue. They pointed out Tesco’s introduction of a budget range of own-label “farm” brands in the previous year has made an impact to Aldi.

A typical big supermarket consists of an estimate of 20,000 to 30,000 compared with Aldi’s 1,700 products. This enables the chain to buy products more cheaply and pass on that saving to customers. A vast majority of these are private labels and are not being beholden to the big brands.

Aldi’s Expansion

hqbroker-Aldi Plans Rapid Expansion Despite Profit Drop

UK’s decision to leave the EU has stirred up cautiousness within the business community, with Aldi’s future investment plans unaffected, Barnes stated that it will through with its rapid expansion.

Aldi’s “Project Fresh” initiative aims to create more store space and wider aisles, both of which had weighed on profit.

“These are features we would more traditionally associate with a supermarket than a discounter and suggests they are expanding growth by moving away from a pure discounter model,” he stated.

Mr. Barnes pointed out the face that the amount of customers walking through Aldi’s doors is growing every day of the week which makes them confident with proceeding with their investment.

The German brand’s presence has provoked a prolonged supermarket price war and changed consumers’ behavior towards no-frills shopping, wearing down snobbery towards discount retailers.

Still, Aldi continues to sell a fraction of the products its larger supermarket rivals stock. The planned expansion proposed 1,000 stores in the UK by 2022.

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Categories: Consumer Products, News

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