What has happened to Aldi’s stratospheric growth story?

In September last year, Aldi was the UK’s fastest-growing supermarket, and had been so for five months in row, according to Kantar data. Its sales were up 17.1% year on year, and its market share stood at 10.1%, having broken double digits for the first time that spring. 

It might have seemed like a long time ago to Aldi executives reading the latest Kantar data, covering the 12 weeks to 17 March 2024. That showed it was only the seventh fastest-growing major supermarket, behind Ocado, Lidl, Sainsbury’s, Tesco’s, Waitrose and Morrisons. Aldi’s sales were up 3.1%, compared with the 4.2% growth of the total market. It left its market share at 9.8%, down from 9.9% a year earlier.

So what’s changed for the former discount growth machine?

Stores

Whatever it is has not happened equally to Aldi’s most direct competitor (see chart, below). Lidl was the fastest-growing supermarket for the sixth month in a row in February, and second after Ocado in March. Lidl’s sales growth was 8.8%, putting its market share at 7.8%, up from 7.4% a year earlier.

Both discounters are working on similarly tough comparatives – in March 2023, Aldi’s sales were up 25.4% year on year while Lidl’s had climbed 25.8%.

Meanwhile, Aldi has opened about 20 stores in the past year, taking its UK total to “more than 1,010”, while Lidl’s estate has been static at “over 960”.

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But Lidl’s stores have “never been as busy as Aldi’s”, says Paul Stainton, UK partner at private label consultancy IPLC and a former Aldi buying director. Therefore “Lidl have had a lot more potential to grow like-for-like sales by making existing stores sweat harder,” he says.

“When I was at Aldi [until 2020], our turnover was about a third more per store.”

It can be seen in the retailers’ latest full-year results, covering 2022. Lidl GB’s revenue was £9.3bn from an estate that by the end of the period stood at about 950 stores. Aldi’s revenue in both the UK and Ireland was two-thirds more – £15.5bn – from roughly 20% more stores.

It can also be seen changing, says Stainton. Kantar’s latest data shows Aldi added £97m in sales year on year, equating to roughly £40,000 per store, while Lidl added £207m, or about £216,000 per store.

Aldi Price Match

If Aldi has less capacity to embrace new customers, it won’t have helped that taking them from the traditional ‘big four’ has grown tougher: as of February there is not single traditional big four supermarket that is not promising it matches hundreds of Aldi prices.

Sainsbury’s and Tesco have the biggest Aldi price match schemes, covering over 600 products apiece, and are the fastest growing of the traditional supermarkets, with sales up 6.7% and 5.8% year on year respectively.

Sainsbury’s this week aped Tesco by launching Low Everyday Prices, meaning the price match is now part of an identical three-pronged value approach at each of the two supermarkets, also including loyalty pricing.

“We’ve seen incumbent grocers adopt a much more aggressive pricing strategy targeting the discounters, but particularly Aldi,” says Retail Economics CEO Richard Lim.

 

Asda has increased its price-matched lines from 330 to 430 since February, while Morrisons matches 200 products.

“The schemes are so widespread now,” says Stainton. “You could argue it’s free advertising for Aldi but it’s also telling the Sainsbury’s consumer ‘don’t worry about that discount stuff, we’re covering it.’”

The schemes will also have made it “difficult for Aldi to increase their prices” to cover inflation on their smaller assortment, says Ged Futter, director of The Retail Mind.

And while Asda and Morrisons match Aldi and Lidl, those schemes only arrived this year, while Tesco’s Aldi campaign launched four years ago and Sainsbury’s three.

Aldi maintains it has seen no direct evidence the price match schemes are benefiting rivals and points to the £580m it gained in spend switching from all key competitors over the past 12 months, according to Kantar.

Lidl Plus

That switching pattern may be true over the 12-month period, but there is one rival with which the flow of spend has been in the other direction more recently. Lidl has been consistently taking spend from all other supermarkets, including Aldi, since autumn last year.

When Lidl released the Kantar numbers at Christmas – £116m switching from rivals in the 12 weeks to 24 December including £12.2m from Aldi – experts credited its loyalty app.

The Lidl Plus app, which launched in 2020, rewards users with personalised product discounts, while enabling Lidl to collect data on their purchases and preferences. It also gives away freebies, and 38% of shoppers use it [NIQ Homescan November 2023].

Throughout February, Lidl gave users one free bakery item per shop, plus discounts on further bakery purchases, while in-store signs told shoppers ‘Doughnut miss out’ and ‘Be a smart cookie… Download Lidl Plus.’ It is not seen as coincidence that Lidl’s sales in the 12 weeks to 17 March were helped, according to Kantar, “by a 24% rise in sales of baked goods”.

Paul Foley, Aldi’s UK & Ireland CEO from 1999 to 2009, says: “There is no doubt in my mind the Lidl loyalty scheme is a winner and that this marketing tool is at the centre of their current success.

“The loyalty scheme is hailed worldwide within the discount industry as the first scheme that encourages more than 60% transaction penetration, so you get a treasure trove of information, but does not cost anything like the 2%-plus of revenue that traditional points systems do.”

The recent choice of pushing bakery items in particular is “really smart”, says IPLC UK partner Richard Harrow, because Aldi has bakeries in only 16 stores. It has highlighted Lidl’s “unique proposition in the discount space” to consumers migrating from the mults.

Ronny Gottschlich, who was Lidl’s UK CEO from 2010 to 2016 – a period in which it introduced bakeries – notes the category is also “closely interlinked with frequency of shop, and so it simply means customers actually shop with you more in absolute terms”.

“It’s an area of success for Lidl where Aldi has not been doing anything,” he adds.

The promotion of it has further played to Lidl’s strengths because “they produce their own bakery products, in their own facilities”, meaning the margin pressure is lower than in other categories, says Marc Houppermans, executive partner at Düsseldorf-based Discount Retail Consulting and a former Aldi Netherlands board member.

And clearly, “such a giveaway can boost your traffic, and so your sales”, says fellow DRC executive partner William Snollaerts, also a former Aldi Netherlands board member.

Aldi’s plans

Aldi is believed to be considering launching its own app at international level, though it maintains there are no plans.

It has other tasks with which to occupy itself. It is rolling out a new SAP Ariba IT system internationally, including in the UK, where it has started to go live, region by region, in the past few weeks, with new administration requirements for suppliers.

Since 2022 it has also been splitting some buying functions with Aldi Global Sourcing in Salzburg, which Futter says has an “ever-growing influence”.

For Aldi, it all promises an even more efficient business, exploiting economies of scale where it makes sense.

It sees the broader challenge – highlighted by the trading figures – as expanding capacity to welcome new customers, rather than any diminishing demand from them. Hence late last year it created a new national real estate team, aided by property consultancy Colliers, to better navigate the various headwinds that hold up new stores, not least planning objections from rival supermarkets. Aldi is targeting 35 new stores this year, in a £550m investment.

And this week – in the wake of the Kantar data – it pledged to cut “more prices than ever”, by investing even more in 2024 than the £380m it pumped into lowering prices last year.

“We are very pleased with the performance we have delivered over the past few years,” says an Aldi spokesman.

“Over three decades in the UK, we have proven time and again that we deliver on long-term plans thanks to our consistent strategy, simple business model and private ownership.

“We are looking forward to continuing that growth by welcoming additional customers, opening new stores and investing in our infrastructure. We won’t stop until we have made our quality food and unbeatable prices accessible to all.”