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Retail Viewpoint – Aldi

Aldi steals Christmas sales from the big four

Aldi has built on last year’s strong Christmas trading performance, seeing UK and Ireland sales increase ‘more than 15%’ during December 2017. Growth was reportedly strong across all categories, but its premium Specially Selected range outperformed with 30% growth. Aldi’s growth potential remains strong as inflation continues to eat into disposable income and consumers seek to reduce spend on groceries. The CEO Matthew Barnes anticipates ‘significant capacity for further growth’, as 400 towns and cities are still without an Aldi.

Aldi has focused investment into its premium ranges over the past two years to tap into the growing dichotomisation of consumer demand, a trend which is particularly strong at Christmas. Consumers look for value overall, but will prioritise price on lower value, everyday items, and while saving money on these products, they are more inclined to pick up luxury or treat items – particularly if these items are at a significantly lower price than at traditional grocers. For consumers looking for luxury items at Christmas, products such as gammon joints with a gingerbread crumb, and Aberdeen Angus roasting joints were highly attractive to consumers.

Aldi’s reputation as a destination for alcohol continues to grow – during December it sold more than 6.8 million bottles of wine, champagne and prosecco. Irish Cream was also a best seller this year, available at £5.36 per litre versus £15 for its equivalent Baileys. While this has a bolstering effect on Christmas performance as alcohol sales are highest during December, it shows that Aldi continues to be a relevant destination for consumers with its product innovation and price points.

However, the announcement of wages continuing to increase will eat into profits. Aldi’s full- year operating profit fell 17.1% for FY2016, driven by Aldi experiencing the same input inflation pressures that we have seen across the UK food & grocery sector throughout 2016 and 2017. Aldi needs to focus on sweating assets through 2018 to improve margins up from the 2.4% that we estimate they currently were for 2016. Food inflation is expected to remain above 2.5% throughout 2018, which will continue to drive consumers to switch to the discounters.

Source: GlobalData 4th January 2018

January 2018

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