Aldi posts record sales but profits drop on price war
German discounter Aldi reported record sales for last year on Monday but profits fell as the company continued to invest in prices and infrastructure.
In the year to 31 December 2016, sales in the UK and Ireland rose 13.5% to a record £8.7bn as more than 1 million shoppers switched over from other supermarkets. The group pointed out that its sales performance was achieved despite overall grocery market growth of just 0.5% during the period, according to Kantar.
However, operating profit was down 17% to £211.3m as Aldi invested over £450m of capital expenditure opening new stores and improving its distribution centres in the UK and Ireland. The retailer said its future capital expenditure plans remained "entirely unaffected" by the UK’s decision to leave the EU and that it expects to invest £459m this year.
Aldi intends to open a further 70 new UK stores next year as part of its plans to reach 1,000 by 2022.
Chief executive officer Matthew Barnes said: "Our growth is accelerating, thanks to the hundreds of thousands of new customers switching their shop to Aldi. This is happening right across the UK and is all down to a simple, straightforward commitment - products comparable to the leading brands and supermarket premium ranges at the lowest prices in Britain.
“We’re doing everything we can to insulate customers from those cost increases, making sure our prices are the lowest in the UK, every day of the year."
Aldi currently operates 726 UK stores, and according to Kantar it's the fifth biggest supermarket, with a 6.9% share of the market.
Andy Brian, head of retail at Gordons law firm, said: “Aldi and the other value operators in grocery have made a clear commitment to challenging the established big four of Tesco, Asda, Sainsbury and Morrisons. However, these established powers have made a considerable investment in price to try and stave off the rise of the challengers, which have been gaining increased market share over recent years.
“This has put pressure on Aldi to fulfil its commitment to offer the lowest prices in Britain, but its latest figures show that it is here to stay and signals its intent to continue to gain market share by investing in price, even if that means sacrificing profits.”