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<\/div>\nWith the cost-of-living crisis at the forefront of shoppers\u2019 minds, it\u2019s no surprise so shoppers have jumped ship from the traditional big four supermarkets to discounters.<\/span><\/p>\n Aldi recently revealed its profits had tripled in the 12 months to December 2022, and that it planned to invest \u00a31.4bn in its expansion spree across the UK over the next two years.<\/span><\/p>\n By contrast,<\/span> rival discounter Lidl unveiled a \u00a376m annual loss earlier this month,<\/span> however sales soared 19%.<\/p>\n Retail Gazette looks at the different set of results and what the future holds for both discounters.<\/span><\/p>\n It looks a tale of two discounters on the face of it, however, digging deeper there are other factors at play.<\/span><\/p>\n Lidl blamed its large pre-tax loss on \u201csignificant investments in prices, colleagues, suppliers and future growth\u201d.<\/span><\/p>\n The grocer invested \u00a3100m in keeping prices lower than the traditional supermarkets and a further \u00a350m on increasing its minimum hourly pay for staff over the year.<\/span><\/p>\n However, it made an even bigger investment in its expansion plan, opening <\/span>50 new branches to Aldi\u2019s 18. <\/span><\/p>\n It also opened its largest warehouse globally in Luton, following a \u00a3300m investment, and extended its Belvedere warehouse.<\/span><\/p>\n Lidl GB CEO <\/span>Ryan McDonnell says there is \u201cno ceiling\u201d to its ambitions in the UK and that it saw the potential for hundreds of new stores.<\/span><\/p>\n Kantar Consulting associate director Sophie Carroll says: \u201cLidl has been hit by higher costs, including new stores, energy, transport, procurement and financing. <\/span><\/p>\n \u201cYes, Lidl UK swung to a loss but sales and customer numbers have soared. It<\/span>\u00a0ultimately chose not to pass on these cost increases to consumers, but invested instead in keeping prices low\u201d.<\/span><\/p>\n Indeed, Lidl added more than 1.4 million new customers during the period, compared with Aldi\u2019s 1 million. <\/span>Its market share increased from 6.1% to 7.1%, which it claims is the most rapid growth experienced by the discounter over the past five years.<\/span><\/p>\n Retail Economics CEO Richard Lim argues that Aldi is in \u201cmore of a market leading position\u201d whilst Lidl is focused on growth at all costs.<\/span><\/p>\n He says: \u201cWhere Lidl is a little less mature in the market and on a big growth expansion, there\u2019s probably the tendency for it to sacrifice some of its margin in a trade off for growth and market share compared to Aldi.\u201d<\/span><\/p>\n While Aldi\u2019s performance looks stronger on a profit basis \u2013 a phenomenal 197% uplift from \u00a360.2m to \u00a3178.7m in 2022 \u2013 it must be pointed out that the previous year\u2019s performance was particularly weak.<\/span><\/p>\n In 2021, when Covid undoubtedly hit the business, Aldi\u2019s profit margin fell to an 11-year low of 0.4%.<\/span><\/p>\n Despite the recovery in profits in 2022, its 1.2% margin is not mind-blowing and <\/span>Global Data senior retail analyst <\/span>Eleanor Simpson-Gould points out that it is lower than the 2.4% it achieved in 2019.<\/p>\n Even this is lower than the 3.9% margin Tesco achieved last year, or the 2.99% notched up by Sainsbury\u2019s.<\/p>\n Store expansion may have slowed for Aldi last year and it seems to have quietly dropped<\/span> its long-term goal of having 1,200 stores by 2025.<\/span><\/p>\n However, it has revealed plans to invest \u00a31.4bn in new and improved stores and distribution centres over the next two years.<\/span><\/p>\n Simpson-Gould sounds a note of caution on its plans.<\/span><\/p>\n \u201cLidl\u2019s expansion perhaps comes as a cautionary tale for Aldi\u2019s proposed investment in store and distribution plans,\u201d she says.<\/span><\/p>\n \u201cAldi must ensure the viability of further expansion is well strategised to reduce pitfalls incurred by Lidl and refrain from diluting its operating model strengths.\u201d<\/span><\/p>\n According to brand research data from consultancy Mintel, Aldi outperforms Lidl in terms of being a \u201cfavourite retailer, offering an excellent experience and being a recommended retailer\u201d.<\/span><\/p>\n Aldi has certainly invested in its store experience, with its new generation stores a far cry from the utilitarian stores of old.<\/span><\/p>\n However, Lim points out that Lidl has also \u201cupped its game in terms of customer experience in store\u201d.<\/span><\/p>\n \u201cIt\u2019s invested in the store environment and modernised a lot of its stores\u201d he says.<\/span><\/p>\n Mintel director of retail research EMEA Neil Mason believes Aldi will continue to outperform Lidl in the longer term as he believes that \u2013 despite last year\u2019s showing -its store expansion strategy is \u201cbolder and more aggressive\u201d.<\/span><\/p>\n IGD senior insight analyst Dan Butler agrees that Aldi looks set to retain its lead as he believes Lidl could find funding future expansion challenging.\u00a0<\/span><\/p>\n \u201cLidl is relying on loans for funding and the current interest rates are not favourable,\u201d he says.<\/span><\/p>\n It emerged over the weekend that the retailer is facing increased borrowing costs, with the <\/span>interest bill on its debts almost trebling to \u00a3108m in its last financial year.<\/span><\/p>\n Butler believes this will pour cold water over store expansion plans.<\/span><\/p>\n He says: \u201cIt is likely that Lidl will only open around 20 UK stores in 2023, compared to previous years where it would be opening around 50 new locations\u201d.<\/span><\/p>\n Kantar\u2019s Carroll points out that that Lidl\u2019s owner has been happy to invest in its growth.<\/span><\/p>\n \u201cLidl, and parent company, Schwarz Group say they are relaxed about current profit levels because they are focused on the long-term opportunity, which we can see evolving across the ecosystem the group is constructing,\u201d she says.<\/span><\/p>\n However, Lim points out while the discounters are battling with each other, \u201cthe main opportunity lies in whether they can take market share off the traditional big four supermarkets\u201d as shoppers trade down.<\/span><\/p>\n \u201cI wouldn\u2019t be able to pick out one winner over the other, but it will be the supermarket that can adapt the fastest to the opportunity. The one that continues to drive efficiencies within their business.<\/span><\/p>\n \u201cSome of those efficiencies are going to be in things like investing in technology, driving better efficiencies in supply chain, trying to invest in better customer service and keeping a forensic eye on their profitability.<\/span><\/p>\n \u201cBut I would probably say from a market perspective, they are both going to be winners\u201d.<\/span><\/p>\n Where should the discounters be focusing to propel future growth at the business?\u00a0<\/span><\/p>\n Mason believes Aldi should focus on both online and its non-food offer.<\/span><\/p>\n In terms of online, Aldi has showed little sign of wanted to develop a full online grocery offer. In fact, it recently ended the online delivery of its Specialbuys and stopped selling wine online in January.<\/span><\/p>\n However, Mason believes its click-and-collect offer, which it launched in 2020 in the midst of the pandemic, could be expanded.<\/span><\/p>\n Aldi chief executive<\/span> Giles Hurley hinted at major expansion plans for click-and-collect at the end of 2022 and told shoppers to \u201cwatch this space\u201d when it came to rolling out the service across more of its stores.<\/span><\/p>\n However, Which? revealed that the grocer had actually ditched the service at 12 of its stores, <\/span>citing a lack of uptake from shoppers.<\/span><\/p>\n Mason also believes that both Aldi and Lidl could look to expand their non-food offer, as their middle aisle offer has always been popular with online shoppers.<\/span><\/p>\n Lim adds that customer data is going to be \u201cabsolutely critical\u201d for both discounters in order to \u201cenhance the lifetime value of their customers\u201d.<\/span><\/p>\n Since Aldi famously doesn\u2019t have a loyalty card scheme, this could become a key difference between the competing supermarkets.<\/span><\/p>\n Lidl\u2019s loyalty scheme turns to gamification to stand out, in stark contrast to the member pricing model that many supermarkets have adopted.<\/span><\/p>\n The Lidl Plus app <\/span>taps into gambling and has used both \u2018spin the wheel\u2019 and scratchcards to win a prize after every shopping trip, providing the instant gratification that many crave.<\/span><\/p>\n However, the biggest factor for both retailers is to try to retain the custom they have attracted during the cost-of-living crisis.\u00a0<\/span><\/p>\n Carroll believes they can do it: \u201c\u2018Discount shopping is here to stay\u2019 to quote Hurley,\u201d she says.<\/span><\/p>\n \u201cAs a result, both Lidl and Aldi are poised for continued growth, much as they did in the wake of the 2008 financial crisis\u201d.<\/span><\/p>\n Hurley himself says shoppers are using Aldi in a different way and it has become shoppers\u2019 first-choice supermarket for their weekly shop, rather than just a \u201ctop up\u201d.<\/p>\n Hurley says: \u201cWhat we\u2019re seeing is a new generation of savvy shoppers who\u2019ve turned their back on traditional, full-price supermarkets in favour of transparent, low prices, which is what we\u2019re famous for.<\/span><\/p>\n \u201cThat\u2019s why we\u2019re still welcoming more and more customers through our doors \u2013 people who come to us for our low prices but stay for the award-winning quality of our exclusive brands.\u201d<\/span><\/p>\n Let\u2019s see if that quality \u2013 as well as price \u2013 can convince shoppers to stick with the discounters as inflation finally eases.<\/span><\/p>\nComparing the numbers<\/b><\/h3>\n
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<\/p>\nBut which discounter is on top?\u00a0<\/span><\/h3>\n
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<\/p>\nWhat next for the discounters?<\/b><\/h3>\n
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