© Reuters. Shoppers push trolleys along an aisle inside an ALDI supermarket near Altrincham, Britain, February 20, 2023. REUTERS/Phil Noble
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by James Davey
LONDON (Reuters) – Britain’s big supermarkets say they have never been more competitive on price, but their customers continue to flock to German discounters Aldi and Lidl.
And the sweep of discount supermarkets still has a long way to go, industry executives say, with Aldi UK CEO Giles Hurley promising Britain’s lowest prices “no matter what.”
That’s forcing Britain’s biggest players, market leader Tesco (OTC:), Sainsbury’s, Asda and Morrisons, to further cut costs so they can rein in prices and hold on to crisis-hit shoppers. of the cost of living.
“Over the Christmas period alone, shoppers switched £58 million ($70 million) (of purchases) to Lidl from Tesco and Sainsbury’s,” Lidl GB chief executive Ryan McDonnell told Reuters.
“That’s not just from customers visiting new stores.”
Discount stores proved to be the big winners over the festive period, attracting shoppers from all traditional groups, with Aldi and Lidl’s December sales up 26% and 25% respectively.
The German duo have already taken over 16% of the UK market between them, but analysts, academics and supermarket executives expect it to double in a decade as they spend hundreds of millions of pounds to expand.
Aldi is targeting 1,200 UK stores by 2025 from its current 990, and Lidl is aiming for 1,100, out of more than 950.
Britain’s incumbents are struggling to compete in part because of the scale of the two newcomers, who between them have a presence in more than 30 countries, including the United States, where Aldi in particular is thriving.
The size of discount stores ensures better terms when negotiating deals with suppliers, while they can also take a longer-term view of profits because they are privately owned and don’t have to worry about shareholder returns or retail prices. the actions.
Discounters control more than a third of the supermarket sector in countries such as Germany, Poland, Denmark and Norway, and the UK retail landscape is likely to do the same.
“The UK will model what many of the European countries have,” Leigh Sparks, a professor of retail studies at the University of Stirling in Scotland, told Reuters.
Aldi UK, owned by Aldi Sud, is now Britain’s fourth-biggest grocery store with a 9.2% market share, according to researcher Kantar, while Lidl, part of the Schwarz Group, is the sixth-biggest. with 7.1%.
PRICE PRESSURES
Tesco and Sainsbury’s have already responded by removing meat, fish and deli counters in stores and replacing large numbers of cashier staff with various forms of automation.
This reflects lessons learned during the financial crisis of 2008, when Aldi and Lidl secured a foothold in Britain by doing a better job of keeping prices low on their range of 2,000 mostly own-brand products against 30,000-40,000 of the large supermarkets.
With Britain teetering on the brink of recession and food price inflation above 15%, the traditional players are fighting back this time. While the price gap with discount stores remains significant, 14-18% for a 45-item shopping basket according to Which? – has narrowed in recent years.
Tesco and Sainsbury’s now match Aldi’s prices on hundreds of key items and use customer loyalty schemes, while accepting a profit hit to keep prices low.
“We’re in the strongest value position we’ve been in for many, many years,” Tesco CEO Ken Murphy said last month, while Sainsbury’s CEO Simon Roberts said he was raising prices. prices less than all of its key competitors.
Some investors say the worst of the pain is behind the traditional players and dividend yields of almost 5% at Tesco and Sainsbury’s make them solid investments.
“They are paying attractive dividends, they are much simpler businesses than they used to be and they generate a lot of cash, that’s the attraction,” said one of the top 50 shareholders of both.
(Graphic: Aldi, Lidl get bigger market share, https://www.reuters.com/graphics/UK-GROCERS/UK-GROCERS/gkvlwdexdpb/graphic.jpg
REBASE?
The industry executives, speaking on condition of anonymity, said the further rise of Aldi and Lidl is inexorable.
“The only question is who gives up the part and at what point does that become problematic for one or some of the players,” an industry veteran told Reuters.
“At some point, there will end up being some kind of industry shakeup or consolidation because the amount of space reserved is greater than the increase in demand.”
Costcutter owner Bestway has taken a 4.5% stake in Sainsbury’s but says it is not planning a takeover. Qatar’s sovereign wealth fund owns 14.3%.
While in 2019 Britain’s competition authorities blocked Sainsbury’s proposed takeover of Asda, the picture is different now, with Aldi ahead of Morrisons by Kantar’s measure.
“No one is going to oust Tesco, but at some point someone could oust Sainsbury’s,” said the industry veteran.
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