MoneyWeek: Aldi and Lidl hit the big boys

Who’s the king of the retailers?

Aldi and Lidl have reached an unprecedented combined grocery market share of 10%. They have doubled their slice of the UK grocery spend since 2012. An additional million shoppers opted for the cheap German retailers over the last 12 weeks compared to the same period last year, while the average spend per trip increased by 4% to £18.85.

Meanwhile, Asda, Morrisons and Tesco all lost market share and experienced declining sales. Only Sainsbury’s saw a marginal uptick in its market share, from 16.4% to 16.6%, according to Kantar Worldpanel.
What the commentators said

“All those who predicted that the rise of Aldi and Lidl was a recession-era phenomenon, and that the German invaders would vanish from the high streets and roundabouts of Britain with the recession, have been proven wrong,” said Alex Brummer in the Daily Mail. They’re not just “conventional no-frills outfits”, but also entice comfortably-off shoppers “with a combination of good produce, fine wines and smoked salmon, and chocolate”.

The German discounters’ success is “heaping pressure on the established players to cut prices”, said Julia Bradshaw in The Daily Telegraph – especially Asda, whose latest quarterly sales decline made it the weakest performer of the “Big Four”. Andy Clarke, chief executive of Asda, has said that Asda aims to narrow the price gap to 5% between its basket and that of the German grocers.

It’s high time for the established players to up the ante, said Nils Pratley in The Guardian. It is “jarring” to hear Clarke talk about narrowing the gap; why can’t he “offer a core range of similar goods that eliminates, rather than merely closes the gap”? The answer is that Asda “prefers to protect its profit margins” as much as possible. But that strategy “is starting to look extremely short-termist”. A shop at Asda still costs 10% more than at Aldi and Lidl. HSBC’s David McCarthy reckons “the big boys” should lower prices by 15% on their core ranges. That sounds a bit more like it.

Originally published in MoneyWeek 19/11/2015:

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