Aldi racks up record sales but price cuts weigh on profit

German-owned supermarket discounter Aldi has posted record sales, but at the expense of earnings falling 17 per cent as it focused on cutting prices to try and extend its footprint.

Aldi wants to increase its Scottish presence to 100 locations by 2020. Picture: Michael Gillen
Aldi wants to increase its Scottish presence to 100 locations by 2020. Picture: Michael Gillen

The company declined to split out its like-for-like sales figures, leading some City analysts to interpret the growth as based on new store openings as the “big four” supermarkets hit back with their own price cuts.

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Aldi, which has 75 stores across Scotland, employing more than 2,000 people, said annual sales in the UK and Ireland rose 13.5 per cent to £8.7 billion in 2016 – a £1bn increase on the previous year.

The supermarket group added that it had attracted more than one million new customers in the year to date. It is estimated to have a UK food retailing market share of more than 6 per cent.

However, Aldi’s operating profits dropped 17 per cent – or £44 million – to £211.3m due to the ongoing investment drive, spending £450m on new store openings and refurbishing its distribution centres. Aldi has said it also plans to launch another 70 UK stores in 2018 as part of a wider aim to open 1,000 stores by 2022. The group wants to increase its Scottish footprint to 100 locations by 2020.

Matthew Barnes, Aldi’s chief executive for the UK and Ireland, 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.”

He added: “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.

“At the same time, we’ve been improving the quality of our range and introducing the new products our customers have asked for.”

Aldi, which employs about 29,000 people throughout the UK, said it secured bumper sales growth despite the wider grocery market expanding by just 0.5 per cent over the period, according to industry figures from Kantar Worldpanel.

Its sales were partly boosted by a strong Christmas period last year, with sales in December rising 15 per cent year-on-year. However, gross profits fell 7 per cent to £324.5m.

The company said it would launch another 150 stores under its £300m “Project Fresh” strategy, which aims to devote more space for its fresh, chilled and food-to-go ranges.

Aldi said the Brexit vote would not impact its UK investment strategy, and that capital spending of £459m was pencilled in for the current financial year.

A recent independent study by the Centre for Economics & Business Research said the retailer currently contributes some £380m to the Scottish economy. The report said this contribution combines job creation, tax contributions and capital investment.

One retail analyst commented: “The latest results show Aldi remains on the front foot as far as expansion is concerned, but the reduced profits bear the marks of sharp competition in the sector.”