Aldi’s organics entry could cause a price war

Consumers could save 25% on their baskets of British organic products by shopping at Aldi, the German discounter claimed when it announced it would sell organic produce in October. But Aldi's move into organics could spark a price war in this sector, Browning claimed.

Sainsbury is the largest retailer of organic food, with a market share of 29%, according to the Soil Association’s 2014 Organic Report. Such high sales of organics have led some city analysts to suggest that the discounters posed a threat to Sainsbury and the other major multiples with organic offerings.

‘Do it for less’ ​

“Will it be that Sainsbury and the other retailers start to say, ‘we will cut our margins on organic to maintain our customer base’?”​ questioned Browning. “Or will they say ‘we’re going back to our suppliers to ask them to do it for less’?”​

Browning said consumers were once again starting to show interest in organic food. This follows a fall off in demand for organics during the recession.

However, continued pressure on consumer spending power was increasing competition for shoppers between the big retailers. “We don’t want to see price wars going on in organic,”​ remarked Browning. She added that farmers and food manufacturers would ultimately pay the price.

Sainsbury would not be drawn on whether it would lower the prices of its organic products in response to Aldi's move. “We don’t comment on pricing or competitors,”​ said a spokeswoman.

The discounters were definitely a threat to the big four supermarkets’ organic offering, according to Clive Black, an analyst at Shore Capital. “The limited assortment discounters are actively exploring and seeking to move up the value chain; they have been for some time, and organic products form part of that process,” ​he said.

Threat ​

Not only by moving into organics, but by adding more premium lines in the meat, fish and alcohol categories to attract wealthier customers, Aldi was becoming more of a threat to the multiples, said Black.

Julian Wild, a partner at the law firm Rollits, agreed with this analysis and suggested Aldi would use organics as a ‘loss leader’, “I suspect that Aldi wants to show that it isn’t just a cheap discounter and can offer organics,”​ he said.