The discount store is creating strong relationships with British food and drink manufacturers in the wake of the Brexit vote, as British produce becomes cheaper than foreign imports and shoppers are predicted to favour British products.
Coinciding with Aldi’s pledge of 70 new stores by the end of 2017, manufacturers could expect a much greater demand for their products.
Aldi reported record results, including sales of £7.7bn and a year-on-year growth of 12%, in its financial year to December 31 2015. More than 760,000 new customers shopped at Aldi this year, as the company’s UK grocery-wide market share reached 6.2%, a record high for the discount store.
HSBC Global Research analyst David McCarthy told FoodManufacture.co.uk: “When a retailer delivers such growth, it can be win-win for both parties [retailer and manufacturer] as marginal production costs are below average costs, so the supplier can afford to offer lower prices with increased volume.”
‘Positive news for food manufacturers’
Meanwhile, Verdict Retail senior analyst Greg Bromley said: “Aldi’s commitment to British produce is positive news for food manufacturers – especially as it continues to expand stores, and therefore demand more significant volumes.
“It is also especially important in the wake of Brexit, as foreign sourcing may become more expensive for retailers. Aldi forging strong relationships with local suppliers should stand the retailer – and the manufacturers that supply it – in good stead going forward.”
However, as the big four supermarkets – Tesco, Asda, Sainsbury and Morrisons – fight back on price, Bromley warned “with Aldi having to continually invest margin to maintain its prices, it might have to squeeze its suppliers harder to get its products for less.
‘Squeeze its suppliers’
“This might mean less favourable deals for manufacturers as a result.”
Aldi lowered prices on 30% of its products since the beginning of 2016, it reported this week (September 28). Its price cuts meant it reported a drop in operating profits of 1.8% to £255.6M, despite the record sales.
The company said it planned to invest £300M into its UK stores over the next three years. The investment would be used to refurbish over 100 stores next year, and create the extra 70 stores. It would also be used for its new food-to-go fixture.
Aldi financial year results – at a glance
- £7.705bn in sales in year to December 31 2015
- 12% rise in sales year-on-year
- 761,000 new customers
- Operating profits down 1.8% to £255.6M
- £300M investment for 70 new stores and refurbishments