There was a moment in 2010 when something profound changed in the keenly contested competition between British supermarkets.
Shoppers at Aldi - a German discount brand which first landed on these shores in 1990 - started emerging from its ever-less drab stores not just with baskets containing the odd bargain, but with trolleys filled to the brim with the whole weekly shop.
“It was revolutionary,” says Clive Black, an analyst at Shore Capital. “Right after the great financial crash people needed to save money. Superstores had allowed prices to drift too high. Suddenly shoppers who wouldn’t have been seen dead in Aldi were trying them out. And when they got there they found their neighbours were already doing the same. Aldi had broken into the mainstream market.”
But Aldi wasn’t stopping there. And now the cost of living crisis has supercharged its sales once again, helping it break the market stranglehold of Britain’s Big Four supermarkets - Tesco, Sainsburys, Asda and Morrisons - for the first time. Figures published by Kantar on Tuesday revealed that Aldi is now bigger than Morrisons, with its share of the UK grocery market growing to 9.3pc in the 12 weeks to Sept 4 after sales rose by a fifth. “That traditional Big Four is no more,” says Fraser McKevitt, head of retail and consumer insight at Kantar.
Before the great crash, 25 years into its quest to conquer Britain, Aldi had just a couple of hundred shops around the country. There were even rumours it might pull out of the UK altogether. Today it has more than 900, with plans to reach 1200-plus within the next two years. Some 14.2 million shoppers have visited an Aldi in the last three months. These days, says Black, “almost no one’s too snobbish to walk around with an Aldi bag”. So just how did a brand whose humble origins lie deep in the Ruhr valley of western Germany come to conquer British hearts?
Price, obviously, has been key. The discount concept has been at the heart of the Aldi brand since 1945 when brothers, Theo and Karl Albrecht, who had served in the war, took over their mother’s local shop in Essen and quickly began expanding. Within five years they had more than a dozen stores, notable for ruthlessly discarding lines that did not sell. By 1962 Albrecht-Discount - or ALDI - was born. A few years after that it expanded into Austria, then the Netherlands, and by the end of the 1970s even into America.
It took a little longer to reach Britain, and when the chain did, it was a fairly underwhelming presence. “It started off as quite a spartan experience,” says Bryan Roberts, from analysts IGD. The stores were downbeat. Fresh produce was limited. Tins were stacked on pallets. “It was cheap and basic, if not quite nasty,” says Shore Capital’s Black.
Even so, Aldi had an advantage. It arrived after a significant recession and supermarkets in the UK, unlike Continental Europe, were operating on high single digit margins. Aldi was prepared to work on margins half as big. As a result prices were much lower. The problem was that Tesco, then in its pomp, responded by introducing its Clubcard and slashing costs too. “The environment became very tough,” says Black. Aldi wondered if it had made a mistake.
But, perhaps because it is a privately operated German brand with a long-term outlook, not answerable to shareholders, it did not retreat from the UK.
Then came the great crash. For Aldi, it was a great boost. And new customers, drawn in by prices, stayed on for quality. “Things changed with the crash,” says Black. “But the real game changer wasn’t the price, it was the quality of the products.” Aldi became a word of mouth phenomenon, as on select lines, such as wine, shoppers realised they could bag top notch bargains. “There was a point when they crossed over from being for poorer people, to being for smarter people,” says Roberts. That transformation “was a blind spot” for the Big Four, says Black. “They didn’t realise Aldi” because of its limited range and relentless focus on cost, “was selling higher quality at lower prices.”
As a result, no one is now safe from the march of Aldi, not even Waitrose. “Waitrose may have a more affluent base, but that base is savvy,” says Black. And savvy shoppers are precisely what Aldi now caters to.
Slowly, Aldi began expanding its range. Stores got makeovers. More fresh produce, and even fish, were sold. The odd brand name permeated the private-label produce which still accounts for 90pc of what Aldi sells. Still, one thing has never changed.
“What they have retained is that brutal focus on efficiency, their DNA as a discount operator,” says Roberts. He tells of ruthless attention to detail, such as insisting that every side of packaging has a barcode so checkout staff never have to turn items to find it. As a result Aldi has the fastest checkout rate in the market.
Marketing helped cement the brand’s new place in British hearts. Its founder may have served in the Wehrmacht, but Aldi in Britain has “totally divorced itself from being German,” says Black. The chain sponsors the British Olympic team, its mascot Kevin the carrot sported a Union Jack tophat for the Jubilee, and the flag is throughout its stores, alongside the motto “Championing Great British Quality".
It’s not just a slogan: the chain is adept at supporting British suppliers, many of whom find working with it far simpler and more reliable than with other supermarkets, whose complex demands are more time consuming to fulfil.
There is, though, a more questionable side to its marketing in, as Black puts it, the similarity to established brands. Quite what Lurpak, which has spent years burnishing its premium brand, thinks of Norpak, Aldi’s private label, is anyone’s guess. In 2018 Aldi was described as “like a parasite” by a Yorkshire pig farmer Andrew Keeble who claimed Aldi had copied his product. Aldi’s CEO Giles Hurley denied the claim.
But Aldi has not had it all its own way. After the great crash, competitors responded, reducing range to increase volume and cutting costs themselves. And as the others have become more like Aldi, it has become more like its more traditional rivals. Today it is expanding across the country, with stores that are much nicer in look and feel.
Yet just as its rise seemed to be slowing, the cost of living crisis has put wind in Aldi’s sails again. Customers have three main methods of saving on groceries: sticking to a list; trading from brand names to own brand items at their usual shop; or changing shops. “And [changing] is what a large number of shoppers will do now,” says IGD’s Roberts.
All this success, though, comes at a cost. Despite its very strong sales, Aldi’s wafer thin margins, relatively high staff salaries and investment in new stores mean, in Black’s words, its “financial output is poor”. But with the long-term view for which it is famous, that perhaps is a problem that will fix itself as its market share grows, which it will. Today, the assumption is that, between them, Aldi and Lidl will soon account for 25pc of the UK market, up from 16pc today. “The Germans have been the great disruptors,” says Black.
There may be just one problem: they have set an example others are now following. In their wake, other discount brands - notably B&M and Home Bargains, are expanding their own grocery ranges. Will they out-discount the great discounters? Years from now, will Aldi be hoisted by its own volume-bought, cut-price petard? Those who accuse it of unfair mimicry might smile at the thought.
