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German discounting is a problem for British grocery stores.

Reuters reports from London.The big supermarkets in Britain say their prices have never been more competitive. However, their customers are still going to Aldi and Lidl, which are owned by Germans.

Executives in the business world say that discounters still have a long way to go before they take over supermarkets. Aldi UK CEO Giles Hurley has promised Britain’s lowest prices “no matter what.”

This is forcing the big players in Britain, like market leader Tesco (OTC: TSCDY), Sainsbury’s, Asda, and Morrisons, to cut costs even more so they can keep prices low and keep customers who are having trouble paying their bills.

“Just during the Christmas season, shoppers switched 58 million pounds ($70 million) of purchases from Tesco and Sainsbury’s to Lidl,” said Ryan McDonnell, the CEO of Lidl GB.

“That isn’t just because people are going to new stores.”

During the holidays, shoppers from all the traditional groups went to discount stores. Sales at Aldi and Lidl went up 26% and 25%, respectively, in December.

The two German companies already have more than 16% of the British market between them, but analysts, academics, and grocery executives think that will double within a decade as they spend hundreds of millions of pounds to grow.

Aldi wants to have 1,200 stores in the UK by 2025, up from its current number of 990. Lidl wants to have 1,100 stores, up from more than 950.

Existing companies in Britain are finding it hard to compete, in part because the two relatively new companies are so big. Between them, they are in more than 30 countries, including the United States, where Aldi is doing very well.

The size of the discounters means that they can negotiate better deals with their suppliers. Since they are privately owned, they don’t have to worry about shareholder returns or stock prices, so they can look at profit in a more long-term way.

In places like Germany, Poland, Denmark, and Norway, discounters make up more than a third of the supermarket market. This is likely to be the case in Britain as well.

Leigh Sparks, a professor of retail studies at the University of Stirling in Scotland, told Reuters that the UK will be like many other European countries.

Kantar, a research firm, says that Aldi UK, which is owned by Aldi Sud, is now Britain’s fourth largest grocery store with a market share of 9.2%. Lidl, which is owned by the Schwarz Group, is the sixth largest with a market share of 7.1%.


Tesco and Sainsbury’s have already done something about it by getting rid of their meat, fish, and deli counters and replacing a lot of their check-out staff with machines.

This is because of the lessons learned during the 2008 financial crisis, when Aldi and Lidl got a foothold in Britain by doing a much better job of keeping prices low on their 2,000 mostly own-brand products, compared to the 30,000–40,000 products at the big supermarkets.

With Britain on the edge of a recession and food prices going up by more than 15%, the old players are fighting back this time. Even though the price difference with discounters is still big (14–18% for a shopping basket of 45 items, according to Which? ), it has shrunk in recent years.

Tesco and Sainsbury’s are now matching Aldi’s prices on hundreds of key items and using customer loyalty programmes to keep prices low. They are also taking a hit to their profits by doing this.

Last month, the CEO of Tesco, Ken Murphy, said, “We’re in the best value position we’ve been in for many, many years.” The CEO of Sainsbury’s, Simon Roberts, said that the company was raising prices less than all of its main competitors.

Some investors say that the worst is over for the traditional players and that Tesco and Sainsbury’s are good investments because they have dividend yields of almost 5%.

“They pay attractive dividends, their businesses are much simpler than they used to be, and they make a lot of cash,” said a top 50 shareholder in both.

(Graphic: Aldi and Lidl gain more market share,


Executives in the sector who did not want to be named said that Aldi and Lidl will continue to grow.

“The only question is who gives up the share and when that becomes a problem for one or more of the players,” a Reuters source with experience in the field said.

“At some point, there will be some kind of industry re-basing or consolidation because the amount of space being put down is more than the increase in demand.”

Bestway, which owns Costcutter, has bought a 4.5% stake in Sainsbury’s, but the company says it has no plans to take it over. The Qatari government owns 14.3% of the company.

While Britain’s competition authorities blocked Sainsbury’s plan to buy Asda in 2019, things are different now. Kantar’s data shows that Aldi is ahead of Morrisons.

“No one is going to get rid of Tesco, but someone might get rid of Sainsbury’s at some point,” the veteran in the field said.

(1 dollar = 0.8273 pounds)


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