Just two months ago, at a retail conference in London, Paul Foley, the then head of Aldi’s operations in the UK and Ireland, was insisting the discounter’s newly-won shoppers would stick around, even when the economy recovers.
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Aldi and, to a lesser extent, its discount rival Lidl had seen their sales sky-rocket in the second half of last year, as recession-battered consumers flocked to the discounters in a bid to slash their shopping bills.
However, the UK’s largest multiples, most notably Tesco and Asda, hit back and, by that June conference, industry watchers were starting to question whether Aldi could sustain its buoyant growth when the recession ended.
That debate is still live but, as the retail sector discovered yesterday (12 August), Foley himself will not be at the helm as Aldi looks to continue its expansion in the UK.
It was announced yesterday afternoon that Foley, who had spent 20 years at the German discount giant, was leaving the business by “mutual consent”. Aldi, a notoriously secretive business, declined to comment further on Foley’s departure. Its statement said that its former UK boss was “widely credited as challenging and changing traditional market perceptions to establish Aldi as a leading brand offering high-quality and best-value products”.
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By GlobalDataAldi was certainly very canny with its PR. The mainstream UK media was quick to coin the term the ‘Aldi effect’ to describe the trend for shoppers to at last embrace discount chains that had been in the country for over a decade.
Neil Saunders, consulting director at Verdict Research, believes Foley’s time leading Aldi in the UK and Ireland should be judged a success.
“It is for the last few years that he will be remembered best: it was during this period that Aldi was reshaped to be more aligned to consumer preferences and appeared to open up in terms of communicating with stakeholders,” Saunders says.
The reasons for Foley’s departure remain unclear but it has raised eyebrows in the industry. After a buoyant 12-18 months, Aldi’s sales growth had begun to slow but the retailer was still looking to expand and Foley was clear that the discounter could continue to thrive even when consumer spending power returns.
However, some commentators believe the new boss of Aldi UK and Ireland, long-standing executive Armin Burger, has a challenge on his hands.
Ed Garner, director at grocery analysts TNS, says Aldi’s initial success in luring in cost-conscious shoppers has not lasted as its larger rivals upped their focus on price.
“A lot of people have tried Aldi but they’re not coming back with the same regularity,” Garner tells just-food. “The world hasn’t stood still. Aldi’s competitors have bit back quite sharply. Asda, for instance, hasn’t lost one jot to the discounters – in fact, Asda has gained from them.”
One strategy developed by Foley and his team was to position Aldi as a more upmarket discounter, bringing in the likes of celebrity chef Phil Vickery to convince consumers that it sold good quality products. In doing so, perhaps Aldi began to move into the territory occupied by the likes of Morrisons.
However, Saunders insists Aldi should continue to emphasise quality if it wants to keep consumers interested.
“The perception was [Aldi] focused on price and little else. That has now begun to change and the company has a much greater quality dimension to its proposition. In my view it’s critical they continue to develop this,” Saunders says. “Sure, they have to offer great prices – but they also need to give consumers a reason to visit, and that can only be done through developing a more aspirational point of view.”
To differentiate itself from the likes of Morrisons and Asda, Saunders says Aldi should focus on its product segmentation. “Aldi needs to offer some of the lowest prices around on key items and staples; but it can combine that with some higher priced tiers of products that are positioned as being a bit better in terms of quality. That way the consumer is given a choice of whether to opt for the lowest price or to trade up a bit,” he explains.
But, has the ‘Aldi effect’ worn off? Morrisons continues to enjoy bumper sales growth – and now rising margins – while today, Asda reported that its shopper numbers were continuing to rise.
Burger, who had worked for Aldi in Austria, faces a tough task. “While there is scope for them to secure greater market share in the UK, really the gains will probably be pretty marginal from hereon in,” Saunders argues.
“Aldi is still a very directional, focused brand that doesn’t have a mass consumer appeal. Until that is changed, its growth prospects will remain limited.”
