How Aldi went from small-town German discount supermarket to major threat to rivals such as Tesco and Sainsbury

Back in 1990, little-known Aldi – founded in 1961 in Germany but with roots dating to 1913 – opened its first store in the UK. Since then, more than 700 shops have sprung up across the UK and Ireland

In 2017, Aldi enjoyed its most successful year in the UK and Ireland ever (Aldi)

If the concept of German efficiency and success only evokes images of car companies, industry and perhaps a solid football team, then you clearly haven’t spent enough time examining the UK retail sector recently.

Back in 1990, little-known Aldi opened its first store in the UK, before making its Irish debut nine years later. Since then more than 700 shops have sprung up across the UK and Ireland, luring consumers who may have been sceptical at first, but have since come to value the group’s cut-price product offering; and its stripped-back, no-nonsense approach to groceries.

In 2017, Aldi – founded in 1961 in Germany but with roots that date back to 1913 – had its most successful year in the region ever, raking in over £10bn in annual sales for the first time in history. Over the crucial Christmas period, while other supermarkets felt forced to discount in order to stay competitive – something that in many cases ate into their margins – Aldi thrived.

It sold more than 6.8 million bottles of wine, champagne and prosecco during December alone – which is equivalent to more than 200,000 bottles per day. In excess of 4 million mince pieces crossed the tills of the sprawling supermarket chain, as well as over 100 million packets of vegetables.

Experts say that rising inflation and stagnant wage growth is making shoppers particularly price conscious, which has played into Aldi’s hands.

“As a nation of shoppers, we’re looking after the pound in our pocket more and more,” said Martin Lane, managing editor of personal finance website money.co.uk. “Aldi is offering the same package as the other ‘Big Four’ retailers but without the expensive price tag.”

He said that there’s “no sign of a slowdown for the discount giant”.

Kantar Worldpanel data underscores this.

Aldi currently controls a 6.9 per cent share of the UK grocery market, which is comfortably ahead of high street veterans Co-op and Waitrose. Its fellow German-owned rival Lidl stands at 5.1 per cent. Morrisons, Asda, Sainsbury’s and Tesco are still clearly in the lead – with shares of 10.6 per cent, 15 per cent, 16.3 per cent and 28.2 per cent respectively – but those four have either lost market share or stayed constant over the past two years, while Aldi’s has shot up by around 30 per cent.

Ten years ago, Aldi controlled just 1.7 per cent of the market, meaning that it’s increased its share by over 300 per cent in the last decade – a decade which was all but easy for the retail industry.

Molly Johnson-Jones, a senior retail analyst at consumer analytics company GlobalData, says that much of Aldi’s success is down to strategy and what she calls its ability to “tap into the growing dichotomisation of consumer demand”.

“Consumers look for value overall, but will prioritise price on lower value, everyday items, and while saving money on these products, they are more inclined to pick up luxury or treat items – particularly if these items are at a significantly lower price than at traditional grocers,” she says.

“Being able to play in this kind of high and low space in something that discounters haven’t really been able to do before,” Michelle Du-Prât, co-founder at retail consultant Household agrees.

“If Aldi can get more share of basket across more categories, then that will really help them going forward.”

Matthew Barnes, chief executive officer for Aldi in the UK and Ireland, said on Thursday that beyond alcohol, products like “sweet-cured gammon joints topped with a gingerbread crumb”, and Aberdeen Angus beef roasting joint,s particularly flew off the shelves during the 2017 festive season.

“This is a clear sign that shoppers knew they could indulge in Christmas treats and festive essentials at Aldi for a fraction of the price they would pay elsewhere,” he said.

Customer service also seems to be helping Aldi expand its appeal.

Jo Causon, chief executive of the Institute of Customer Service, a professional body that helps businesses improve the service they provide, said that a recent survey by her organisation had shown that Aldi had overtaken pricier rivals Marks & Spencer and Waitrose in terms of how customers rate the service they provide.

She said that analysis conducted by the ICS had also shown that between December 2008 and December 2015 Aldi achieved the greatest improvement in customer satisfaction of all big supermarkets.

So where next for the German retail wunderkind?

On Thursday Aldi chief executive Matthew Barnes implied that its appetite for growth might be akin in size to British people’s appetite for a bargain.

Over the past 12 months alone, Aldi has opened 76 new stores across the UK and Ireland. It aims to have a network of 1,000 stores by 2022 and Mr Barnes said that he has his eye on 400 towns and cities across the UK which don’t have an Aldi store.

“Shoppers in these areas consistently tell us they would shop at Aldi if they could, and we are committed to meeting this demand for new Aldi stores,” he said.

To power the growth engine, the company is also focusing on recruiting as competitively as possible. It’s committed to paying all store assistants a minimum hourly rate of £8.85 nationally and £10.20 in London from 1 February this year, compared to the current national minimum living wage of £7.50. It also claims to be one of the few UK supermarkets to pay employees for breaks.

“Having staff that is more engaged is definitely a huge step forward, especially because customers want to have a good in-store experience,” said Ms Du-Prât.

The UK retail landscape has already endured a battering as a result of the falling pound, slumping consumer confidence and stubborn Brexit uncertainty. But perhaps German efficiency will prove to be the toughest of all challenges – at least in the long run.