The gap between Aldi and Asda is closing in as the German discounter revealed this week that its pre-tax profits had more than trebled to £536.7m as it toasted record sales.
The chain’s value offer and rapidly expanding store network in recent years saw it overtake Morrisons to become the UK’s fourth largest supermarket in 2022.
According to GlobalData, the German discounter could also knock Asda off its spot as the nation’s third biggest supermarket in as early as 2028, as Asda’s hold on the market has steadily fallen over the last year.
Retail Gazette examines how likely this is to happen by comparing the strengths and weaknesses of the rival grocers.
Where do Asda and Aldi currently stand?
Aldi’s record £536.7m pre-tax profit in the year to December 2023 is a big leap from the £152.6m it reported the previous year.
The discounter attributed its steep growth to its 16% surge in sales to £17.9bn and improved efficiencies across its stores and central operations.
Its results are a stark contrast to Asda, which reported a return to profit earlier this year of £180m in the year to end of December 2023, up from a £432m loss in 2022.
That said, sales for the UK’s third largest grocer were still £4bn higher than Aldi’s at £21.9bn for the year, rising 7.1% year on year.
Around 18% of Asda’s sales came from its ecommerce operations, which include online delivery, collection, and delivery via Just Eat, Deliveroo and Uber Eats.
This is in stark contrast to Aldi which revealed last month that it was closing down its click-and-collect service after four years.
However, this is not hampering the discounter. According to Kantar’s, Asda’s hold on the market has plunged dropping 1.2 percentage points to 12.6% over the past year while Aldi’s has edged down 0.2 percentage point to 9.9%.
Stores
Aldi is racing ahead with its store expansion plans, revealing this week it was ploughing £800m into accelerating its quest to reach 1,500 stores nationwide.
The discounter has more than 1,020 stores across the UK, and plans to open an average of one new store a week between now and Christmas, with the discounter having recently been in talks with the government over planning reform to speed up openings.
Asda has 1,200 stores, most recently opening its Hale Barns store near Altrincham, and has unveiled plans for a mixed-use redevelopment of its of its ten-acre Park Royal store in May.
However, in April it was reported that it was among the supermarkets resorting to selling shops to bring down its significant debts.
While Aldi is focused on growing its network, it emerged last month that Asda is cutting back on opening new convenience stores to focus its funds on addressing issues in its existing store network instead.
The supermarket, which opened its first Asda Express shop in 2022, previously revealed it was targeting 300 convenience stores by the end of 2026. However, as of last month, it has only opened nine.
Asda said its original target to open 30 Express stores this year had been scaled back to just 12, but that it was still planning to open 300 stores “in the medium term”.
The grocer also completed the conversion of 478 c-stores bought from the Co-op and EG UK to Asda Express during its second quarter this year.
While Asda is pushing into convenience, Aldi is remaining steadfast with its standard store format.
It has only deviated from its core store format a couple of times over the last five years, opening its first “local” store in 2019 in Balham designed to meet the increasing demand of shoppers in London.
The format, which was expanded to 10 stores, stocks approximately 1,500 items compared to the 1,800 usually sold in standard Aldi stores.
However, a spokeswoman for the discounter noted at the time that this was “not a move into convenience retailing”.
Aldi also runs a Shop & Go checkout free store in Greenwich, marking another format experiment.
The store offers customers a checkout-free shopping experience, where they can use the Shop & Go app or contactless payment to shop without scanning any products in-store.
However, in January the supermarket introduced a contactless payment option to the stores, raising a question mark over the popularity of the format.
In a similar vein, Amazon ditched its first UK ‘Just Walk Out’ store in 2023, which opened just over two years before, suggesting the format may not be popular among shoppers.
Which grocer offers better value?
Aldi was the cheapest supermarket for August 2024, according to Which?, coming in at £110.58 on average for its shopping list of 62 popular groceries, continuing its long-running streak as the UK’s most affordable grocer.
It has taken the title every month so far this year.
Which? said Asda was the third cheapest, behind Lidl, charging £121.85 for the same products, having come in third place every month so far this year apart from June.
Aldi has invested almost £100m in over 300 price cuts over the past three months. In April, it also vowed to beat the £380m it invested in price cuts last year, having already ploughed over £125m into reducing prices on around 500 products since the start of 2024.
As well as offering low prices, Aldi also recently launched a back-to-school fund to support families with the expensive period of buying children clothing and stationery for the new school year in another testament to its value offering.
Meanwhile, Asda invested £70m in slashing the price of essentials in May. In January, it became the first supermarket to price match both Aldi and Lidl, and slashed prices on more than 200 branded and own-label products in October.
Asda presented a renewed trading plan last month for the rest of its second half, revealing it would have a key focus on driving further use of its Asda Rewards loyalty app, which is already used in 52% of its transactions.
Some of the benefits offered by the scheme include shoppers earning 10% back after purchasing certain products, earning Asda Pounds for completing shopping tasks, and being able to convert the Cashpot balance into vouchers.
The loyalty scheme now has more than six million regular users, with participation rising on a quarterly basis. In April, the retailer claimed its focus on loyalty and prices had delivered growth for the supermarket throughout last year, highlighting the scheme as a “key revenue driver”.
Aldi is the only major UK supermarket without a loyalty scheme, with its managing director of buying Julie Ashfield telling The Mirror it instead wanted to “focus on supplying consistent great value to all customers” rather than rewarding some customers in 2022.
However, Aldi’s pricing is seen as a benchmark across the industry, with various supermarkets touting Aldi Price Match campaigns.
Tesco was the first supermarket to launch an Aldi Price Match campaign in early 2020, with Sainsbury’s following suit in 2021 and Morrisons launching the scheme in February.
Where are they investing?
Following Asda’s disappointing second quarter results in August, it set out three key areas to focus on to improve performance as it aims to deliver an “enhanced and more consistent in-store experience” for shoppers for the rest of the year.
In terms of customer satisfaction, Asda is investing an extra £30m into staff hours to strengthen its customer proposition, in hopes to improve replenishment of stock during opening hours, increase its number of workers on checkouts over weekends, and provide a more effective cleaning programme in stores.
The grocery giant is also ploughing cash into improving product availability across all categories, including its 1,000 core grocery lines most important to customers.
Thirdly, Asda vowed to deliver a renewed trading plan, focused on driving increased use of Asda Rewards.
Similarly, in May Asda unveiled a £50m store upgrade programme for its larger sites, expected to complete by the end of November.
The grocer said the move would see 50 of its larger stores “receive major upgrades”, including the introduction of new in-store services and features. Meanwhile, its remaining stores received “refreshed exterior and interior decoration” to reflect its new brand identity launch.
However, the moves come as the supermarket continues to grapple with debts, following its acquisition by the Issa brothers and TDR Capital in 2021, which has stunted its ability to make large investments.
Aldi on the other hand unveiled it was investing an “unprecedented” £800m into its UK expansion.
The grocer is set to spend £1.4bn over the next two years in efforts to lower prices and open stores, while creating thousands of jobs and more opportunities for British suppliers.
It also said in June that it was investing £90m into its store upgrade programme, with UK managing director of national real estate Jonathan Neale explaining at the time: “We’re committed to making sure that the shopping experience is on a par with the high-quality products and service we offer.”
Over 30 of the discounter’s stores underwent refurbishments over the summer, while is said more than 100 were set to receive upgrades later in the year.
Asda vs Aldi: Who will win?
As more and more thrift shoppers seek out the discounters, does Aldi really have what it takes to surpass Asda as the UK’s third largest supermarket?
Aldi certainly seems to have the upper hand in terms of value, and stands firm in its strategies of avoiding loyalty schemes and ecommerce. The discounter is also beating Asda in terms of profits, with its record £536.7m for the year to December 2023, which seemingly is fueling more investment into its expansion.
The discounter’s UK and Ireland boss Giles Hurley said this week: “For every £1 of profit generated last year, we’re investing £2 this year – opening more stores and building the supply infrastructure to bring high-quality, affordable groceries to millions more families the length and breadth of Britain. ”
However, Asda still pulls in higher sales than its rival, and is determined to turn things around under its investment strategy.
GlobalData senior analyst Eleanor Simpson-Gould warns Asda will need to “redefine itself with a clear differentiation from discounters” if it wants to maintain its position as the third biggest grocer.
She argues: “To offset the threat to its third-place ranking, Asda will need to add intangible value to an intensified focus on price.”
“Unless Asda can drive stronger sales through improved store experiences, an intensified focus on price and improving locality to consumers, it is increasingly likely to be overtaken by Aldi in the next five years,” she adds.
Click here to sign up to Retail Gazette‘s free daily email newsletter
