Aldi - Looking strong for Christmas

22 December 2016

I have been far from a fan of the Aldi push into premium all year round, whilst it's appropriate for times like this (Christmas), it is having the effect in other categories of inflating prices and causing their model to creak unnecessarily.

Premium is absolutely appropriate in some categories, Pizza for example - makes perfect sense in chill. Especially with their push into fresh foods and the increased customer count looking for these lines.

However to then introduce Doughballs in the range also makes sense, but there's no core tier. So why does it have land as a premium product?

Well, margin is one consideration - Aldi are under pressure with their profit levels and with the expansion going on in the UK, they're spending money and still putting space down the increased competition is also affecting them, where some Produce prices were 30p more expensive in mults vs. discount in the early days of the discount rise, they're now down to a 5p/10p gap.

Far more tolerable to customers and should a discount store not meet the standards for a customer, they can decamp to a larger retailer and not face as big a price gap as there once was.

However the price gap does still exist, which is good for discounters but Tesco are closing that gap aggressively, Morrisons are sharper on the price file than they have been for a number of years. Even Sainsbury's are closing the gap on the basket of core products (comparable with discount).

The challenge is that Sainsbury's are also rounding prices off (5/0) which does given an impression of it being expensive versus irregular pricing (where prices end in a 4/6/7/8 etc).

Asda are also likely to sharpen their pencil in 2017, with the 20p Veg offer for Christmas absolutely where they should be. Down in the trenches versus Aldi and Lidl (19p/20p) respectively given their low price market focus.

With Aldi still retaining some momentum, if we look at Kantar (new space aside which calls the like for likes into question), they have started to outstrip Lidl as the former seemingly grapples with how to run their stores efficiently, given the worsening standards on show.

Aldi appear to have kept their nerve with labour in stores, they're still well staffed and ready for the festive period, with a very strong range of premium / core lines within Fresh alongside stronger ranges in Meat and Fish too.

Predictably, there's a big focus on the premium tier but their Exquisite range (Premium x2) makes an appearance outside the ambient range this year, with a number of lines noted in Fresh and also within the Meat ranges too. Appropriate for Christmas? Absolutely but the wider 'creep' of premium in the range isn't necessarily right...

The noteworthy element about their fresh offer is the number of lines that offer true differentiation. There is some really sharp work on innovation across the range, it's not just party food almost 'thrown in' without effort, there's some good work on the food itself, with Cinnamon dough balls (for example) a line that won't be easily found in competitors food ranges.

Similarly larger Prawn Cocktail, rope hung Salmon (c. £16) represents really good work around innovation and speciality.

Produce dropped to 19p of course this year, Asda at 20p but how low is too low? At these prices, customers may fear its too good to be true and not trust the quality.

It's odd that customers may think this of course, but Aldi have put loads behind their quality push on own label, awards aplenty and a strong marketing campaign to ensure that customers know it's not cheap and poor quality. It's decent quality but a cheaper price.

It's a headline grabber for definite, but an example of where Tesco have hit them hard. The Festive five a couple of years back saw Aldi on the back foot a bit. Moving their prices around to ensure they were the better value on the per kg basis.

Tesco remain unmoved with their offer at 39p, Morrisons are 3 for £1 on the same pack sizes too..

19p takes back the advantage but it's an interesting balance between rock bottom prices on Veg, the quality equation and then the support for the supply base too.

Good depth to their fresh range as noted, Baking Camembert, Jumbo Prawn Cocktail (strongly priced at £5) and the Exquisite Real Ale ham at £2.79.

It's unclear with the top, top tier who the range is comparable with, or whether it's just a way of flogging higher priced, decent margin 'special' lines in the fresh ranges ahead of Christmas.

Nevertheless, they deserve plaudits for the range this year, it's compelling and arrived in good time into store.

Last year it landed relatively late, was often executed poorly in store (lack of space and plans all over) and then heavy on the lines like Caviar that have long since passed the novelty factor....

A note for the analysts visiting stores over the next few days, some were alarmed to note that there wasn't Christmas themed Salmon in the range for Christmas.

There is! It's just located over by the special buy / Christmas range, rather than in with the Fish..... (yes, really!)

A good number of lines are also in the Exquisite range over in ambient. The Cake range is strong, Prosecco Pannetone, Yule Tree log cake and their famous Mince pies (sold out again) are well packaged on shelf.

The move to go upmarket further is appropriate for Christmas, but the rest of the year. They're still premium heavy and are increasingly cluttering their core message - own label dominant, limited range discount with branded items too.

Non food remains a challenge for the wider business, there's just too much range in the stores. One of the pictures of 2016 is below this text for what Christmas trading doesn't look like on jumpers.......

In many stores, you can find the remnants of about 15 different events - in some cases many more.. Just littering the assortment and becoming a jumble sale for customer to rummage through.

In a tightly organised business where every task is assessed for the time it takes to complete, the level of time taken to both re-merchandise, arrange and price to clear stock must be huge.

Whether online has removed some of the sales from the stores, leading to more overstocks, or it just needs a better level of clearance? Lidl seem far tighter on non food in comparison.

To be fair, their Christmas range of non food has progressed nicely, with some good products, smart packaging and a feeling of quality with wrap, cards and also some good extensions in the range - decorative light up Santa for example.

Aldi have also gone after Spirits and gift sets well within their non food space, some good extensions into the Christmas favourites (Advocaat) alongside craft ales too.

Christmas jumper anyone?

Aldi look well set for Christmas and well set to pick up discretionary spend from those well heeled who read the Mail about a favourable Wine collection in store...

Beware the tales of 'record Christmas', 'best ever' etc. It's bound to be given their growth levels and also new space they're putting down.

The reality is in the imagery above, a decent core offer at the low prices, overlaid with a true sense of fresh food innovation and some premium+ lines also.

Aldi then have to get back to business in January, all eyes are on their longer term game plan. I cannot see how brands and the continual expansion in premium can be sustained.

Cost bases will come under pressure, especially with the competitive nature of the industry but also the inflation that is rapidly coming our way.

We have seen some prices rise already of course. Whilst Brexit and the (£) weakness is a factor, we are also coming out of a period of delation in any case.

Whoever can manage their way through these troubled waters will be a winner in 2017.....

Email forwarded? Click here to request a service trial.

From the Grocery Insight newsletter archive, first sent to subscribers on 22 December 2016. Steve now writes at read.groceryinsight.com. See also the blog archive and briefings.