Taking on Tesco: the credit crunch has created the ideal environment in which Aldi can radically grow. But MD Paul Foley has set his sights still higher. So, can he challenge Tesco's dominance in British retailing?
Paul Foley is perhaps the only man in retail who believes he can take on Tesco. And he may also be the only man in the country who is seeing the credit crunch in a positive light.
As exclusively revealed in The Grocer last week, the man behind Aldi in the UK and Ireland has plans to grow his 430 stores to an estate of 1,500 and wants to transform Aldi into retail's leading brand. Can he be serious?
There's plenty of anecdotal evidence to suggest he has Tesco and the big multiples rattled. And the latest stats show why. According to TNS [12w/e 15 June] Aldi recorded a 21% year-on-year growth in sales, leaving it with a record 2.9% share of the grocery market. Fellow discounter Lidl also grew by 13% while Sainsbury's and Tesco lost a small amount of market share.
Foley has seized on the downturn with something approaching glee. The advertising campaign--'Don't change your lifestyle, change your supermarket'--speaks volumes for the confidence emanating from the Warwickshire-based discounter. "The economic downturn is an opportunity for us. To be presented with a lot of new customers, it's down to us to impress them and keep them," says Foley, speaking exclusively from the company's sprawling UK base in Atherstone near Nuneaton. "We are at the beginning of a journey of persuading the country that the Aldi brand is a very good proposition. In time I expect Aldi to be one of if not the leading brand." Aldi is to open "a store a week for the fore seeable future". As part of his bold expansion plans, Foley also intends to recruit roughly 1,500 staff this year. His limitless ambition for Aldi includes--relies on, in fact--being able to change the shopping culture in the UK. "I need another 1,100 stores and more time to get the country used to our style of shopping."
Aldi's business model is based on giving consumers only one item to choose from, instead of a range of brands. The discounter mainly stocks its own brands with very few exceptions such as Marmite. This allows the retailer to offer the products at a discounted price. "It's a different way of shopping. It used to be over the counter until supermarkets came along. Now we have something new," he enthuses. "Our job is to persuade the supermarket shoppers there's an alternative. At the moment we are trying to spread the word and inform the nation."
While the credit crunch is helping, Foley reckons the discounter would be flourishing regardless of the state of the economy. Since it launched 20 years ago, it has grown consistently, breaking even in 2000. The latest accounts to 30 December 2006, which predate the credit crunch, showed turnover up 17% to 1.3bn [pounds sterling] although profits fell from 67m [pounds sterling] to 48m [pounds sterling]. So not a flash in the pan: the current boom will not end when the economy picks up, he believes.
"The growth over the past 20 years has been steady with good times and bad times, so we've got the capacity to grow in all sorts of circumstances," he says.
"Everyone has to eat and if times are a little harder you are perhaps motivated to look for a better price and when times are good you're not necessarily looking to spend more than you need to, so either way we do well.
"In some ways, the crunch limits our more ambitious projects such as expensive products--in a more dynamic financial environment we can show bigger discounts compared with our competitors. For example, while we can offer discounts of just 22p on a tin of baked beans, we can offer 2 [pounds sterling] on seabass, 6 [pounds sterling] on a bottle of Champagne, and 200 [pounds sterling] on a TV."
Comments like that are typical from Foley, who is very much a numbers man. He rattles off statistics to illustrate his points and does so with absolute conviction and belief in his product. "Our customer numbers are nearly 3o% up compared with last year. Our penetration is 10%."
Even amid the credit crunch, Foley himself must be a little surprised at the transformation the discounters have experienced. But the change has been building for quite a while, he explains. "When you sell something much cheaper than others, you have to get over a certain amount of scepticism about whether it's any good.
"Our claim is that our products are as good as leading brands and people will naturally approach that with scepticism. But we work on a margin that's lower than the industry generally so it's hard to be a competitor of ours--you have to invest a lot of time and money."
Clearly the quality of Aldi's own brand is key to the chain's success. And it is in this area that it's made most progress, winning numerous food awards. Foley wants Aldi to win more awards than Marks & Spencer, Sainsbury's and Tesco. "Maybe we are not famous for quality yet but we aim to be," he says as he shows me around the rigorous tasting and testing regime at the company's headquarters where buyers compare their products with those offered by the competition. "Generally people want to know they are getting good value when they are spending their money," he says. "I understand the reluctance to abandon whatever shopping habits people had previously--but you can't keep a good story a secret. We are gaining customers every week because they are surprised by the value for money and quality we offer. An awful lot of grocery shopping is done out of habit and [the credit crunch] is a jolt to habits. Customers are swapping stores and trying something new. Then it's down to us as to whether we are good enough to keep the consumer. If people believe they can get the same from us they won't go back."
Foley reckons none of the other retailers will lose out and that there will be room in the market for all. But common sense suggests otherwise. If Aldi makes good on its plans, with 1,500 stores and 15 million square foot of space in the UK, the retail scene would look very different.
"We have fundamentally lower costs than the supermarkets," he says. "Rivals can't compete with us as long as they've got hundreds of different branded ranges to our single product offer."
But just how far can Aldi go? "In Germany discounters occupy more than 40% of the market. I can't think of any reason why that wouldn't happen here. This kind of offer can't fail. If you have the best products it's impossible to fail. Value and premium go hand in hand. I don't sell anything you'd consider economy.
"There is no one particular area of the country we are targeting--everywhere is fair game. I think the very bottom end of the social scale is difficult for us because they don't have a lot of money and can't easily travel to us," he says, "and the very top end is difficult for us because the price of food shopping is not something they think about. But everything in the middle is fair game."
* PAUL FOLEY SNAPSHOT
* Position: Managing director of Aldi UK and Ireland
* 1973-76 Fresh produce buyer/ market trader
* 1916-1989 Bejam/Iceland management trainee store manager, area/regional management
* 1989-date Aldi Stores regional director, regional managing director, group managing director (effective 2000)
* Date of birth: July 1958, London
* Family: Three children (25, 23, 19)
* Hobbies: I enjoy anything competitive
* Other career choices? This is my perfect career. But if I wasn't at Aldi, I would still be working somewhere in the retail field
|Printer friendly Cite/link Email Feedback|
|Title Annotation:||the big interview|
|Date:||Jul 5, 2008|
|Previous Article:||The year that ethics arrived.|
|Next Article:||'I can't believe it's not cheaper': with soaring prices the butter and spreads market is up 10%. But as the battle between Lurpak and Flora rages,...|