Why are profits collapsing at Aldi?

Aldi’s profits collapsed by nearly one fifth last year, despite a rise in sales for the German supermarket chain.

Pre-tax profits dived 18% to £182.2m as the retailer splashed £530m on expansion and slashed prices on nearly one third of its products.

The fall in profits came despite sales rising 11% to reach £11.3bn in the year to December 2018. The chain opened more than a store a week and pulled in 800,000 extra shoppers during the 12 months in question.

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Chief executive, Giles Hurley, was in a bullish mood as he discussed the declining profits: “We are a long-term business not like other supermarkets. We are focused on sales, stores, customer numbers and growth,” he said.

Despite the fall in profits, he announced a major expansion, saying that over the next two years, the company plans to inject a further £1bn in around 100 new stores. The chain hopes to increase the number of stores it has from 840 to 1,200 stores by 2025.

More than half of British households shop at Aldi, which opened its first UK store in 1990. Hurley said: “The reality is that almost 50% of the population of the UK doesn't currently shop with us and they tell us the main reason for that is that they don't have a store near us.”

The BBC says the expansion is in contrast to “big established grocers” who are opening “few, if any new stores”.

Adam Leyland, editor of The Grocer magazine, says such expansion is “not straightforward” because of a lack of parking spaces.

“But they are determined to do it and they are a very capable grocer,” he said. “We've seen over the years how they've responded to the dynamics of the UK market.”