Aldi says it is trying to mitigate a ‘cost tsunami’ even as the chain considers further expansion with a focus on Dublin.
Highest inflation in Aldi stores is around 8%, below the average Irish inflation of 12.4% reported by research group Kantar this week, but still exerting what Niall O’Connor , group chief executive of Aldi Ireland, describes “unprecedented pressure” on the market.
“Inputs and outputs of the farm are taking absolute hits, there’s no other way to tell,” he said. “The three Fs – fuel, feed, fertilizer – impact just about everything.”
He blamed the lingering effects of the pandemic, soaring energy costs and transportation spending, and the impact of “fractured” supply chains as contributing to rising costs.
“We bear all these costs, like everyone else,” he said.
Some retail prices at Aldi have risen in the wake of this perfect storm, as the discount retailer seeks to strike “that fine balance” with suppliers facing the same issues.
“We try to mitigate, then we look to absorb,” he said, adding that if price increases are to be introduced, they are usually staggered.
“We think the customer can absorb that? “, did he declare. “If we don’t do it, then we say let’s do it in stages. We take a long-term sustainable view.
“It’s not possible to make everything disappear,” he said.
Discounters like Aldi tend to benefit from cost-of-living pressures over their higher-priced rivals and the German chain has increased its market share this year, but even in stores, customer habits are changing.
Mr O’Connor says there is now reduced demand for Aldi’s ‘middle aisle’, a selection of mainly hardware, toys and homewares that changes weekly, especially for the cheapest items. more expensive by €50 or more.
Its stock of non-food items will be reduced from 5,500 to 5,000 next year.
Across all chains, shoppers are reducing their overall weekly spend and the number of visits they make to stores.
In response to cost pressures, O’Connor says engagement with his supply base has increased, with weekly check-ins with suppliers now the norm.
“Last year alone we spent €1 billion on our Irish growers, an increase of 20% on the previous year,” he said.
“This year we will spend €1.1 billion with 330 Irish suppliers.”
Aldi’s initial expansion across Ireland targeted regional and smaller towns that had often been overlooked by the big chains. The center of growth is now Dublin, with its high concentration of customers where “a clear gap” in chain reach has been exacerbated by rising site prices and material costs.
Currently, Aldi has 24 stores “in the M50 belt” and wants to add more.
“We want to do it in a careful way, we won’t overpay sites, we won’t build unnecessarily complex or difficult constructions because it all has to be paid for ultimately by the client,” he said.
“There are sites available but very often in a Dublin environment, it is multiple acquisitions of land to create what we need,” he added.
He also believes the planning process has also slowed down, while the cost of building materials remains an issue.