Profits at the UK and Ireland division of Aldi fell for a third year in a row as the German discounter continued to slash its prices in response to efforts from its supermarket rivals.
Aldi and fellow German chain Lidl have led the wave of price-cutting in recent years that has driven down the margins of the likes of Tesco PLC (LON:TSCO), J Sainsbury PLC (LON:SBRY), Asda and WM Morrisons PLC (LON:MRW).
The so-called ‘big four’ have fought back with price reductions of their own and moving away from multi-buy promotions.
With the traditional supermarkets chopping down prices, Aldi has been forced to do the same in order to maintain its value proposition.
While constantly trimming its prices is good for its market share – it’s now the fifth largest supermarket in the UK – it makes things challenging on the bottom line.
For the year ended 31 December 2016, operating profits at Aldi’s British arm fell to £211.3mln, down from £255.6mln in 2015.
That was despite a 13.5% rise in total sales which came in at a record £8.74bn, largely driven by an aggressive new store opening programme.
READ: Lidl now UK’s seventh biggest supermarket, but ‘Big Four’ led by Tesco also seeing sales growth
There are currently 726 Aldi stores up and down the UK and Ireland, although it plans to have more than 1,000 within five years’ time.
“The fact that more and more customers walk through our doors every day of the week gives us the confidence to carry on investing,” said Matthew Barnes, chief executive of Aldi UK and Ireland.
The strong performance looks to have continued into 2017, with Aldi noting that like-for-like sales were “strongly positive” in 2016 and had accelerated this year.
The grocer added that it spent around £450mln last year on adding new stores and improving its distribution centres, which takes its total investment in the UK to £2bn since 2012.
It expects to invest a further £459mln in 2017 and said its future capital expenditure plans are “entirely unaffected” by the UK’s decision to leave the EU.