With the current economic climate and the consumer price index^[i] increasing at ‘its fastest rate in nearly 40 years’ due to the rising prices of food and energy, yet stagnant wages; it will not come as a surprise that customers are ‘watching every penny’ as they switch from supermarkets like Tesco and M&S to Aldi and Lidl in order to make ends meet.

Why is Aldi and Lidl gaining market share? 

The rise of these German supermarkets is illustrated in their recent combined market share of 16% [Kantar], with Lidl holding ~7% of the UK grocery market and Aldi’s share hiking to ~9%. Both have taken massive strides in making their mark across the grocery landscape in the past year and not failing to show double-digit growth, as Aldi boosted its sales by 12% compared to 2020-21. With no doubt, we are seeing a turn of tables in the UK grocery market as Tesco has reported a fall in profits and warned earnings would be at the lower end of what was projected by the retailer. The supermarket giant said, ‘operating profits in its retail division fell by 10% in the six months to the end of August’ -Expected annual retail earnings lie between £2.4bn and £2.5bn.

One notable advancement from Aldi and Lidl is their growing geographical expansion across the UK as Aldi owns 960 stores, up 490 in the last 10 years and Lidl has established around 920 stores. Despite their 2025 estate targets of 1,200 sites (Aldi) and 1,100 sites (Lidl), their rate of growth seems to be decelerating but expansion is the source of “the vast majority of their growth”, says HSBC retail analyst Andrew Porteous. They would also have no problem weathering a labour shortage as they can offer a high hourly pay rate due to their efficient workforce. Therefore, not only can these discounters continue to expand their market share but ‘we will see a shift of the workforce from the big four into the discounters.

Why are consumer buying trends changing so drastically?

Indeed, price stays a major factor in the rise of discounters. “I’ve always said that it is basic maths,” says Paul Foley, Aldi’s UK & Ireland CEO from 1999 to 2009. “If the price gap is big enough, people will gravitate toward the discounter.” This is also basic economics as it represents the law of demand and income effect: discounted prices lead to rises in demand and the change in demand for a good or service is caused by an increase or decrease in a consumer's purchasing power or real income. The supermarket giants are aware of these trends especially in the current economic context. With Tesco cutting Clubcard prices on certain goods to create and maintain loyal customers and Sainsbury’s price matching Aldi on 150 lines; The major supermarkets are now in a stronger price position with more developed changes in their pricing strategies. However, Tesco’s use of Clubcard data to create deals for their customers may be seen in the perspective of the customer as unnecessary, whereas in a discounter you get the saving straight away.

But Aldi and Lidl’s combined pull was not as powerful as in this current market when we take a look back to 2008, the year of the Financial Crisis. When they were still struggling to make their mark with a combined market share of 4% but as inflation steadied in 2014, their sales accounted for nearly ‘£1 of every £10 spent in British grocers’. So, a question is posed as to whether today’s economic turbulence will have a similar substantial impact on their domain as the crisis in 2008.

Footnotes:

[i] Consumer Price Index - measures the overall change in consumer prices based on a representative basket of goods and services over time.

Bibliography:

Lidl and Aldi hit record market share of 16% as inflation continues to rise

How Aldi and Lidl stunned the big supermarkets to become a middle-class obsession

Tesco lowers profit sights as British shoppers face winter crunch | Reuters

Shoppers ‘watching every penny' to make ends meet as Tesco warns on profits

Aldi and Lidl: the story behind the rise of a retail empire | Analysis & Features | The Grocer