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On the shop floor with...Aldi UK and Ireland managing director Paul Foley
Despite the humungous amount of column inches garnered by discounter Aldi over the past year it is company policy for its management to only talk about the products and not about the business so UK boss Paul Foley declined to do an 'On the Shop Floor' interview with Retail Bulletin.
By Glynn Davis
But since he was speaking recently at the BRC Annual Retail Conference and he seemed pretty friendly when chatting to me I couldn't resist putting together a piece and adding a little bit more to that growing pile of Aldi cuttings.It has certainly been a mixed bag over recent weeks for Foley as Aldi was named both 'Grocer of the Year and 'Discounter of the Year by The Grocer' magazine, which also placed him top in the 'Discounter' category of its annual Power List. But this week's figures from TNS showed that for the 12 weeks to June 14 the growth rate of sales at Aldi had fallen.
The numbers showed that the major multiples were starting to grab back some of the sales they previously lost to the discounters. But although Sainsbury's and M
orrisons achieved higher growths of sales, Aldi still enjoyed a credible sales increase of 8.7 per cent. It just happened to be less than the mega growth rate of 25.4 per cent that it achieved at the back end of 2008.At the BRC Conference any decline in growth did not appear to be unduly worrying a relaxed and amiable Foley who has without doubt made significant progress over recent months to convey the message that Aldi is not simply a place to go for cheap and cheerful groceries.
Part of its move to distance itself from the other major discounters Lidl and Netto has involved bringing in more high-end type products (think beef Wellington) that compete with the premium goods in the big four supermarkets. There has also been an overhaul of its stores to give them a look and feel more akin to that of a mainstream operator.
But the core of the proposition remains its low prices and more importantly its delivery of value, which Foley suggests is the Holy Grail of grocery retailing. Only he reckons it has been “hijacked by those in the lowest tier” who offer cheap prices but not necessarily value. He believes the real skill is for the “quality to be high enough and for price to be low enough to then provide value”.
Offering cheap prices has been the focus of the whole sector of late with the most aggressive move coming from Tesco that has been expanding its growing 'Discounter Brand'. But even the likes of upmarket Waitrose has jumped on the bandwagon with its 'Essentials' range.
The only problem with such moves in Foley's eyes is that the delivery of value can only be achieved on a consistent basis through having the right cost structure because “costs always underpin price”. He adds: “The retail price of a product has as much to do with the cost base as the cost of producing the item.”
“If a business competes on price from a high cost base with a business on a low cost base then it will have to do so unprofitably or change the products,” he suggests, with his finger undoubtedly pointing at most players in the UK grocery sector who are lowering prices but clearly still operating with far higher cost bases than that of Aldi.
The German-owned business has long prided itself on its low fixed costs, which is why it only offers a small “restricted” range of around 1,000 lines and eschews providing what Foley describes as “deep service”. Indicative of this focus are its checkouts that operate at three-times the speed of those in any other supermarket.
“I wanted to get six checkouts down to two so we re-engineered the checkout belt-motor because none of those on the market worked quick enough,” he says, which translates into needing fewer checkout staff and more space being made available for trading.
For those players less focused on such issues, Foley says: “At the moment there are uneconomic actions
He suggests this desire to compete is leading some supermarkets to bully their suppliers on price, which he believes is a dangerous situation: “Suppliers coerced into this practice are damaging their businesses as it doesn't stack-up. Suppliers who are being bullied into believing the low cost base operators can be stopped are going to ruin their own businesses.”
Undoubtedly the recession is helping Foley deliver his message of value and has enabled Aldi to attract a new band of shoppers who might not have previously visited its stores before - in many cases being too embarrassed to be seen with one of its carrier bags. “Over the last 12 to 18 months the recession has meant it has been easier to get across the notion that you only take the products home and not the shop,” he says.
Whereas Aldi has never had a problem attracting people who need to save money the current economic situation has prompted more people who would like to save money and it is this band that has over the years been “more suspicious and tougher to court”.
The typical journey, according to Foley, is for these discount virgins to cross the threshold for the first time to maybe try orange juice “as we can't muck that up” and then test more and more products working on the basis of whether or not they deliver as well as the previous products that they had bought elsewhere at a higher price.
Pricing architectures are clearly not only proving an issue for the grocers as pretty much every sector has had to take the magnifying glass to their cost bases, which Foley says will see Aldi benefit from the “massive correction” that is now taking place in the commercial property market.
“Landlords and developers have been earning far too much money. We need to get back to more sensible figures that space can now be sold for,” he says, recognising that this will throw up many opportunities for the group to continue to rapidly expand it store portfolio that is currently growing by one outlet per week.
As long as Foley continues to add stores and not lose too many of his newly-acquired customers then he will no doubt remain relaxed, but as for talking about the business - who knows. If it helped remove costs or add sales then it would be a different matter.
glynnd@theretailbulletin.com
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