Aldi plots Dublin expansion as discounter battles ‘tsunami of costs’

Cost inflation in Aldi stores is running at around 8pc, below average Irish grocery inflation of 12.4pc reported by research group Kantar this week but still putting what Aldi Ireland group managing director Niall O’Connor says are “unprecedented pressures” on the market.

“Farm inputs and outputs are getting an absolute battering, there’s no other way to say it,” he said. “The three Fs – fuel, feed, fertiliser – are pretty much impacting everything.”

He blamed lingering effects of the pandemic, soaring energy costs and transport expenses, as well as the impact of “fractured” supply chains as contributing to rising costs.

“We are taking on all of these costs, as is everybody else,” he said.

Some retail prices at Aldi have gone up as a result of this perfect storm, with the discount retailer looking to find “that fine balance” with suppliers facing the same problems.

“We try to mitigate, then we look to absorb,” he said, adding that if price increases do have to be introduced, it is usually staggered.

“We take the view ‘do we think the customer can absorb that?’,” he said. “If we don’t, then we say let’s do that in stages. We take a long-term sustainable view.”

“It’s not possible to make it all go away,” he said.

Discounters like Aldi tend to benefit relative to higher-price rivals from the cost-of-living squeeze and the German-owned chain has increased market share this year, but even within stores customer habits are shifting.

Mr O’Connor says there is now reduced demand for Aldi’s ‘middle aisle’, a selection of mostly hardware, toys and households goods that changes weekly, especially for higher priced items of €50 or more.

Its stock of non-food items will be cut from 5,500 to 5,000 next year.

Across all chains, shoppers are reducing overall weekly spend and the number of visits they are making to stores.

In response to cost pressures, Mr O’Connor says engagement with its supply base has risen, with weekly check-ins with suppliers now the norm.

“Last year alone, we spent €1bn on our Irish producers – that was an increase of 20pc on the previous year,” he said.

“This year, we are going to spend €1.1bn 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 growth focus is now Dublin, with its big concentration of customers where “an obvious gap” in the chain’s reach has been exacerbated by rising site prices and material costs.

Currently, Aldi has 24 stores “within the M50 belt” and wants to add more.

“We want to do that in a prudent way, we won’t overpay for sites, we won’t build unnecessarily complex or difficult constructions because all of that has to be paid for ultimately by the customer,” he said.

“There are sites available but quite often in a Dublin environment, it’s multiple acquisitions of pieces of land to create what we need,” he added.

He also believes the planning process has also slowed, while the cost of construction material remains an issue.