LONDON, Sept 16 — Aldi reaffirmed its commitment to investing in Britain today, despite a 26 per cent fall in 2018 profit at the German discount supermarket group’s UK business as it paid the price of expansion.

Britain’s fifth biggest supermarket group trades from about 840 stores and has built a grocery market share of 8.1 per cent, but its pledge to having the lowest prices is denting profit.

Aldi trails Tesco, Sainsbury’s, Asda and Morrisons, but along with fellow German-owned discounter Lidl has been winning market share from the big four, aggressively opening new stores.

It is targeting 1,200 stores by 2025 and plans to invest £1 billion (RM5.2 billion) in stores and distribution centres across the UK over the next two years.

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“For almost three decades we’ve proven that investment equals growth,” Aldi UK Chief Executive Giles Hurley said.

Britain’s food retailing sector has been transformed in the last decade by the march of Aldi and Lidl which has driven down the returns of the big four players.

They have fought back by trying to narrow the price gap, improving service and chasing greater purchasing power.

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Last year Tesco bought wholesaler Booker and launched its own budget chain. Sainsbury’s tried and failed to take over Asda, while Morrisons has struck wholesale deals with Amazon and convenience chain McColl’s.

“The commitment we have made ... to continue investing in the UK over the coming years remains as strong as ever,” Hurley said after Aldi UK reported an operating profit of £197.9 million for the year to December 31 2018.

This was down from £265.9 million in 2017, although Aldi UK’s sales increased 11 per cent to £11.33 billion, with customer numbers up 5 per cent to £16.6 million.

Aldi’s operating margin fell from 2.6 per cent in 2017 to 1.75 per cent in 2018, which analysts at Barclays said was the lowest since 2010.

“The lower the margin goes then the sooner the point will be reached when it is harder to justify so many new store openings,” the Barclays analysts said.

Aldi attributed the profit fall to price cuts, saying its price advantage over the big four was 24 per cent on an average basket of everyday items. It said while its operating margin had fallen, it had improved in the current year.

In 2017 Aldi’s profit had risen for the first time in four years.

London calling

Aldi said it would step up the pressure on rivals by increasing store numbers in London from 45 to 100 by the end of 2025, by opening more standard-sized Aldi stores and new, smaller-format ‘Local’ stores on London high streets.

“London shoppers regularly tell us they would switch to Aldi if there was one nearby, so there is clearly a significant growth opportunity for us in the capital,” said Hurley, pointing out that Aldi’s London market share is just 3.4 per cent.

The firm said trials of its Local format — which measure around half the size of a typical store and stock around 1,500 products — had exceeded expectations since they began in March.

Aldi’s update made no mention of Brexit, though the firm did point out it sources its entire core range of fresh meat, eggs, milk, butter and cream from British suppliers.

Britain’s other supermarkets have warned that a no-deal Brexit on October 31 would disrupt fresh food supplies and could increase prices. — Reuters