Consumer

Andrea Felsted is a Bloomberg Gadfly columnist covering the consumer and retail industries. She previously worked at the Financial Times.

The amazing German discounters are coming back down to earth. But it's too soon for Britain's big four grocers to write them off.

Aldi said on Monday that sales at its U.K. arm rose more than 15 percent in December. That compares with the corresponding month a year earlier, a period when sales also rose strongly. It didn't break out sales from stores open at least a year, though did say they were positive. It's adding new supermarkets apace, so the performance will be flattered by new outlets. 

While this looks like a fantastic achievement, and is a level that the big four would kill for, some context is in order. At Aldi, growth has slowed over the past two years, according to industry figures compiled by Kantar Worldpanel Ltd, the consumer research group. It's the same story with Lidl, where sales growth also deteriorated, particularly over the past six months. Lidl didn't comment on its Christmas trading on Monday. But it would have taken a big turnaround over Christmas to return to the heady levels seen in 2015.

Discounter Deceleration
Aldi and Lidl's sales growth has slowed over the past year, with Lidl particularly underperforming
Kantar Worldpanel
Rolling 12-week periods

After the discounters tempted Britain's cash-strapped middle classes to sample the delights of their bargain brands, the country's big supermarkets -- Tesco Plc, Asda Group Ltd, J Sainsbury Plc and Wm Morrison Supermarkets Plc -- fought back with their own price cuts.

That has narrowed the gap between the mainstream supermarkets and the discounters. At the same time, Aldi and Lidl's stores have become so popular that car parks are crowded and there are too few staff. That has encouraged some shoppers to go back to the likes of Tesco's big out-of-town hypermarkets.

But canny strategies over Christmas, including Aldi's cuts to the price of Christmas vegetables such as parsnips, carrots and potatoes to just 19 pence, encouraged some shoppers to brave the queues.

Recovery Potential
Tesco and Morrison's forward p/e ratios have risen on recovery hopes, including that they are challenging the discounters.
Source: Bloomberg Intelligence

There's no doubt that life is getting tougher for the U.K. arms of Aldi and Lidl -- they source about a third of their products from outside the country, and so will face higher import costs. 

But the discounters' demise -- even if their once stellar growth is slowing -- is wishful thinking on the part of the mainstream supermarkets.

Crimped consumer spending power might send British shoppers back to the discounters in droves once more.

And crucially, they're still expanding their supermarket footprints. Aldi said on Monday that it would reach 700 stores next month.

Even if tougher conditions prompt a rethink, plans for openings over the next 12-18 months are likely to already be set, so any roll-back won't bring immediate relief for the big four.

Until there is a pause in the discounter race for space, the German no-frills supermarkets remain a potent threat to Britain's big grocers. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andrea Felsted in London at afelsted@bloomberg.net

To contact the editor responsible for this story:
Jennifer Ryan at jryan13@bloomberg.net