Aldi buying directors lift the lid on future strategy

I can’t recall a single conversation I’ve had with people in this industry over the last year where the subject of the UK’s two major grocery discounters hasn’t been raised.

Aldi has stolen a march on its fellow German rival Lidl recently, leapfrogging Waitrose to become the UK’s sixth-largest supermarket by market share.

The company’s British base isn’t in central London – it’s located off the A5 in Warwickshire. Nevertheless, it’s an impressive building, in the process of being expanded, and with neat character-giving quirks such as a ‘bee hotel’.

I was given the grand tour by Aldi veteran Richard Smith, a fresh produce buying director since 2012, Stephen Eivers, group buying director since 2011, Matt Caldwell, group buying director since May 2015, Florian Pfeifer, a buying director since March 2013, and Steve Davison, a produce buying director since January 2015.

Aldi sells about 160 fresh fruit and vegetable SKUs, but has the capacity to increase this number if the opportunities present themselves. Around 40 per cent of the range is British-sourced.

But how do they keep the prices so cheap? “We genuinely believe we get the best cost prices from treating our suppliers in the best possible way,” Eivers says. “We go to our suppliers and say, ‘okay, let’s take a long-term view here. How do we get the best cost price?’ And they say to us, ‘well if you give us the cost price before we put a seed in the ground, then we’ll give you the best price we have available.’

“If you leave yourself exposed to the industry, where there’s price fluctuations going on four weeks before you put an item on sale, the likelihood is you won’t get the best cost price.”

Eivers adds: “Our retail price is sometimes based on cost price, but not always. In the middle is the cost of running our business. On strawberries, for example, we believe we can get them from the field on day one and into our stores on day two. That means we’re a very efficient retailer through the distribution centres. And efficiency means lower cost of operations.”

Pfeifer picks up the baton, and says: “That efficiency extends to our supply base too. By having a limited number of SKUs, that helps efficiencies with our suppliers as well. So rather than spreading the volume of carrots over eight potential SKUs, we will only give one or two SKUs, which gives economies of scale to our supply base, which then maximises the opportunity along the whole supply chain, allowing us to pass that on to our customers.”

Smith, Caldwell and Davison chip in, proudly stating that Aldi “doesn’t renege on a contract”, never looks for “marketing support, overriders, or any of the other intricacies that might go with the multiples”, has already started negotiating broccoli prices for summer 2016, and that without long-term contracts, “you can’t expect the industry to invest”.

As the longest-serving member of the quintet, you’d think Smith would have witnessed Aldi change beyond recognition in his 22 years at the company.

But he doesn’t see it that way: “Very little has changed,” he says. “We’ve had a 10 per cent store growth year on year. In the early days, this was one or two stores – now it’s 65 stores.

“But our determination to gently, organically grow, and our family values and determination to be a discounter haven’t changed. So the success we’re now enjoying is not so much of a surprise to us.”

Aldi claims to have a trading relationship with three out of the five biggest suppliers in each category – but, I ask the directors, how important is fresh fruit and veg to Aldi?

Eivers takes the lead: “It’s exciting to see so much attention brought into fruit and veg, as a team, we’re motivated by growth in the fruit and veg sector. We think we are as good, if not better, than the best people in the UK selling produce.

“A commitment to British farming and to supplying what our customers are looking for on a weekly basis has contributed to the growth, specifically within fresh, in the Aldi business in the UK.

“We had 40 per cent growth in 2014. And we are sitting this year on 15 per cent growth. And consumers, independent testing and our growers are all telling us our fresh produce range is right.”

Aldi’s buying directors sit down every week, check the prices at their competitors, and then set Aldi’s produce prices from there. The key criterion is that the pricing range must make sense to the shopper, and that the value message is clear. Caldwell notes: “If you can take the ups and downs out of the sector, you cut wastage. If we have a certain price point and the rest of the market promotes, we would go down. But if they go up by 50p again, we’d stagger it back up, as this constant up and down affects demand.”

Aldi is working on ways of boosting the amount of items shoppers purchase at its stores. Davison says: “We’ve looked at the cooking from scratch side of the market; products that deliver from an ingredients point of view. So lemongrass isn’t a big seller, but is it the one item that stops you making your curry? Possibly.

“We wanted to become a one-stop shop for the weekly shop. And 16 to 17 items per basket puts us joint top, aided by items like lemongrass.”

Looking forward, Eivers says: “I don’t see an obstacle to Aldi’s continued success. The challenges are finding the right sites, stores, and people to fit with our expansion. So yes, there will be challenges, there always have been, as growing in itself is a challenge.

“Yet when we spent 2014 growing at 40 per cent, that was a fun challenge. So the 15 to 18 per cent growth we’re enjoying this year doesn’t feel as much of a challenge in comparison.”

Eivers and Pfeifer have both moved to a new department in the Aldi UK business since this interview.

•Aldi introduced five fruit and veg organic lines at the end of 2014 at a price 25 per cent cheaper than its competitors. The lines were “very successful”, and the UK’s organic consumption “went up” as a result.