BUSINESS LIVE: Cost-of-living crisis drives record Aldi UK sales

Aldi UK has stepped up its investment plans and earmarked £1.4 billion of spending over the next two years after sales soared to record levels during the cost of living crisis.

The German discount retailer, which opened its first store in 1990, saw annual sales rise by almost £2 billion to £15.5 billion for the year to December 2022, reflecting growth of more than 17 percent and a new record in its 33-year history.

Victoria Scholar, head of investments at Interactive Investor:

‘Entain warned that online gaming revenues are expected to decline in the third quarter and full year. The annual growth forecast has dropped from low to mid single digits to low single digits. But the company maintained its full-year EBITDA guidance of £1 billion to £1.05 billion.

‘The update caused shares in Ladbrokes’ parent company to fall sharply to their lowest point in more than a year. Increased regulatory headwinds in Britain are weighing on revenues.

‘The betting business is also struggling with weakness in Italy and Australia, as well as weaker sports margins due to unfavorable sports results. It said its online business also performed weaker than expected in the third quarter.

‘Entain shares have significantly underperformed the UK markets in 2023, losing more than a quarter of their value since the start of the year. Despite this, most analysts still maintain their positive recommendations on the stock, with 20 buys versus one hold and zero sells.”

Susannah Streeter, head of money and markets, Hargreaves Lansdown:

“The twin concerns about the continued fragility of the Chinese economy and the prolonged lingering high interest rates in the United States have dashed hopes for a dose of Monday motivation to start the week. The FTSE 100 has opened in the red, with miners taking a back seat among companies.

“The deep problems in China’s real estate sector have resurfaced, sparking renewed concern about structural flaws in the world’s second-largest economy.

‘Sprawling real estate giant Evergrande has hit a roadblock in its efforts to restructure its debt, with expectations that new, restructured debt will be issued now undermined by an ongoing official investigation into its main subsidiary, Hengda.

‘There was the hope that complex financial engineering would ensure that the problems in the real estate sector would not spill over into other sectors, but doubts have crept back about the effectiveness of this tinkering in the long term.

“So far, renewed concerns about China’s problems have had no apparent impact on oil production. Prices are rising as the focus shifts back to supply-side concerns.

‘Brent Crude has risen above $94 a barrel again after falling last week on expectations of slowing demand as tight monetary policy in the US appeared to continue. “Sentiment appears to be returning to the impact of production cuts in Saudi Arabia and Russia, and as oil prices rise again, so do inflation concerns.”

London-listed shares fell in early trading in a grim start to the final week of the quarter for global markets, while Ladbrokes owner Entain fell to more than a year’s low after issuing a warning about its online gaming sales.

Entain fell 4.5 percent after saying it expects third-quarter net gaming revenue to decline by a “high single-digit percentage” on a pro-forma basis due to softer-than-expected growth in Australia and Italy.

The travel and leisure index in which the gambling company is included fell by 1.9 percent.

Among other gainers, Aviva fell 0.7 percent after the life insurance company said it agreed to acquire AIG’s UK protection business for £460 million.

The life insurance sector fell by 1.2 percent.

Neil Shah, director at Edison Group:

‘Aldi’s record profits are largely due to the large number of British households, with two-thirds now shopping at the German discount supermarket.

‘Aldi UK’s burgeoning growth, marked by a 17.1 per cent increase in sales to £15.5 billion last year, is largely attributed to consumer shifts during the ongoing cost of living crisis, with increased preference for affordable own-brand products.

‘The company is increasing its investment to £1.4 billion until 2024, following a significant increase in profits in 2022. This announcement comes in sync with Aldi UK inaugurating its 1,000th store and updating its target to 1,500, indicating robust growth and expansive market strategies. The refined investment will mainly finance the expansion and refinement of stores and distribution networks and technological improvements.

‘Aldi, surpassing Morrisons, is now Britain’s fourth largest supermarket and, together with Lidl, is growing rapidly, changing shopping habits and strengthening its position in the market by attracting value-seeking consumers.

‘This strengthened market position underlines Aldi’s commitment to offering value-driven, cost-effective alternatives, attracting almost a million new customers in a year.’

Ladbrokes owner Entain expects third-quarter net gaming revenue to decline by a “high single-digit percentage” on a pro-forma basis, citing regulatory headwinds and slower-than-expected growth in Australia and Italy.

Entain, which also owns Coral’s betting shops, added that it expects the group’s full-year online gaming revenue to decline by a “low single-digit percentage” on a pro-forma basis.

The company had previously forecast annual growth in the mid-teens for online gaming revenue, including the acquisitions of STS Holdings and Angstrom Sports, expected to close in the second half of 2023.

“We continue to see good underlying growth in our online business and reiterate our EBITDA guidance for the year, despite softer than expected revenue growth in the third quarter and the continued rollout of industry-leading safer gambling measures,” said CEO Jette Nygaard-Andersen . in a statement.

Aviva has agreed to acquire AIG’s UK protection business for £460 million.

Aviva said on Monday it would buy the unit – known as AIG Life UK – from Corebridge Financial, a New York-listed subsidiary of AIG.

Aviva CEO Amanda Blanc said the deal would strengthen the FTSE 100 company’s position in an attractive market and help position it for ‘capital-light growth’.

The transaction will add 1.3 million individual protection customers and 1.4 million group protection members, Aviva said. The deal is expected to close in the first half of 2024, subject to regulatory approval.

The deal would represent a reduction of around 5 percentage points to Aviva’s group Solvency II coverage ratio, the company said.

Marks & Spencer has partnered with Adidas and Sweaty Betty to expand its ‘brands’ strategy.

More than 150 products from the two sportswear brands will be launched on M&S’s dedicated Sports Edit platform in early October.

M&S hopes to boost online growth by selling third-party brands, with upcoming additions including Columbia, Regatta and Sorel.

Aldi UK achieved record sales of £15.5 billion last year, reflecting growth of 17.1 percent, as the German discounter benefited from the ongoing cost of living crisis.

The company said it would invest £1.4 billion over the two years to the end of 2024.

Giles Hurley, CEO of Aldi UK and Ireland, said:

‘Although inflation is declining, households are still under real pressure from the higher cost of living. As a result, Britain is shopping very differently than 18 months ago: less travel, more own-brand products and switching supermarkets in search of better value.

“What we’re seeing is a new generation of savvy shoppers who have turned their backs on traditional full-price supermarkets in favor of the transparent, low prices we’re known for. That’s why we continue to welcome more and more customers to us. People who come to us because of our low prices, but stay because of the award-winning quality of our exclusive brands.

‘Shoppers know that they always get more value for their money at Aldi. That is a promise we have been keeping for over thirty years.’