Even the great disruptors cannot outrun maturity forever.
Aldi, the German discounter that reshaped Britain’s grocery sector, has reported its weakest growth in more than a decade and a sharp drop in margins, a shift UBS says may create a more favourable backdrop for the listed incumbents.
According to its latest annual filing, Aldi UK revenues rose just 1.3% in 2024, far below the 15.6% growth recorded the previous year.
Store expansion also slowed, with 31 new sites opened versus 35 the year before.
By comparison, the chain was adding around 65 outlets annually between 2015 and 2020.
Aldi now operates about 1,050 stores and still targets 1,500 “in the next few years”, but UBS notes that expansion is proving harder as attractive locations become scarcer.
Margins also came under pressure. Adjusted EBIT margin slipped to 2.7% from 3.2%, hit by heavier price investments, colleague rewards and higher expansion costs.
Personnel expenses climbed 10.8%, well above Tesco’s 6.8% rise, despite staff costs as a share of sales easing slightly.
Aldi has just raised minimum pay to £13.02 an hour nationally and £14.33 in London, cementing its status as the sector’s best payer, but also signalling further wage cost pressure in 2025.
Capital expenditure edged higher to £690m, while net debt ticked up to £751m, around 1.0 times EBITDA.
Strikingly, Aldi paid out a £250m dividend, the first meaningful distribution in over a decade, which UBS sees as another marker of maturity. Market share growth was muted at 30 basis points, leaving Aldi on 10.7% and still fourth behind the larger grocers.
UBS Evidence Lab data suggests mainstream operators are improving their value perception and shopping experience, eroding some of Aldi’s once-unique edge. With Asda’s attempted reset showing little visible effect, the analysts believe the industry will remain rational.
Against that backdrop, UBS reiterates 'buy' ratings on Tesco PLC (LSE:TSCO) and J Sainsbury PLC (LSE:SBRY), with price targets of 475p and 330p respectively, arguing both are positioned to benefit from a stabilising market as Aldi’s breakneck disruption eases.