Aldi invest in recession

Discount retailer Aldi has unveiled plans for a significant Irish expansion with 35 new stores and 650 new jobs over the next three years. The German owned group is also setting up its second Irish distribution centre which will be located in Mitchelstown, Co Cork, to supply outlets in the south of the country. Today, Aldi says it will spend €350m as it increases its presence in Ireland. It currently has 59 stores here and will open a further 17 by the end of next year.

Unlike conventional outlets discounters, Aldi and its rival Lidl, usually offer one brand of each product. They also have relatively low numbers of staff per store with Aldi employing an average of 14. Over the past decade the two discount retailers have grown their market share at the expense of existing players. Aldi says it has currently a 4.5% share of Irish grocery spending.

In recent months, as the Republic entered a recession for the first time in more than 15 years, the store has done particuarly well with the numbers of customers up 25% in October 2008 compared with the same period last year. The managing director of Aldi UK and Ireland Paul Foley new customers were "trying Aldi because they’re more conscious of seeking out value for money”. He said Aldi customers could expect to spend €60 less on a trolley of goods which would cost €200 elsewhere.

This is not just a drop in profits... it's a drop in M&S profits

This is a good example of the response of a relatively upmarket store to the collapse in consumer spending. Marks & Spencers is to slash the price of its clothing and food to take on the no-frills grocery and fashion stores. M&S announced the price-cutting drive today after half-year profits dropped by 34%. The main reason for the slump is their shoppers defecting to budget rivals due to the imminent recession in the UK. This is particularly acute with the recent performance of their food business where profits and market share are falling as rising food prices encouraged customers to trade down to cheaper stores as well as discounters such as Aldi. M&S will try to attract shoppers to its stores with a Christmas advertising campaign featuring boyband Take That and TV actor Robson Green as well as regular M&S faces Twiggy and Erin O'Connor.

As M&S chairman, Sir Stuart Rose, disclosed the slump, annual profits at the low-cost fashion retailer Primark bounced up by 17%, indicating that customers were prepared to pick up clothing – if the price was right. M&S indicated that it was planning to reduce the costs of hundreds of items, in attempt to match the public's desire for cheaper goods. "In the current market, customers are increasingly concerned about value and we know that we have to respond accordingly," he said.

Incidentally, the current sterling/euro exchange rate will mean the M&S reductions will be greater in Northern Ireland than the Republic.