February 6, 2014
A few years ago, a comedian had me in stitches with his sketch of Aldi jokes. The plot line was that a shopper goes into Aldi looking to buy cheap meat and milk and comes out with a leg of lamb, a pint of milk, a snorkel, a tent and an angle grinder. Things were just so cheap and the range so indiscriminate, that he simply had to buy the angle grinder at the price, even if he had no obvious angles to grind. As for the snorkel and the tent, well they are the sorts of things that go together in your head when you are in Aldi, aren’t they?
Back then Aldi was so cheap that the stuff just couldn’t be good or at least that was the image in the mind of punters. It was the ultimate pile ‘em high, flog ‘em cheap supermarket.
In those days, the reconciled poor went to Aldi, the aspiring rich to Superquinn.
A Superquinny type of person knew her smoked salmon from the smoked cheese. Being a member of the Superquinny tribe signaled that you didn’t have to really worry about the extra few euros but you never had to do anything as vulgar as say so out loud. Merely shopping in Superquinn said it all for you.
In contrast, being an Aldi-aficionado was a purgatory of penny-pinching proportions. The Aldi bag screamed having to take what was on offer unless of course you were being an ironic hipster in that Christmas jumper and bushy beard type of way.
All that has changed. Aldi and Lidl have altered the way we shop in Ireland. There was a time when the broad middle class wouldn’t be seen dead in Aldi. Today, shopping in Aldi is a sign of immeasurable good sense. It is the sign of a savvy shopper who knows not only the price of everything but the value of things.
Of course, as the recession has bitten into real income, the bargains at Aldi are simply too good to ignore. But there is something else going on. The way Aldi is presenting itself has changed.
A few years back, the likelihood of an Aldi assault on the middle class was as remote as a member of the IONA Institute on the Graham Norton show.
For example, have you seen the new TV ads for Aldi? They feature middle class Irish mothers, making huge weekly savings at Aldi and deploying the savings in other ways.
Just take two families in what Aldi calls its “switch and save challenge”. The Scannell family is using the savings for mountain biking days out and family outings in Connemara. The Swords family is planning to use the savings for a weekend trip to Madrid. Others are buying dancing lessons for their kids. In all cases you can see that shopping at Aldi is now the norm for copped-on families looking to save on groceries and spend on other things.
This is a far cry from the first incarnation of Aldi, which was aimed at people simply on price rather than to free up money for other more enjoyable treats.
We see a similar movement in Ryanair – the Aldi of the skies.
On Monday, Ryanair announced a loss for the last three months. Despite flying 18 million passengers, revenue per passenger was 6% lower because passengers have cut back on things they can do without such as priority boarding and coffees on board.
Just before Christmas, we saw more evidence of this type of spending behaviour when the profits at the main Irish arm of international clothing giant Zara more than doubled last year to €6.2 million. Zara positions itself as the good value end of the clothing market.
In contrast, the Irish arm of Tommy Hilfiger, an expensive up-market brand with its version of Boston Brahmin and Martha’s Vineyard preppies saw its pretax profits declining by 72 per cent from €417,211 to €114,185 last year.
While we can all understand that after five years of falling incomes due to higher taxes, job losses, massive debts and deleveraging, people are looking for value at every turn, it is interesting to see that we are the most value conscious customers in Europe. In the week when Garth Brooks sold shed loads of tickets that may be hard to accept but look at the chart from Nielsen on people’s attitudes to shopping.
Over 50% of all Irish shoppers have said that they have switched to cheaper brands in the past year in order to save money, a dramatic 50% say they intend to keep doing this next year. We are responding more frugally than even the Greeks where the economy has shrunk even more than ours over the past few years.
When you hear all this stuff about the economy turning the corner, it is hard to reconcile this with survey responses and the evidence from big companies doing business here.
81% of Irish consumers say they want to save more next year. Once essential living expenses are covered, over one third of Irish respondents (31%) are putting any spare cash they have into savings, while 28% are paying off debts.
Figures for the tail end of last year show the “Aldi-ization” of shopping habits is becoming more prevalent. According to the latest Nielsen survey, there has been a significant increase in the percentage saying they have switched to cheaper grocery brands at 77%. This is the highest level of all European countries and 24 points higher than the European average of 53%.
Check out the chart again, because this is what is happening to domestic demand here. This is not the “invented” profits of some multinational company, this is the real economy as we all know it and this is what has to turn around before we see a real uptick in the economy.
Yesterday, this paper carried a front-page headline that it is teachers and cops, the traditional middle classes, who head up the mortgage debtors’ list. This would square with everything we are seeing in people’s shopping habits.
If you want to see what is really happening in the Irish economy forget Department of Finance reports, Central bank bulletins or other missives from officialdom, head to Aldi and bear witness.
David McWilliams writes daily on international economics and finance at www.globalmacro360.com