February 6, 2014

The Aldisation of Ireland

Posted in Behavioural Economics · 31 comments ·
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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.

Nielsen Chart

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

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  1. Went shopping with my Mum last week in Aldi, got some nice steak and salmon.

  2. Carrefour Supermarket Nice France

    Two shoppers have been injured after part of the roof collapsed at Carrefour hypermarket at Nice Lingostière. Witnesses reported hearing a loud bang yesterday evening at 5.30 as about 300 square metres of roof caved in at the north entrance to the store, near Flunch. 70 firefighters attended the scene with sniffer dogs. The emergency services are described it as a miracle that no one was seriously harmed or killed. Carrefour has begun its own inquiry. Heavy rain in recent days could be to blame.

    Speaking of rain, it’s officially been confirmed that it was the Riviera’s wettest January in 40 years. Rainfall amounted to 40% more than the monthly average. Several roads have been closed by landslides or flooding – we’ll take a full look at the travel shortly.

  3. Tim

    Yes. It is very obvious and simple: as their employer (government) continues to steal their earnings every fortnight for banks, via multiple pay cuts, (plus all the extra taxes and levies stealing from all employees, in all sectors), *While* said banks continue to demand a “second” payment for the same mortgage, people can’t afford to do anything else but rob “Peter to pay Paul”, fall into arrears, reduce food bills and INEVITABLY go bankrupt.

    That is what is happening, make no mistake.

  4. Mike Lucey

    Another thing I have noticed of late along the same lines is that folk are not so inclined to glance at car number plates as much as they did in the tiger times. I think its actually fast becoming an embarrassment to have a current year number plate!

    Aldi, through their well conceived ad campaign, are making it trendy to be tight.

    • They’d had those ’113′ plates last year, which I thought was just ridiculous.

      Apparently it’s because people didn’t want to have the number ’13′ on their cars – have you ever heard the likes of it?!

      You’d have to be into astrology or something like that to believe that superstitious nonsense!

      • Bamboo

        As far as I know this has nothing to do with superstition. This is the car business which found a good opportunity to sell twice a year rather once a year.
        The Irish consumer is falling for it again.

        If this is superstitious nonsense then remember it is a religious country.

  5. David,

    What’s your take on the Garth Brooks mass hysteria?

    Are you going?

    Adam.

    • Couldn’t imagine anything worse!

      • Being a total indvidualist, I’ve never understood the tendency or desire for people to get together into big, screaming groups.

        A couple of years ago I was driving past the Villager Pub in Chapelizod and in the tiny seated area out front were about 100 Shamrock Rovers fans, packed in like sardines and all roaring in unison – “The Hoops are having a party, the Hoops are having a party” etc.

        I thought to myself “I don’t think I’ve ever seen such a bunch of twats in my life”! Lemmings!

        Anyway, Garth is a decent musician (by all accounts – never heard but even one of his songs) and it’s not his fault that 320K lemmings want to turn up and scream at him. I’d take the payday myself if I was him.

        But I just don’t understand the primeval urge comes from, not to mention where all the money when a lot of these people are those who are crying that they can’t pay their mortgates.

        Lunacy!

      • Haha 5 dates for Brooks now!

        400,000 tickets!

        That’s roughly 1 in 12 of the population going to Croke Park in July.

        A country of fuckwits, I tell you.

      • Deco

        Compared to pervious mad spontaneous urges, like Eircom shares, Property, Property in the sun, Bank shares, and voting for Family Firm, this spontaneous urge is really really cheap.

        Though the movement of a mass of people in one action does bother me.

  6. stefanooldrati

    People will do what they are served with, and what their culture will drive them to.

    Ireland is not the centre of an extreme quality customer experience in any industry if not the country itself for some of its excellent aspects.

    Scarce quality offer and quality experiences will for sure leave people be attracted by the low prices Aldi like offer to logically save money for other experiences.

    Curious is that people think that they need to save money on food, drinks and dresses etc. but not when they are bidding for they houses and making the prices rise instead of the value of what they are buying!!!
    Curious habits, very curious ones!

    Or when they throw out of the window money buying useless type of expensive (vs. Continental EU prices) car in a country where if you want to go for example on holidays you move by plane 80% of the time…

    In specific on the supermarket industry issue.
    Aldi Lidl, etc. are example good example of where people can turn to, because the rest of the shopping competitors are lazy, greedy, dull or just not enough motivated to boost quality vs. quantity.
    SuperQuinn was a business case in innovation classes and team motivation with its approach to give everyone in the company and overall the point of sale people a reason to contribute to make the place better every day.
    Now under the “logic” of SuperValue we assist to a very interesting and wow thing: the TV campaign that is showing customers wanting them to be happy, that the Supervalue private label range is coming to the SuperQuinn point of sales… WOW!
    That’s one of the most refined example of marketing around.
    For sure a good example that instead of sourcing form lessons, cases and books about the experience economy are getting the market and all industries back to goods and commodities… wow really in touch with what customers can expect to make their life better… a big quantity of everything cheap low quality to sleep on it.

    Aldi and Lidil are also acting on what is not really coherent… they profess the edlp (every day low price) but when they scratch the bottom of this shallow pool of commodities values they start producing the “premium” or their own no label brands… eh eh… and that is the best lesson about the fact that even them understood the value of brands building, and experiences paying chefs to produce their advice for a full experience good meal, instead of commodities.

    People doesn’t need more food to eat or drinks to drinks but they will be always interested and pay a good price for better experience and brands that are delivering that.
    Then it depends also which type of people are comfortable to be Aldisied.

    The battle is about what values and experiences brands are offering.
    It is also about wrong things brands are doing, such as to be hoovered within the spiral of prices forgetting the experience excellent trip that they have to take the customers through… for that a good example is the Kerrygold butter that has the same packaging of the Dunnes Stores butter… yes that and not the opposite.
    In fact it is the very fault of Kerrygold not to raise its pack to a better standard, a better story to tell, then lagging behind and falling back in quality just because the rest of the competitors are catching up. They have to raise the standards… that don’t mean the prices.

    So Aldization it is just like a bit lying to themselves … when as said talking about houses they kill each other bidding for insane prices that will lead sooner or later to another little crash.

  7. cooldude

    It would appear that the US is undergoing Aldisation also. The last paragraph of this article discusses how the middle classes are switching from the likes of JC Penney and other high class shops and are increasingly using discount retailers. The middle class is being systematically squeezed right across the western world and it it seems to be getting worse despite what Enda says. The Gareth Brooks phenomena is wierd.

    http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/2/6_Richard_Russell_-_Collapse_To_Be_Brutal_As_US_Lies

  8. DarraghD

    An excellent article, I run a small business in Ireland which is involved in the online and offline sale of replacement car parts to both trade outlets (garages) and also to retail online, and if you think Irish people are obsessed with drilling down and saving on how much they are spending on their weekly groceries, you should see what they have turned into when it comes to keeping their vehicles on the road! There is literally nothing like it, just like it is fashionable these days to be seen in LIDL, when it used to be fashionable to be seen in “Mark & Sparks”, or Superquinn, when it comes to car maintenance these days, the car scrap yard is where the smart money is at these days!

    One phenomenon we are hearing about again and again and again these days at our trade counter, is the retail customer or motorist now “micro-managing” their transactions with a garage. Say a customer needs a new turbocharger (because the car hasn’t been serviced in 3 years!), and brings the car to their trusted mechanic, the mechanic/garage will come back with something along the lines of: “parts 475 Euro, labour 250 Euro”… The response you can expect these days is: “I can get the parts much cheaper on the internet, will you just do the labour adn I’ll look after the parts?”…

    This is like going into a Roma take away and asking if your man behind the counter will give you a quarter pounder for a better price if you supply the burger and a bun, and this is what we are seeing every single day or the week, and then we read about this supposed “recovery” in our domestic economy which I think is an absolute load of crap, for as long as you have people approaching transactions in this manner, this absolute obsession with not spending money, (because people don’t have it, as they are being bled dry to pay for our public sector and the zombie banking debts of the last 15 odd years), the obsession with drilling everything down to the last rivet when it comes to price, so there is nothing really left in it for the trader, and this is often enabled by new technology such as the internet, is crippling legitimate small businesses…

    • pauloriain

      DarraghD…. I am that soldier and very proud of the fact. What you don’t say or fail to expand on is the profiteering or actually the ripping off of people, which the motor industry has been doing for decades now. I’ve personally too many examples, from exhaust fitting shops telling me I need a new exhaust mid box 375 euro, because there is a rattle, when all that was need was someone to get under the car and realign the exhaust, which had moved and was knocking to a new CDI unit in a car with only 42,000 miles on the clock 1500 euros later. Last year a new tow bar for the car RRP fitted lowest quote 375 euros and as high as 575 euros…. part only in Ireland 155 euros, I bought it online (UK) 115 euros with everything, wiring the lot plus instructions and fitted it myself, 4 hours, but reckon a garage could do it in 2, so they would have earned over 200 euros if I had of used them.

      Here’s the thing DaraghD, either it’s this way or no way cos enough is enough with the ripping people off……. main dealer labour rates at 110 euros per hour….. that’s from 8 years ago or 55 euros per hour for non main dealer and everything inbetween. People have wised up and the internet allows us to educate ourselves firstly about what the problem is with the vehicle and then we can negotiate to sort it.

      Here’s another one….. button for electric window for a BMW E46, just the button needed…. wreckers won’t sell just the button, so will only sell the whole switch assembly, 40 euros is what they wanted…. but here’s the kicker, main dealer 40 euros for new, whole switch as well.

      The point being shop around and negatiate and save a fortune.

  9. Bamboo

    I think the graph is not really a true picture of changing attitudes in Ireland.

    Myself and my wife used to enjoy our Spanish holidays a lot. And that was in the early 90’s. Part of the great things in Spain was the fact that there was an Ali and a lidl. So you had the choice – go expensive or go cheap. There was no such a thing in Ireland as an Aldi or Lidl phenomena.

    Mainland Europe and England enjoyed having that luxury of choice for the last 30 years as far as I know. Now in Europe there are more pound shops aka humpty dumpty shops coming up. People had even more of a choice. These shops are coming up as well in Ireland but not as wide spread as mainland Europe.

    The reason Aldi and Lidl came to Ireland 25 years later or more is only because Ireland was changing about 15 years ago. Before that there was no chance for Aldi and Lidl to set foot on the island as the Irish consumer was simply not ready to live such a concept. So Ireland is so behind in this concept comparing to mainland Europe and England. I know up to a few years ago, there are still so many that are willing to travel the extra distance to go to a Lidl so not to be seen by their neighbors they are shopping in Lidl. Then some gave in and say they only buy certain things in Ldl or Aldi – like biscuits or shoe polish.
    Now the snobbery is loosing even more ground due to dire economic situation the Irish consumer is facing. The Irish consumer now know they are not alone and it is now actually OK to shop in Lidl or Aldi.

  10. Father Bartholomew Foolemall

    Back in the “boom time” when Lidl and Aldi first started to arrive here the snobbery towards them was widespread. I remember a german neighbor of mine, a young guy working in one of the tech companies here, laughed at how silly we “little pixie heads” were in turning our noses up at what to him were obvious savings to be made. He said that in Germany Lidl and Aldi had quite a good reputation among consumers. Ah….the pride before the fall…eh.

    • +1 They love it here. The irony.

    • ps200306

      +1. One of several reasons why the big supermarket chains have been able to gouge Irish people for profits way above what they can make elsewhere is the total lack of price discernment on the part of the Irish shopper. It’s about time Paddy the supermarket customer started demanding a bit of competition and, more importantly, voting with his feet. The response of the other supermarkets to the Lidl/Aldi phenomenon has been — finally! — to introduce cheaper product ranges and an all round bit of common sense. It’s about time. I look forward to the day when we persuade the supermarkets to publish their entire price list online to allow for proper market-levelling comparisons, instead of the “our 2 liter Coke is cheaper than theirs” style of advertising. Not holding my breath though.

  11. michaelcoughlan

    Hi David,

    Our family use lidl for years. Just because they are cost effective doesn’t mean the items are inferior quality. Example; We buy organic mince, eggs, milk, mostly coming from Irish farms. We buy organic apples, spuds, carrots, onions etc. Most of the branded items are in there too, lyons tea, batchelor or heinz beans, cadbury choclates weetabix organic porridge etc.

    They also claim they pay an entry level wage of €11.25/hr. They are typically German in their approach to training staff in that they allow trainee managers to train on the job and do a degree part time.

    I have no hangups about shopping there and my better half always remarks that they are a godsend. There is much manny of the Irish run businesses could learn from them especially Ryanair.

    Michael.

  12. Tull McAdoo

    It comes as no surprise to me that the big players that are involved in currency wars (as mentioned at the end of previous thread) are engaged in the battle for the high street shopper as well.

    You have the yanks again with ASDA the lovechild of Wallmart,

    The Brits are there with Tesco et al,

    Germans with Aldi/Lidl,

    Local Dunnes who seem to have lost there way a bit lately, supervalue etc!

    Convenience outlets like Centra and Londis who have mixed origin, mercenaries if you will ha.

    Chinese have decided to go for the value added and sell the finished product.

    Polski/polonez has sprouted up here and there to cater for their immigrent niche.

    I suppose the key to remember is not to confuse cheaply priced inferior goods with better quality items which offer a better value for money proposition.

    To conclude we have several battles taking place in Ireland

    1. Culturally for the hearts and minds through TV, radio, books and even garth brooks
    2. Financially for your pocket with the various banks etc and now
    3. Gastronomically for your belly with the above.

    I don’t think it will end there with the carving up of society into digestable consumption units ha ha

    So “don’t go dreaming it’s over” , take it away crowded house and Goodnight ireland. Sleep well.

    http://www.youtube.com/watch?v=I52eefwAKDE

  13. “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”

    That is except when it comes to the actual value of the money they are using.

    The current script issued as money is steadily losing value and purchasing power and in the future and, not too far hence, will be seen as only fit for plastering cracks in the wall, lighting a fire, or in that ultimate act of consumerism soiling a piece of fresh paper and flushing it down the toilet with a liberal application of potable water.

    So here is a little “library reading material” that can be perused in your spare minutes that will allow you to cogitate where to put your savings after your latest trip to Aldi/Lidl etc.

    http://campaign.r20.constantcontact.com/render?ca=bf6bceb3-f8d5-4d5b-9c93-397f50fb20ce&c=877a32b0-427b-11e3-ad08-d4ae52a45a09&ch=8905dbc0-427b-11e3-ad3c-d4ae52a45a09#hoffman

  14. POF999

    If you want to see what is happening to the middle class in the US, check out this video. A real case of perception vs. reality
    http://www.huffingtonpost.com/2013/03/04/wealth-inequality-video_n_2805811.html

  15. Joe R

    Surely you are just describing the effect of increased competition impacting on a market that is now interested in full availing of the benefits of that competition? There is a bit more to why Aldi and Lidl are making headway but this is the core of it, is not?. Tesco and Dunnes are having to respond which is driving down price inflation across the sector.

    Linking all of this back an article of yours from a few weeks ago, one on `real´ inflation which highlghted the increasing price of a Dublin Bus rambler ticket (30% in 3 years) would it not be fair to assume that competition and the breakup of the privileged transport monopoly called Dublin Bus could have helped contain the soaring cost of transport? This cost actually is an important basic cost for a society regarding general competitivity, so has knock on effects down the line. To add to all of, this Dublin Bus runs at a massive loss and was almost bankrupt in the recent past.It seems to me that the Dublin Bus have a captive population to make pay for their fiscal incompetence. Time to break it up?

  16. mishasibirsk

    Don’t want to be a pedant, but…

    “…over one third of Irish respondents (31%)…”

    ???

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