Growth tends to happen slowly and then suddenly
The growth of the German discounter Aldi in the UK grocery market has been a hot topic recently. During the last 12 months, Aldi has rapidly gained market share from established retailers.
At the same time, many wonder if online grocery will ever become a significant part of grocery retailing. After the pandemic induced explosive growth, the hangover has been especially hard for many online grocers. This has sparked some to think about whether online grocery, after all the years, is only a fad.
Comparing online grocery growth to the big wave of discounters stealing market share is easy.
However, few people have stopped considering how Aldi's fast growth has happened. There is quite a lot to learn for online grocers.
After all, Aldi entered the UK already back in 1990. Over the last 32 years, the company had grown slowly before it was ready to grow rapidly.
The traditional formula for a significant change in retailing is that something is regarded as a niche part of the business with no possibility of challenging the incumbents. This goes on for years and reinforces the established discourse on the challengers as niche players.
Below the surface, the challenger keeps on thriving. This growth does not show up in the big leagues. However, at some point, the growth reaches a level where it becomes visible. As the growth continues with significant percentages, it becomes big also in absolute pounds or euros.
Three stages of Aldi's growth
For the first ten years, Aldi grew rapidly but remained very small. During the next ten years, Aldi grew to become a £2 billion retailer. However, after 20 years and £2 billion in revenues, Aldi was not regarded as a notable grocer. In 2010 many retail pundits in the UK thought that the german discounters were too different from becoming important.
In 2011 Aldi's market share hovered a bit above 2%.
Are the people criticising the online grocery market realising how long Aldi grew slowly in the UK before becoming a significant growth machine?
A significant change happened in the 2010s. During that decade, Aldi continued to grow rapidly, but on a big scale. The absolute growth became prominent, and the revenues jumped from around £2 billion to more than £12 billion.
In 2022 Aldi reached 9% market share.
How about online grocery?
Online grocery in most European markets has been around for about ten years, with significant players investing in the channel. The pandemic created an illusion of rapid change. Everyone forgot that consumer behaviour tends to change slowly.
Similarly to the online customer behaviour change, Aldi also needed to change consumer perceptions and behaviour. That always takes time. Digital is, unfortunately, not changing that.
The growth of Aldi in the UK to the development of online grocery pure player Picnic in the Netherlands surprisingly resembles each other. Both have seen similar revenue growth since the launch for the first three years. It is good to remember that the comparison is only illustrative as the times, business models, and currencies are different.
The Aldi growth story's main lesson is that change takes time. During that time, the change is questioned by the establishment several times. The criticism does not mean that the change would not happen.
The change moves forward s long as some customers see value in the new offering and the revenues keep growing. The big question is where the tipping point is.
At what point does the market reach level where the growth starts to shake up the industry? Often it takes longer than many expect.
Additionally, considerable external disruption tends to accelerate that change. For Aldi and Lidl, the significant external shocks have been the financial crisis in 2008 and the cost of living this year. Both have propelled the companies to new levels of growth.
For pure online players, there is still a powerful way to grow before they become big enough to change the market. It is good to remember that it was only in the mid to late 2010s when Amazon became one of the biggest online retailers. That is 20 years after the founding of the company.
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