The UK boss of Aldi has warned that the late November timing of the budget could impact consumer spending in the all-important run up to Christmas.
Giles Hurley, the UK chief executive of Aldi in the UK & Ireland, said that the uncertainty over the measures that the chancellor, Rachel Reeves, will take to address a fiscal hole in the government’s finances could affect festive season spending decisions by consumers.
“There is no doubt the budget does create a bit of uncertainty,” he said. “If you ask customers across the length and breadth of the country they would say that inflationary pressures are persistent. Inflationary challenges are just tremendously challenging.
“[For consumers, grocery inflation] comes on top of bills elsewhere going up. Household groceries have become a bigger proportion of household income, without question.”
Hurley’s comments came as the Food and Drink Federation (FDF) significantly raised its forecast for food and drink inflation to hit 5.7% by the end of the year, up from a previous prediction of 4.8%.
Hurley said the impact of April’s rise in employer national insurance contributions (NICs) and the extended producer responsibility for packaging had “rippled through to prices on the shelf edge”.
Last month, more than 60 retailers wrote to Reeves urging her to avoid implementing further taxes on the industry in the budget.
However, while acknowledging that there is “no doubt” the 26 November budget is injecting uncertainty into the market, he added that the importance of the festive tradition means that “when it comes to groceries and Xmas, British consumers always find a way to celebrate”.
Hurley confirmed the trend that shoppers are increasingly focusing on spending a little more on a home dining experience instead of going out, with its premium own-label range recording 14% growth last year.
“We expect that trend to continue this Christmas,” he said. “Shoppers are prioritising value. There definitely is a trend we are seeing with customers treating themselves at home rather than going out.”
Hurley also said shoppers could face higher food prices if the government introduces further measures in the budget that increases costs for employers.
The warning came as the supermarket chain released annual results showing sales increased slightly to £18.1bn last year while profits fell more than a fifth.
“The government need to consider very carefully any measures that might inadvertently add to operating costs as there is a risk they could find their way into the food sector,” said Hurley.
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The German discounter said its decline in profits – from £552.9m to £435.5m – was in part due to the budget chain’s spending in price promotions and raising pay for staff, as well as an intensive store opening programme.
Hurley said that Aldi spent £14bn with British suppliers last year – with more than 75% of sales coming from UK suppliers, manufacturers and producers – and called on the government to invest in the agriculture sector.
“We would also welcome investment in the British farming sector,” he said. “We know an investment in British agriculture can ensure our food sector is resilient and secure. So we don’t have to rely on what can be more volatile imports [that could ultimately impact prices in stores].”
Aldi said it intended to invest a further £1.6bn in the UK to open 80 new stores over the next two years. The retailer has 1,060 stores in the UK and Ireland, with plans to increase that to 1,500.
The discounter is snapping at the heels of Britain’s third-biggest supermarket, Asda, with figures out earlier this year from analysts Kantar showing it just one percentage point behind in terms of market share – 10.8% v 12.1%.
Hurley said shoppers were “still finding things difficult”, which is why it was “laser focused” on keeping its prices low.
“We’re more determined than ever to meet that demand,” he said. “And that’s why we’re investing a record £1.6bn over the next two years, to bring Aldi prices closer to millions more customers.”