Aldi raises pressure on UK grocers with online foray

By James Davey

LONDON (Reuters) - The British arm of German discount supermarket Aldi will launch an online operation next year, marking its first foray into e-commerce in Europe and giving the UK's major grocers yet another headache to contend with in a brutally competitive market.

Privately owned Aldi [ALDIEI.UL], which posted a 4 percent dip in 2014 operating profit on Monday, showing even discounters can't engage in a price war and emerge unscathed, said it will begin selling wine by the case online in the first quarter of next year.

That would be followed by special offers on non-food items such as electricals, garden products and tools in the second quarter.

"This is perhaps the most exciting development for Aldi in our last 25 years in the UK," CEO Matthew Barnes told reporters.

"Customers are loud and clear with us ... they want us to go online," he said.

Though Aldi is investing 35 million pounds ($53.2 mln) in the venture, Barnes said an online offer of Aldi's full food range "is not on our radar right now," and was not an inevitable future development given that all of Britain's major supermarkets have struggled to deliver a profit in online grocery.

Analysts said offering a full food offer online would require a far more substantial investment, while the economics for a discounter were not compelling.

"First things first and wine/non-food is a sensible way to start," said independent retail analyst Nick Bubb.

Earlier this month British single price discount retailer Poundland launched an online trial.

Aldi has offered online delivery of alcoholic drinks in Australia since 2013 but has not previously entered e-commerce in Europe, seeing it as not profitable enough.

Aldi and German rival Lidl [LIDUK.UL] are the fastest-growing grocers in Britain. Almost half of UK households buying groceries visit Aldi or Lidl every month, market researcher Nielsen has said.

With their low price, limited assortment, low cost strategy they have won market share from market leader Tesco (LONDON:TSCO), Asda, Sainsbury and Morrison, forcing the big players to cut prices, improve product quality and boost customer service.

All four are competing for a share of the fast-growing e-commerce grocery market, with Morrison the last to go online when it struck a deal with Ocado (LONDON:OCDO) in 2013.

Online grocery in Britain is more advanced than elsewhere in Europe, accounting for about 5 percent of sales and forecast by researchers IGD to grow to 8.6 percent by 2020.

Analysts said Aldi's first move online will cause trepidation among the big four, already nervous over the possible launch of Amazon (NASDAQ:AMZN) Fresh.

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It "will be a major worry to the likes of Ocado, Sainsbury's and Tesco," said Julie Palmer at consultancy Begbies Traynor.

Aldi, Britain's seventh-largest grocer with a 5.6 percent market share according to researcher Kantar Worldpanel, made an operating profit of 260.3 million pounds in 2014.

Sales increased 31 percent to a record 6.89 billion pounds as the company opened new outlets, but the 4 percent dip in operating reflected price cuts and higher staff costs.

It has 598 stores in the UK and targets 1,000 by 2022.

($1 = 0.6585 pounds)