Food inflation presents fresh opportunity for Aldi and Lidl to take bigger bite of Irish market

The initial economic impact of the war in Ukraine came in the energy market, but the more enduring impact will be felt in the price of food. Policymakers across the globe are beginning to sound the alarm about shortages in many countries of basic foodstuffs such as wheat, of which Ukraine and Russia are top exporters.

There are unlikely to be major shortages of basic food items in shops in Ireland. But prices on the shelves are already beginning to rise.

The latest figures from market research firm Kantar suggest inflation in the Irish grocery sector was 4.7 per cent in mid-April, a near 10-year high. As the shortage of wheat filters its way downstream in the food chain, the price of kitchen staples such as bread, pasta, breakfast cereal and biscuits will rise faster in the second half of the year.

No housing bubble brewing / Davos is back

Listen | 40:40

The European Commission says there's a limited risk of another housing bubble developing in Ireland due to stricter rules that have reduced risk in the financial system. The positive finding comes despite the fact that house prices are expected to continue to rise this year. Cliff Taylor gives his views on the matter. Also in today’s episode: after a gap of more than two years, the World Economic Forum has gathered again in Davos, Switzerland. Joe Brennan is there for The Irish Times and tells us what has been happening.

This will present a challenge for family budgeting. But it also provides a golden opportunity for the German grocery discounters, Aldi and Lidl, to break through the glass ceiling that has kept their combined share of the Irish market below one-quarter for most of the past few years. Expect their slice of the pie to increase in the next year or so.

Whenever the main battleground in the Irish market moves to price, Aldi and Lidl benefit at the expense of the share of bigger chains — SuperValu, Tesco and Dunnes Stores.

The discounters’ finely-drilled operating models are better set up to compete on price. The Great Recession that started in 2008 turbo charged their share of the Irish market. The bigger operators eventually responded, but only when economic conditions eased along with customers’ obsession with cost.

In the fear-driven early stages of the pandemic, the discounters saw their share rise once again. But as the economic fears subsided later in 2020, the bigger operators regained lost ground. But the discounters appear to be on the march again as food inflation has kicked in.

The latest figures show Aldi on 12.1 per cent and Lidl on 13 per cent. Their combined share was just 23.4 per cent at the beginning of the year. Could one of them breach the 15 per cent mark by the end of 2022?