* Stores target was previously over 1,000 by 2022
* Aldi UK reports first profit rise in four years
* 2017 sales 10.18 bln stg, up 16.4 pct
* Aldi UK has 7.6 pct grocery market share (Recasts with CEO comment from briefing, analyst comment)
By James Davey
LONDON, Oct 1 (Reuters) - The British arm of German discount supermarket Aldi aims to have 1,200 stores in Britain by the end of 2025 as it seeks to grab more market share from its bigger listed rivals.
Aldi UK, which reported its first rise in annual operating profit for four years on Monday, now has about 775 stores and had been aiming to exceed 1,000 by 2022.
Aldi UK is Britain’s fifth biggest supermarket with a 7.6 percent market share, trailing market leader Tesco, which has more than 3,400 stories, Sainsbury’s, Asda and Morrisons.
The new stores add pressure on established chains to respond. Sainsbury’s is seeking to buy Walmart-owned owned Asda , arguing that the rise of discounters opens new fronts in competition, while Tesco launched a budget chain, Jack’s.
Aldi UK Chief Executive Giles Hurley said the firm opened 70 stores in Britain in 2017 and was on track to open 70 more in 2018 and 130 between 2019 and 2020. After that, it planned to open 50-60 stores a year to reach 1,200, focusing on towns where Aldi was not yet present, he said.
“As a business we tend to be pretty conservative with our targets,” Hurley told reporters. “It wouldn’t surprise me if we actually achieved more than we said by 2025.”
He said Aldi would be interested in buying some Sainsbury’s and Asda stores that the regulator could force them to sell as a condition for approving their proposed merger.
Aldi UK said last year it would invest 1 billion pounds ($1.3 billion) in 2017 and 2018 in store openings and converting existing sites to its “Project Fresh” format. Some of the cash would also be spent improving and opening new distribution centres.
“We will continue to maintain this rate of investment over the coming years,” Hurley said, adding Aldi UK was “powering up, while others pare back.”
The investment would create 5,000 jobs over the next two years and 20,000 by 2025.
HSBC analyst David McCarthy said Aldi UK’s plans stepped up the challenge for its listed British rivals. “There is no let-up in either Aldi’s expansion or its sales growth. That it is growing its fresh and premium range and expanding nationwide, means its market share growth looks set to continue,” he said.
Aldi UK and Ireland made an operating profit of 265.9 million pounds in 2017, up 26 percent, with sales rising 16.4 percent to 10.18 billion pounds. It attracted 15.8 million customers, up 1.1 million.
Britain’s food retailing sector has been transformed in the last decade by the rise of privately owned Aldi and Lidl, which has driven down returns of the big four players.
They have fought back by cutting prices and improving service, chasing greater purchasing power through mergers. Tesco bought wholesaler Booker for nearly 4 billion pounds, Sainsbury’s wants to takeover Asda and Morrisons has struck wholesale deals with Amazon and McColl’s.
A key aspect of the Competition and Markets Authority’s probe of the Sainsbury’s/Asda deal will be whether it includes the impact of the discounters on the overall grocery market.
“While other grocers introduced more complexity into their businesses in their struggle to win back customers, we stuck to our guns and focused on doing what Aldi does best – buying smart, staying lean, improving quality and keeping prices low,” said Hurley.
The big four are still losing market share to Aldi and Lidl, who are also attracting customers with more premium ranges. Aldi’s “Speciality Selected” range now generates over 1 billion pounds annually, with products such as Oliver Cromwell Pink Gin.
Hurley said Aldi UK is talking to suppliers to better understand the challenges and obstacles to the supply chain they envisage from Britain’s departure from the European Union in March 2019.
“The good news is that around 77 percent of what we sell is sourced from suppliers who are based in the UK,” he said. “Whatever Brexit looks like our expansion and growth plans will be unaffected.”
$1 = 0.7670 pounds Reporting by James Davey Editing by Louise Heavens and Edmund Blair