The UK’s fifth biggest supermarket chain Aldi has reported sales of more than £10bn for 2017.

It is the first time total sales for the discount retailer have exceeded £10bn.

Sales were up 16.4% year on year and operating profit rose 26% year on year to £265.9m.

Chief executive Giles Hurley said the store chain’s success was down to the simplicity of its business model, with relatively few lines sold at competitive prices.

He said: “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.”

The German-owned private firm currently has 775 stores in the UK but has plans to exceed 1,000 outlets by 2022.

Aldi could cut prices in response to competition from Jack’s

In comments reported by The Guardian he said he was determined to retain Aldi’s position as the UK’s cheapest grocer (according to analysis by The Grocer) in the face of competition from the new Jack’s discount brand from Tesco, which was unveiled last month.

He said: “We will respond as required to maintain price leadership. It’s not just about price it’s about quality of our offering.

“Aldi has carefully honed our business model. It has taken 25 years to perfect it… I am very strongly of the belief that it will be a real struggle for any more complex supermarket to successfully imitate our model let alone replicate it.”

GlobalData retail analyst Thomas Brereton said: “Aldi’s exceptional 2017 full-year results can only be described as confirmation of its unyielding foothold in the UK grocery market.

“Not only have UK and ROI sales risen five times faster than the overall UK grocery market (16.4% vs 3.3%), but Aldi’s aggressive store-opening strategy means sales growth has outpaced its own 2015 and 2016 growth (11.8% and 13.5% respectively).

“For a non-online retailer with such a substantial store portfolio a trend of strengthening double-digit growth deserves the highest praise.”

GlobalData attributes the main driver of Aldi’s success is its strategy of “low prices without quality compromise”.

Retail Insight Network’s parent business intelligence company said in a briefing note: “Many British shoppers (including an extra 1.1 million in 2017) have switched to Aldi in an effort to save money on their grocery bills, while realistically expecting a dip in quality, an economic principle that the big four [supermarkets] have instilled for so long in the UK population.

“Instead, shoppers have found well-designed stores (e.g. wider aisles) that offer award-winning products, such as its ‘Specially Selected’ premium range, and a core product base (i.e. fresh meat, eggs, milk, butter etc) 100% sourced in the UK.

“So to convince shoppers to switch back seems an almost insurmountable task for the Big Four. Tesco’s opening of their own discount format Jack’s in September, the brainchild of former Aldi exec Lawrence Harvey, shows Tesco is taking steps to address the problem.

“But given the meek store opening plan of c.15 stores by the end of February 2019, while Aldi have promised another 130 by 2019 and a total of 1,000 UK and ROI stores by 2022, these are baby steps at best.

“And while Sainsbury’s prediction that the pending acquisition of Asda will allow it to reduce prices through synergies in buying power, the development of a profitable model that would see Aldi shoppers return seems distant.”

Aldi’s growing market share

Aldi has grown from a 3% market share six years ago to 7.6% in the 12 weeks to August 2018, according to Kantar.

It is still some way behind the UK’s current big four supermarkets.

These are: Tesco with 27.4% of the market, Sainsbury’s with 15.5%, Asda on 15.2% and then Morrisons with 10.4%.

If UK regulators give the go-ahead for the merger of Sainsbury’s and Asda, Aldi would become the UK’s fourth biggest supermarket chain as a result of the market consolidation.