German discount store says it will respond to price cuts from competitors with further reductions as sales rise 36% to £5.3bn

Aldi has vowed to maintain the supermarket price war that has drawn legions of cost-conscious shoppers to its aisles as it announced a 65% increase in its UK profits.

The German discounter said it would respond to price cuts from competitors with further discounts and claimed that attempts by rivals to match its budget approach had only served to boost sales.

Aldi reveals on Monday that UK sales increased 36% to £5.3bn last year and pre-tax profits climbed by nearly two-thirds to £261m. The announcement comes a week after the most prominent victim of Aldi’s success, Tesco, saw its woes deepen with the admission that it had overstated profit estimates by £250m.

“Whatever our competitors plan to do, we know exactly what our response will be and our competitors do as well. We will not let them compete on price. We will not let them close the gap,” said Matthew Barnes, Aldi’s UK joint managing director.

He added that copycat discounts imposed by Tesco and Morrisons had made shoppers even more aware of cost – to Aldi’s benefit. “Price cuts [by rivals] have encouraged consumers to think more about what supermarkets charge,” he said.

Aldi opened 42 new stores last year and attracted 1 million more customers, capitalising on a significant change in shopping habits that is hitting the traditional supermarket giants hard.

Aldi is to open 54 new stores in the UK in 2014 and next year it plans up to 65, taking its total number of outlets to over 600. The UK chain, which is owned by the Albrecht family, based in Mülheim an der Ruhr in western Germany, is aiming to have 1,000 stores by 2021.

Tesco, Sainsbury’s and Morrisons have all lost market share in the past year as the low prices offered by Aldi and fellow German discounter Lidl have tempted customers away. Aldi has also lured shoppers with smaller, uncomplicated stores based in neighbourhoods rather than out-of-town locations.

Established retailers have been forced to cut prices to become more competitive with Aldi and Lidl – but Aldi has only lowered its prices in response.

“We want to have a minimum of a 15% basket discount [to the UK’s major chains] and the reality is that it’s higher than that,” Barnes said. His fellow managing director, Roman Heini, added: “Our competitors have mentioned the need to close the gap on Aldi, but we are clear that we will maintain that price gap and are determined to do so.”

The Aldi executives said they were prepared to take a cut in profit margins in order to maintain their lead.

Heini said Aldi’s business model, based on selling about 2,500 products – less than a tenth of the range sold in the average British supermarket – meant that the major chains would never be able to match its prices. Aldi is able to order this selection, more than 90% of which is own-label products, through bulk-buying, while dictating the package size in order to fit the maximum amount of goods on its shelves and lorries in order to keep costs low.

While low prices are the magnet for most shoppers, Aldi has also broadened its appeal with clever marketing and more fresh foods. This Christmas it will offer nearly a third more premium products than it had in stores last year, including caviar, fresh crab and fresh scallops, as it tries to draw in wealthier shoppers on the lookout for bargains.

Several of Aldi’s newer stores will be more than a quarter larger than its current average store size of 1,000 square metres in order to squeeze in this wider range of products. At Christmas and other peak sales periods like Easter and the summer holidays it adds another 200 or so items to its product list.

“There are still members of the public that don’t shop with us. Some because they don’t have access to our stores, some because they are yet to be convinced, and Christmas is a fantastic chance for us to showcase that you can get everything and more that you need,” said Barnes.