The Big Question: What do supermarkets' claimed price cuts really amount to?

Why are we asking this now?

Tesco, the UK's No.1 retailer, says it is launching a new budget range with extra-low prices, called Discount Brands, which will have 350 lines. Altogether £100m is being spent by Tesco on price cuts. Meanwhile Asda, the UK's No.2, is trimming the cost of all 5,000 items in its budget SmartPrice range, slashing the price of its cheapest oranges, cola, crisps and cornflakes. It has not divulged the cost.

Does this amount to a price war?

As the credit crunch bites, all the Big Four stores (Tesco, Asda, Sainsbury's and Morrisons) are claiming they will help shoppers hit by rising housing, energy and petrol costs.

Earlier this month the UK's third biggest grocer, Sainsbury's, launched a Switch and Save campaign claiming that its own-brand range was 20 per cent cheaper than branded products. Last week Morrisons announced it was cutting the price of 4,000 products.

So food prices are going down?

No, they are rising – by up to 14 per cent a year, when the Consumer Price Index is 4.4 per cent. Just how far food prices have gone up depends on where you shop. According to mysupermarket.co.uk, Tesco, Asda and Sainsbury have raised prices by 5.9 per cent in the past 12 months, while market researcher AC Nielsen says its 75,000 monitored products are up 9 per cent.

The Office of National Statistics says food inflation is 14.5 per cent, based on its basket of 134 commonly-bought foods. What is certain is that some prices have increased steeply, and many of those items are staples. Mysupermarket's basket of 24 items – bread, eggs, baked beans – is up 20 per cent in a year. The ONS is probably about right: food bills are up 15 per cent.

Why are prices rising?

The price of wheat – the major constituent in many foods and feed for chickens, pigs and cows – has soared, pushing up the cost of bread, pasta, cereals, meat, milk and eggs. The surging oil price has increased the cost of plastic in packaging and transport. Rising world populations and growing demand for more meat from large nations such as China, India and Brazil, which have increasingly prosperous populations, have exacerbated if not caused many of these factors.

So it's not a price war?

Not quite; a price skirmish would be a better description. Supermarkets are cutting prices of some goods, both to see off rivals and to give the appearance of being on the shopper's side. Asda really does sell a Smartprice loaf of white bread for 30p, and Morrison's a 400g pack of Birds Eye frozen peas for 60p. But many promotions are "cut and run" discounts designed to end after a certain time. And many suspect the reductions are being driven by a desire for cheap publicity and, more crucially, to combat the rise of the European "hard discounters", the best known of which are Aldi and Lidl, both German-owned with about 400 stores in the UK each.

Why are supermarkets afraid of Aldi and Lidl?

The no-frills budget chains are taking business away from British supermarkets. According to AC Nielsen, Tesco fell from 31.7 per cent to 31.5 per cent and Sainsbury's fell from 16 per cent to 15.8 per cent in the 12 weeks to 7 September, while low-cost Asda increased its share. Most dramatic were the gains by the hard discounters: sales at Aldi have shot up by 20 per cent and Lidl's by 11 per cent in the past year, while discount frozen food chain Farm Foods was up 26 per cent.

Are the 'hard' discounters any good?

Shopping at Lidl or Aldi, or for that matter the smaller Danish chain Netto, is very different from shopping at one of the Big Four. The hard discounters are low price and low service. Shoppers switching to them get a culture shock similar to that experienced by fliers who switched from national carriers to no-frills airlines. Instead of no ticket, no guaranteed seat, and no free snacks, though, shoppers are finding no or few well-known brands, no free shopping bags, and no quick service at the till. Many don't mind.

Despite scoring very poorly for customer service Lidl came equal sixth and Aldi ninth out of 77 retailers in a shopper survey in February. Waitrose came top, followed by John Lewis and independent book and electrical retailers. The message from shoppers could be summed up: "We like good service and reasonable prices – and we will tolerate poor service if prices are low. But we hate poor service if the prices are not cheap" (JD Sports, JJB Sports, Woolworths, Currys came last in the Which? survey).

How might all this change retailing?

The hard discounters are likely to increase their share for the foreseeable future, just like the no-frills airlines have done in the past decade. That is why supermarkets are trying to become more like them, launching their own budget ranges, just as British Airways launched Go and BMI launched BMI Baby in the 1990s.

So which is the cheapest supermarket?

Although prices at the Big Four change, Asda has won The Grocer magazine's title of cheapest supermarket for 11 years running. At the start of this month, The Grocer's check on 33 common products established this result: Asda (£48.78); Tesco (£50.73); Morrisons (£52.36); Sainsbury's £52.46); and Waitrose (£57.94.). Waitrose cost 18 per cent more than Asda. But Aldi and Lidl have been found to cheaper than all of them – about 20 per cent cheaper than Tesco.

So how can I save money?

Research by the Government's environmental body Wrap shows that shoppers waste around one third of food – equivalent to getting home and dumping one in three bags straight in the bin. It advises people to plan more meals and buy more frozen ingredients. Making meals from fresh ingredients is far cheaper than buying processed food.

Cutting out supermarkets altogether can deliver even better value, according to some studies. Author Kate Lock found that her £16 organic box was between 23 and 64 per cent cheaper than equivalent produce at Tesco and Sainsbury in her home city of York this summer. Only non-organic produce at market stalls was cheaper, by up to 10 per cent. A survey in 2006 by the New Economics Foundation found that food at Queens Market in east London was 53 per cent cheaper than the local Asda.

So are prices coming down?

Yes...

* Tesco, Asda, Sainsbury's and Morrisons say they're cutting the price of 9,000 products

* Supermarkets need to appeal to credit crunch shoppers who face surging bills

* The Big Four need to compete with the budget European shops Aldi and Lidl

No...

* Supermarkets can't be cutting prices if they are still rising – and they are

* Many of the promotions end after a few weeks or even a weekend

* Stores make their fattest profits from processed foods, not staples

Suggested Topics
Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Arts and Entertainment
The Bach Choir has been crowned the inaugural winner of Sky Arts’ show The Great Culture Quiz
arts + ents140-year-old choir declared winner of Sky Arts' 'The Great Culture Quiz'
Life and Style
food + drink
News
i100
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas