Big supermarkets ratchet up price war to fight trading crisis

Britain’s polarised grocery market has been typified by strong performances by those at the premium and discount ends, and lacklustre results in the middle

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The Independent Online

Britain’s beleaguered supermarkets have moved to slash prices as they intensify their brutal price war after a grim festive season.

Sainsbury’s is expected to reveal today the impact on its Christmas trading of the rising popularity of upmarket rival Waitrose and the discounters Aldi and Lidl. Its chief executive, Mike Coupe, said yesterday it had dipped into a £150m pot since November to cut the price of 1,000 of its most popular products.

His counterpart at Tesco, Dave Lewis, is under more intense scrutiny as the market holds its breath ahead of his strategy update tomorrow. He is expected to unveil a swathe of price cuts, implemented immediately, and several sell-offs of smaller parts of the retail behemoth.

Asda, owned by the US giant Wal-mart, earmarked £300m of price cuts yesterday for the first quarter of this year, financed from a £1bn war chest designed to fend off discount rivals over five years. Morrisons has already committed the same sum to lowering prices over three years.

The extent of the challenge to the Big Four grocers was laid bare yesterday when Waitrose unwrapped a 7 per cent rise in sales over the five weeks to last Saturday, to £728m. Like-for-like sales at stores open for more than a year were up 2.8 per cent.

The upmarket retailer attributed part of the rise to sales of English sparkling wines, which more than doubled and the popularity of its Heston’s Ultimate Chocolate Bar frozen dessert.

Waitrose managing director Mark Price said: “As a business owned by the people who work here, we can take the long-term view and our Christmas results show the effectiveness of our strategy.”

Waitrose said its online grocery sales had risen by 26 per cent, with wine, flowers and hamper sales up 40 per cent.

Britain’s polarised grocery market has been typified by strong performances by those at the premium and discount ends, and lacklustre results in the middle. The luxury grocer Fortnum & Mason drew in well-heeled shoppers seeking luxury items, with sales up 23 per cent over Christmas, it said yesterday.

Shore Capital retail analyst Clive Black believes the mid-range supermarkets may have already reached their nadir. “We believe that we have reached the respective low points in the Morrisons and Tesco investment stories,” he said. “We remain concerned about the pace and nature of the Sainsbury’s trading downturn in recent quarters. We now await signs as to whether there are grounds to be more sanguine on a sector that we characterised as un-investable in early 2014.”

Bruno Monteyne, a former Tesco executive who is now an analyst at Bernstein Research, was also upbeat. He said: “The headline numbers will likely be worse but the overall tone should be more positive: discounter growth is continuing to slow from its summer heights and there are signs the bigger names are beginning to fight back.”

Last year was seen as a particularly terrible year for the listed supermarkets, with a price war resulting in price deflation not seen for the best part of a decade.

Food inflation edged up 0.1 per cent last month while overall shop prices fell 1.7 per cent amid a flurry of Black Friday discounts, according to British Retail Consortium and Nielsen figures released today.