Spending in supermarkets to break the £100bn barrier in 2002

The annual supermarket shopping bill in Britain will break through the £100bn barrier for the first time next year, a leading firm of analysts said in a report out today.

The continuing rising demand for groceries will fuel a renewed price war between the major supermarket groups, according to Verdict. In a report forecasting trends in grocery retailing over the next five years, it described the recent relaxation in competition as the "lull before the storm".

"This pause will not last too much longer and a much more aggressive environment is about to take over," said Richard Hyman, a director of the company. Asda is expected to launch a more combative stance after rebuilding its management team, the report said. "More aggressive price competition is on the way," Mr Hyman commented.

"The exact timing of the resumption of hostilities will depend on a variety of factors but the New Year is likely to be the soonest," he said.

Despite this, Verdict expects food and grocery retailers to outperform the retail market as a whole with annual sales growth of 4.4 per cent compared with 4.0 per cent over the previous five years.

It said supermarket spending would be £96bn this year, breaking £100bn in 2002 and reaching £119bn by 2006.

Verdict said a key battleground would be non-food retailing – goods like clothes, televisions, books and sports gear. This currently makes up £13bn a year, or 16.8 per cent, but is forecast to mushroomto almost £20bn by 2006.

The inexorable expansion of the food stores will be bad news for many other retailers which will see their business gradually eroded by the supermarkets, Verdict said. It rated Tesco, currently Britain's largest supermarket, as the best operator in retailing.

"The much more competitive market which is about to emerge will test the new strategies of Sainsbury and Safeway after the comparative comfort of the past nine months," Mr Hyman said. "The danger of being caught in the middle market for them is very real."

The report also points out that the battle for consumers is being made more intense by a collapse of brand loyalty among shoppers. Mr Hyman said as many as a third of shoppers were unhappy with their regular store, adding: "It is these floating shoppers who will be the focus of attention in the battle for market share over the next five years."