Tesco market share dips below 30 per cent

Supermarket giant Tesco saw its share of the grocery market dip below 30 per cent for the first time in nearly seven years as it struggled to compete with low-cost rivals, figures showed today.

Tesco's drop in market share, to its lowest level since May 2005, came as Sainsbury's took its strongest hold on the market since March 2003 and Iceland soared to its best share of the market in 10 years.

Tesco, still the UK's biggest supermarket, saw its share fall to 29.9% in the 12 weeks to January 12, as it slashed prices in a failed bid to attract more customers.

The group admitted it had messed up its pricing strategy over a disappointing Christmas - triggering an unprecedented slump in its share price, wiping billions of pounds from its market value.

The UK's top four supermarkets - Tesco, Asda, Sainsbury's and Morrisons - were embroiled in an aggressive war during the period, started by Tesco when it launched its £500 million Big Price Drop campaign in early October.

Iceland saw its market share grow from 1.9% to 2.1% in the period, which is promising for potential buyers as bids for the chain are due today.

The supermarket's founder, Malcolm Walker, is reportedly facing a battle with two private equity firms, BC Partners and Bain Capital, for the grocer in a £1 billion auction.

Meanwhile, low-cost chains saw their share of the market grow as well, with Lidl up from 2.4% to 2.5% and Aldi up from 3.1% to 3.5%.

Asda, second biggest UK grocer, put in a record performance, lifting its share from 16.9% a year ago to 17.5%, however this was boosted by the completion of its conversion of the Netto stores it acquired last year.

Sainsbury's, which saw its share grow slightly from 16.6% to 16.7%, had a robust Christmas, reporting a 2.1% increase in like-for-like sales excluding fuel but including VAT in the 14 weeks to January 7.

The third biggest supermarket pledged to extend its price matching scheme after the successful festive trading period.

This contrasts to the disappointment at Tesco, where chief executive Philip Clarke said the supermarket wrongly pulled back on one-off promotions, such as meal deals and buy one, get one free offers, as its rivals increased them.

The battle for Iceland will heat up in the next few weeks as Mr Walker is not expected to submit a bid ahead of today's deadline as existing shareholder agreements give him 42 days to match any existing offer.

The retailer is being sold off by creditors to Icelandic bank Landsbanki, the collapsed bank that took control of the chain in 2008. Iceland has boomed since the economic downturn as consumers consider frozen food as good value for money.

Meanwhile, Kantar Worldpanel, who produce the data, said grocery inflation was 5.7% for the 12-week period, another decrease from the peak of 6.2% reported for November last year.

PA