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British supermarket price wars rage before Christmas

British supermarkets are slashing prices ahead of Christmas, spurred by competition from German-owned discounters, benefitting customers of all tastes.

[LONDON] British supermarkets are slashing prices ahead of Christmas, spurred by competition from German-owned discounters, benefitting customers of all tastes.

Sales events dubbed "Black Friday", "Cyber Monday" and "Manic Monday" - imported from the United States - surged in popularity across Britain this year as retailers fight for market share both online and in stores.

These provided fresh price battles between British supermarkets as they seek to halt the advance of German discounters Lidl and Aldi and win back belt-tightening consumers.

As a result, Britain's 110 billion-pound (US$172 billion, 139 billion-euro) annual food sales market fell this autumn for the first time in at least 20 years. Sliding food prices have also contributed a drop in British inflation to 12-year lows.

"Mainstream retailers cutting their prices have been the direct result of the pressure brought about by Aldi and Lidl," said Fraser McKevitt, head of consumer insight and retail at Kantar Worldpanel.

"Many retailers see lower prices as a way to try and gain back lost market share." Launched in Britain in the 1990s, the German discounters have eaten away at the dominance of the four major national supermarket chains - Asda, Morrisons, Sainsbury's and market-leader Tesco - a trend deepened in recent years with the erosion of household buying power.

"The UK supermarket industry has experienced radical change over the past five years with consumers becoming much more focused on value for money," said Davy Research analyst John Stokes.

Tesco, the world's fifth biggest supermarket group by sales according to Deloitte, has seen its share of the grocery business steadily decline over recent years in main market Britain.

It stood at 29.1 per cent at the end of 2014, down from 31.5 per cent at the start of the financial crisis in 2008, according to the latest study by Kantar Worldpanel published Tuesday.

Although they remain far behind, the market shares of Aldi and Lidl are steadily increasing to 4.9 per cent and 3.7 per cent, respectively.

Against such a backdrop, Tesco has cut its profit forecast four times in 2014, while senior management has been found to have overstated the group's earnings, triggering a fraud probe.

Tesco declined to comment on its pricing policy. But a spokesman for Lidl said its success was down to more than just low prices.

"Obviously the recession has had a significant effect on the nation's shopping habits and our low-pricing strategy has drawn many new customers into our stores for the first time," said Lidl spokeswoman Laura Hamlin.

However, the supermarket has also attracted middle class and high income shoppers, attracted by "super premium products", a Wine Cellar selection and a Deluxe range, such as a cooked whole lobster for 5.99 pounds (US$9.25, 7.45 euros).

Lidl has created 3,500 jobs in Britain, and Aldi plans to create 35,000 jobs in eight years.

Also popular are "pound shops", which lure in customers with steep bargains and one pound products.

However, the competition on prices is not the only challenge facing traditional stores, according to industry expert McKevitt, who pointed out the health of top-end supermarket Waitrose.

"Not everyone is seeking a bargain, and even bargain seekers will be looking for something else at different times," McKevitt said.

"What unites Waitrose with the discounters is that they offer something different to the mainstream supermarkets - and with a multitude of price matching schemes, loyalty cards, and tiered own label offerings, differentiation goes down well with shoppers." The increasing polarisation of customers to the top and lower ends of the range comes at the expense of the mid-range shops and changes the shape of the market, making it more like an hour glass.