The escalating price war among UK supermarkets will come as some relief for consumers, who are seeing food inflation creep up again and household bills spiral.
Tesco has signalled that a price war is mounting within the sector, with the UK’s largest grocery chain saying it expects to make as much as £400 million less in profit next year as a result of what it calls “a very competitive market”.
Chief executive Ken Murphy said the company is facing mounting pressure to slash prices, after competitor Asda recently promised the company’s biggest price cuts in 25 years.
But the ruthless competition between grocers has undoubtedly been driven by the discounters Aldi and Lidl, with ‘Aldi price match’ signs becoming a familiar site to consumers.
March’s monthly analysis of prices across the UK’s eight biggest supermarkets by Which? shows Aldi was once again the cheapest, while Asda held on to the top spot for a bigger list of groceries.
At Aldi, a shopping list of 79 grocery items cost £133.73 on average across the month, with Lidl costing only 67p more for those using the Lidl Plus loyalty scheme and 70p more without.
For a comparison of a bigger trolley of 203 items – which does not include Aldi and Lidl as they have a smaller range of branded products – Asda came out cheapest at £498, beating Tesco with a Clubcard by £5.03.
Reena Sewraz, Which? retail editor, said: “A supermarket price war could be good news for shoppers who’ve faced years of pressure on their household budgets.
“While food prices have mostly stabilised according to our latest inflation tracker, some commodities such as coffee and chocolate are causing prices to rise due to global supply issues.
“However, Aldi continues to be the cheapest supermarket in our monthly price analysis with Lidl close behind and Asda the most affordable for a bigger list of groceries including a wider selection of branded items.”
Commenting on Tesco’s half year results, Julie Palmer, partner at Begbies Traynor, said: “The market will be keeping a close eye on whether Tesco can maintain its pole position in the UK.
“To do so, it must both reassure investors that its strategy is sound and convince customers that it remains the retailer of choice in difficult times, all while battling fierce competition from the discounters, higher wage bills and the possibility of increasing UK inflation.”
Dan Lane, lead analyst at Robinhood UK, said: “Away from the US tariff backdrop, Tesco has a price war of its own to fight. The ‘Aldi price match’ promo has been a hit and Ken Murphy will surely be readying a round of ‘Asda price match’ now too.
“Lidl and Aldi have chipped away at Morrisons and Asda in particular – with Asda ready to flirt with some pyrrhic pain in the short term, it’s unlikely to overtake Tesco’s 28% market share but denting it could well be on the cards.
“Tesco’s drop in operating profit and lower outlook today won’t help just before another race to lower prices though. Pricing pressures are clearly surfacing and might just get worse over the summer before they get better.
Supermarket prices are now 3.5% higher than a year ago, up from 3.3% in February after falling from 3.7% in December, according to analysts Kantar.
The British Retail Consortium has said it expects food inflation to hit 4% by the second half of the year amid geopolitical tensions and a £7 billion increase in costs from the autumn Budget.
However, UK consumers can be assured that the competitive landscape and its price wars are significantly dampening down cost-of-living pressures here.
In New Zealand, the Government is considering a possible break-up of a supermarket ‘duopoly’, with Prime Minister Christopher Luxon acknowledging that Kiwis “pay some of the highest prices on the planet for food”.
Mr Luxon has promised to tackle regulatory barriers to bring in potential supermarket challengers to compete with the duopoly.
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