Online grocery boom could deliver supermarket price war

Linda J. Dodson

Britons are increasingly worried about the cost of their weekly shop — that is what Morrisons’ customers told the supermarket chain this month. 

As the furlough scheme draws to a close more families fear they could find themselves out of work and forced to hunt for bargains. Consumer confidence remains mellow.

To align itself with the mood music, Morrisons has cut the prices of hundreds of products this week including fresh food and everyday cupboard essentials. David Potts, its chief executive, said the new offers are here to stay. 

Separately, rival Asda said it is injecting £100m in cheaper items and reviving its ‘Pocket Tap’ campaign, while Tesco has been doubling down on everyday low prices, too. 

Asda’s ads, showing content shoppers tapping their pockets after saving cash at its stores, first hit the screens in 1977 and was subsequently canned just before the financial crisis.

In June, Sainsbury’s new chief executive Simon Roberts said its ‘Price Lock’ promise to keep them steady for more than 1,000 items had been paying off over the past year and through the crisis.

Promising cheap food is not new. However, the latest round of cuts comes after the UK’s major grocers were caught off guard during the last recession more than a decade ago.

They were found largely to be sleeping at the wheel, says Clive Black, a retail analyst at broker Shore Capital. 

“The beneficiaries of this collective somnolence were the German discounters, Aldi and Lidl, which would go on to march to a c15pc share of the market, making them the true disruptors of the last decade.”

The big grocers have been playing catch-up since, beefing up their own label brands, which are typically the cheapest ranges, renegotiating deals with suppliers or investing profits to keep a lid on how much food costs. 

This, however, comes at a price as it chips away at already wafer-thin margins. 

One executive for a discounter says that no matter how much the major players cut prices. “we will go lower”. 

But this time around, the Big Four are in a position of relative strength after an unparalleled boom in sales since the pandemic hit and the shift to home delivery, which they can use to their advantage. 

Aldi and Lidl, which are not opening shops as aggressively as they first did, do not sell groceries online.

Almost overnight the German discounters have been locked out of a 13pc slice of the market. Before the Covid-19 outbreak spread, online sales only accounted for 7pc of the market. 

“Retailers that offer a digital ecosystem to customers covering a main shop, a top-up shop… are likely to have a competitive advantage. We believe Tesco and Sainsbury’s are best positioned in this context,” says Sreedhar Mahamkali at UBS. 

Fresh data from UBS’ so-called evidence lab has shown that a high proportion of people shopping for groceries online (88pc) said they would spend the same again, or more, on their next home-delivery. There was an uptick from 15pc to 18pc in those who said they were going to spend even more online imminently, suggesting that demand is likely to remain high. 

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