Winners and losers in supermarket price war

The supermarkets are cutting prices to try and grab market share - but not everyone's happy about it...

Last Updated: 06 Nov 2012

Amid soaring inflation in the UK, a price war seems to be brewing as the Big Four supermarkets look to try and target cost-conscious customers. This week Asda said that it’s about to slash the prices of selected staples like milk and eggs to 50p, while Tesco and Sainsbury’s have also been cutting their milk prices. Good news for shoppers, but perhaps not for dairy farmers…

With the average household food bill rising by 25% in the last year, the Big Four are perfectly aware that most households are feeling the pinch. And they clearly see this as a great opportunity to woo new customers with lower prices, to try and take market share off their rivals. At Asda this weekend, you’ll be able to get two pints of milk for 50p (apparently the lowest price since 2001), along with other staples like bread, eggs and mince.

And this aggressive approach seems to be working. Reporting its most recent results this week, Asda said that like-for-like sales were up by 5.5% last quarter. It’s also taking home a bigger proportion of our weekly food shop – it accounted for 12.3% during the period, up 0.6%, which means that it’s gaining market share even faster than discount stores Aldi and Lidl. Better still, many of these new customers are in the highly-sought-after AB category, the top demographic in the UK – so the shoppers with the most money to spend are coming to Asda in search of bargains (and presumably spending more money on other items at the same time).

The question is, how can it afford to sell all this stuff for a measly 50p? The Times reports that dairy farmers are up in arms that the supermarket’s selling milk for 25p a pint, when it costs them more than that to produce the stuff in the first place. They’re worried that ultimately Asda will start squeezing them on price, at a time when higher fuel and animal feed costs mean they need to be charging more. Asda is insisting that farmers won’t be affected, claiming that it’s spending £1m of its own money on the promotion – but the National Farmers’ Union isn’t convinced. ‘We know both historically and from experience they will come looking for farmers to help redress the balance,’ said its ever-optimistic chairman Gwyn Jones.

But the supermarkets will have to pay for these price cuts somehow – they’re not just going to keep taking a hit to the bottom line. So even if the farmers don’t get squeezed, chances are that other suppliers might do – or else they’re going to put up prices on other products where we’re less likely to notice the difference. Though you might argue this is no bad thing...

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