Supermarkets plot Christmas price war

As Sainsbury’s profits plummet by 92 per cent . . .

SUPERMARKETS are gearing up for a Christmas price war as the big four battle to fight off the German discounters.

As Sainsbury’s reported a 92pc slump in profits, experts said shoppers look likely to benefit from competition among the country’s biggest grocers over the festive period.

Sainsbury’s profits fell to just £9m in the six months to September 21, from £107m in the same period last year.

The collapse came as the chain closed stores and slashed prices on more than 1,000 products. Operating profits, a measure of the underlying health of the business, fell 15pc to £238m while store sales were down 1pc.

Margins fell to less than 3pc as bosses admitted they kept a running list of items that are cheaper than Aldi and Lidl.

Sainsbury’s chief executive Mike Coupe is under pressure to win back shoppers following his failed attempt earlier this year to merge the business with Asda.

But he faces stiff competition from rivals. Tesco said it was price-matching more than 400 products to the closest competitor, or the ‘cheaper of the two discounters’ Aldi and Lidl, helping to fuel the race to the bottom.

During autumn the proportion of items on promotion increased for the first time in four and a half years, driven by Tesco’s ‘100 years of value’ campaign and Sainsbury’s ‘Price lockdown’, according to Kantar data.

A Sainsbury’s insider said: ‘Pricing is a big part of the strategy. You can expect prices will be low at Christmas.’

Sainsbury’s said it had cut prices on Christmas vegetables – such as parsnips, sprouts and potatoes – so they are cheaper than they were last year. And Morrison yesterday said it had reduced prices on 2,000 products and that ‘becoming more competitive is one of our priorities’.

The German supermarkets have captured 14.1pc of the market, claiming to undercut the big players in the UK on price by as much as a quarter. The total market share of the big four has shrunk to 62.7pc – the lowest since 2004.

Aldi has overtaken the Co-op to become the UK’s fifth biggest supermarket, while Lidl is seventh. They too have been forced to respond on price, with Aldi admitting it had reduced prices on a third of its range, including basics such as fresh meat, fish, fruit and vegetables.

Even Marks & Spencer is entering the family food market, reducing prices on 400 of its most popular items by more than a tenth.

Grocery experts said consumers can expect low prices in the coming weeks, despite the pain it is inflicting on profits at the big four.

Independent retail analyst Richard Hyman said: ‘Price is certainly a big issue. They all continue to underestimate Aldi and Lidl. I would say Sainsbury’s have taken the price drive too far. Delivering sharper prices costs in terms of service and quality.’

Sainsbury’s has been fighting to escape the shadow of the failed Asda merger.

Shares, however, edged up 1pc, or 0.1p, to 205.6p yesterday after its results were published.

Coupe does not expect the General Election to dampen Christmas sales as shoppers will still spend. He also railed against planning restrictions, suggesting it was strangling the High Street and leading to more empty stores.