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Innovation, store layout, product availability and online service standards are among the many other factors at play
Thursday 20 Jan 2022 Author: Danni Hewson

Shoppers might be salivating at the prospect of supermarket price wars but for investors the coming battle raises some interesting questions.

Is price really the only weapon worth wielding, what kind of impact will the skirmishes have on profit margins, and can any of the traditional players really beat the discounters at their own game?

To get an idea of what’s ahead it’s smart to look at the latest trading updates. Christmas is always a money spinner for grocers and 2021 was no exception. While it couldn’t quite live up to the bonanza that was December 2020, the latest figures from Kantar showed Brits spent £11.7 billion over the festive season, down just 0.2% on the same period a year before.

Interestingly, both Tesco (TSCO) and Sainsbury’s (SBRY) reported a decline in online sales over Christmas. This is perhaps explained by 2020’s festive shopping season being a bumper one for the online channel, meaning there were tough comparative figures to beat a year later.

December 2020 was clouded by government restrictions over mixing with households, and so a lot of people opted for a low-key Christmas with a considerable number of orders for food and drink placed online.

A year later, while there was another backdrop of uncertainty – this time caused by the rapid spread of the Omicron variant – consumers did have more freedom to get out and about. That resulted in more people doing their food and drink shopping in-store.


As we move into 2022, supermarkets continue to bet the house that shoppers will place value above all else when it comes to their purchases over the next year given how inflation is pushing up the cost of living.

A few supermarkets even absorbed some of the higher cost of goods over Christmas, particularly Sainsbury’s which did its best to try and keep prices low.

Equally, the likes of Marks & Spencer (MKS) and Sainsbury’s have recognised there is also a certain type of consumer who is happy to pay a bit extra to have something fancy. While both companies have been trying to keep prices low on the basics, they’ve also been innovating with products that use higher quality ingredients, and with that a higher price tag. Strong sales would suggest this strategy is working.

Quality has its own value, and it’s the kind of sparkle that made Marks & Spencer the fastest growing food retailer in the UK over the last three months.

Being creative is mandatory to winning at the supermarket game. Go behind the scenes at a supermarket head office and you’ll get some idea of the complexity of this sector and the lengths required to stay relevant.

Chefs spend months perfecting new products in bespoke kitchens before they’re rigorously taste tested. Supermarkets then trial different packaging that will find a place in mock stores where their placement is worked out with mind boggling precision.

Just think about how you shop in somewhere like a Marks & Spencer food hall, how the perfect placement of naan bread, beer and raita next to your chicken tikka ready meal will have you making impromptu purchases without really thinking.

Marks & Spencer is a master of temptation and product innovation and it will need all the magic it can conjure up to keep pulling in customers and keep basket sizes growing when household budgets are shrinking.


In years gone by, customers’ allegiance to their supermarket of choice was almost tribal. But the past decade has seen the demarcations blur as shoppers ditched the big shop in favour of little and often.

Supermarkets raced to retain their shopper by opening local stores and creating clubs which rewarded loyalty. But shoppers became savvier and were quite prepared to peck ‘magpie like’ at the best offers while gradually falling for the charm offensive being waged by the discounters.

Covid didn’t just press the pause button on the evolution of the grocery trade, it forced something of a rewind. The one-stop big shop returned overnight, and traditional grocers became national heroes.

There was forward momentum when it came to online shopping and that ability to ramp up existing infrastructure helped the big players edge out the discount competition.

All eyes are now on life beyond the pandemic and supermarket bosses will be judged on how they steer their respective ships over the next 12 to 24 months.

Over the past few years, the sector has been through a massive stress test and fundamentally passed with flying colours – it was able to keep shelves stocked with food and drink, albeit with a few gaps, and the nation fed through a healthcare crisis.

The attention now shifts back to how to grow market share, and it won’t be easy. A firm attention to pricing, product innovation, logistics, well-run stores, online capabilities, and data analysis will be key to winning the war.


Asda and Morrisons are both under new ownership following takeovers, which means time adjusting to new leadership teams could create a window of opportunity for rivals to take market share.

Emerging victorious from this latest round of price wars isn’t really the prize, keeping tills ringing without sacrificing profit must be the ultimate goal or investors will give the sector short shrift.

Each retailer will have its own unique battle plan. Some may be eyeing acquisition as a path to growth, others will seek out new trends and simply do them better than the competition.

Unfortunately, competition will be fierce, particularly with hospitality hoping to pull back some of its lost trade and inflation showing no sign of cutting the consumer a break. That means supermarkets need to stay focused and always put the customer first.

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