Supermarkets face tough Christmas as pressure from discounters mounts

The pressure on Britain’s leading food retailers has been underlined this week, with Sainsbury’s reporting a double-digit fall in profits and Asda scaling back its Black Friday discounts. So as grocery shopping undergoes its biggest revolution in a generation, triggered by the rise of discount retailers and online shopping, which retailer is in the best shape for Christmas?

The German discounters are the fastest growing grocery retailers in the UK by a significant margin, despite predictions that their growth would slow, reports The Guardian. The latest market share figures from Kantar show Aldi and Lidl sales are up 17.6 per cent and 17.9 per cent respectively year on year. The next best performing grocer is Iceland, which grew by 3.2 per cent.

It took Aldi and Lidl 20 years to understand the UK market, but now they have reset the expectations for what customers should pay for groceries. There are likely to be bumps in the road for the discount retailers as some stores become overcrowded and some shoppers are turned off by the limited assortment of goods on offer in Aldi and Lidl.

However, purely on the basis that Aldi and Lidl plan to double the number of stores they have in the UK while the big four – Tesco, Asda, Sainsbury’s and Morrisons – halt new openings, it is easy to conclude the revolution they have sparked in grocery shopping has barely begun. In the next five years they are likely to double their share of grocery spending in the UK to 15 per cent.

The 132-year-old chain has struggled to grow clothing sales, but its food business is thriving, with sales rising by 3.3 per cent in the past six months.

The basic explanation for the success of Marks & Spencer’s food division is that shoppers are combining cut-price purchases from the discounters with treats from M&S. The vast majority of products sold in M&S are own-brand, meaning it is not as vulnerable to a price war as the big four – and one in five of its products is a new item.

The company, which has successfully established a distinctive upmarket position in the sector, is also benefiting from the growth of convenience shopping and households not buying their food for dinner until that day. M&S has almost 550 Simply Food shops, many at train stations, which are popular lunch destinations for office workers but also a place to pick up food on the way home for work.

As ever, expect M&S Food to enjoy Christmas. The retailer will provide a quarter of the turkeys eaten on Christmas Day – an extraordinary proportion.