Discount food stores enjoy sales boomMarks & Spencer food sales have slumped

03 July 2008

A shopping basket of goods

Discount food retailers are enjoying a boom as consumers reject premium brands to cope with the credit crunch, analysts say.

Marks & Spencer (M&S)has warned that food sales are down 4.5% on a like-for-like basis, while discount chains Aldi, Lidl and Iceland report significant growth.

Aldi has announced it will be opening a new store in Britain every week to woo bargain hunters during the economic downturn.

Aldi's sales rise

The expansion plan was unveiled after the German-owned discount chain posted a record 20% rise in sales in the previous month, taking custom away from Tesco, Asda, Sainsbury's and Morrisons.

M&S chief executive Sir Stuart Rose said the chain's premium-end food business had suffered due to increased promotions and competition from supermarkets, as well as 'changes in consumer buying patterns' as customers traded down to cheaper alternatives.

Tesco has admitted that discount rivals such as Asda and Aldi were 'having a moment in the sun', with chief executive Sir Terry Leahy saying it was clear that shoppers were cautious and that household budgets were being stretched.

Food prices

The shift comes as food price inflation reached 4.6% for the three months to April 20 - well above official overall inflation of 3.3% - based on the prices of 78,000 products compared to last year, according to market analysts TNS Worldpanel.

Paul Foley, managing director of Aldi, told trade magazine The Grocer: 'What is happening right now is a jolt to people's buying habits to swap grocery stores and to try something new.

'It is down to us whether we are good enough to keep the consumer, but if people believe they can get the same from us they won't go back.'

Discounters

He added: 'In Germany, discounters occupy more than 40% of the market. I can't think of any reason why that would not happen here. The credit crunch is an opportunity for us because more people will think about shopping with us, but we would be growing anyway.'

Discount outlets keep prices low by selling fewer than 2,000 products, as opposed to 30,000 in a supermarket.

In the past they have been shunned by more affluent shoppers who flocked to premium chains like Waitrose and M&S.

Asda and Tesco price war

But with food prices rising at their fastest rate for more than a decade and soaring utility bills stretching household budgets, more shoppers are investigating cheaper options.

Asda and Tesco responded last week by announcing a price war in a bid to outflank their rivals.

Asda unveiled a range of goods for sale at 50p while Tesco declared a series of 'inflation busting prices' with price cuts of up to 50% on around 5,000 items.

© The Press Association. All rights reserved