Discounting drives down grocery prices as Tesco woes continue

Heavy discounting by the “big four” supermarkets, who are trying to keep up with the growth of the discounters Aldi and Lidl, means the grocery market has been pushed into deflation, according to the latest figures from leading market analyst Kantar Worldpanel, released yesterday.

Kantar said like-for-like grocery prices at supermarkets dropped by 0.2% in the 12 weeks to 12 October – meaning shoppers pay less for a basket of goods than they did in the same period of 2012.

The news about prices came as the consumer insight company also revealed German discounter Aldi had seen its sales increase by 27.3%, despite its market share slowing to 4.8%.

Fraser McKevitt, head of retail and consumer insight at Kantar Worldpanel, said: “While the supermarkets are battling it out on price, the real winners are consumers. Extensive price cutting by some supermarkets in a bid to win the price war means that customers are saving on everyday items, such as vegetables and milk.

“We are seeing clear polarisation of the market, with both the premium and discount ends of the market gaining share, while the mainstream grocers continue to be squeezed in the middle.”

At the upper end of the market, Waitrose secured a record grocery market share of 5.2% and boosted its sales by 6.8% over the past year. It has continuously grown its sales every month since March 2009.

Meanwhile, Tesco’s woes continued with the news today that like-for-like sales, which strip out new stores, fell 4.6% in the first half of the year and pre-tax profit slumped to £112m, down a staggering 92% on the same period in the previous year.

That profit number includes several one-off items, including an adjustment related to the overstated profit (which itself was understated, Tesco admitted today – the supermarket now says that profits in the first half of the year were overstated by £263m, an increase from last month’s initial estimate of £250m.

Accountancy firm Deloitte has completed an investigation into Tesco’s misreported profits.

It found that profits were overstated by £118m in the first half of this year, by £70m in the 2013-2014 financial year and by £75m before that.

Tesco had been doing deals with suppliers over promotions, which is commonplace for supermarkets, but it appears Tesco had been booking returns from those promotions too early, while pushing back the costs.

Eight executives have been suspended since that practice was revealed.

Tesco said there was no evidence of fraud or personal gain from the mis-statement.

Deloitte’s report is being passed to the Financial Conduct Authority (FCA) and other regulators.

Tesco’s underlying profit before tax was £783m, down almost 47% on the previous year, and a little less than analysts were expecting.

Tesco shares fell more than 6% in early trading in London.

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