Price war at the checkout: Rival supermarkets forced to fight back after Morrisons slash £1BILLION off the cost of basic foods

Firm lost £176million due to one-off costs and falling market share

Chief executive vows to compete with budget retailers like Aldi and Lidl

Supermarket is set to cut prices but promises it will not become discounter



A supermarket price war on an unprecedented scale was under way last night with the prospect of permanent cuts in the cost of many basic foods.

It was triggered as Morrisons announced discounts worth £1billion over the next three years in a bid to fight off budget rivals Aldi and Lidl.

Asda responded immediately with an advertising campaign claiming to undercut Morrisons and promising big savings on major brands.



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Trouble: Morrisons is set to slash its prices after recording a loss of £176million last year Tesco and Sainsbury’s will almost certainly be forced to follow suit. The cost of some everyday essentials could fall by up to a quarter as the ‘big four’ take on Aldi and Lidl, who have grabbed a huge chunk of their market share in recent years in what has been the biggest change in grocery shopping habits since the dawn of the supermarket age more than 50 years ago. Last night Aldi raised the stakes further with a promise to save shoppers 35 per cent on their weekly shop. Fears of the effect of a price war on profits gripped the City yesterday, wiping £2billion of the combined share value of Tesco, Sainsbury’s and Morrisons. RELATED ARTICLES Previous

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Next The 35 teaspoons of sugar in a box of cinema popcorn:... Save on your supermarket shop: The best rewards cards for... Share this article Share Morrisons shares were down more than 10 per cent at one point. Profits at Asda, which is part of the world’s biggest retailer, US giant Walmart, are also likely to suffer. Bosses at Morrisons believe only a fundamental shift to lower prices will guarantee the chain’s future after it posted losses of £176million.

Asda, Tesco and Sainsbury’s all pledge they will match Morrisons prices, so will inevitably be drawn into a price war. Tesco has made its own price cuts in recent weeks, with the cost of a four-pint carton of milk cut from £1.39 to £1 and reductions on some fruit and vegetables. Battle: Aldi and Lidl have been gaining in market share thanks to increasingly price-conscious customers

Tesco’s cuts had already seen it promise £200million in short-term savings but will now have to go much further. Retail experts at one City firm described the scale of the reductions promised by Morrisons as like ‘getting the bazooka out’. The firm, founded in Bradford in 1899, admitted that the price cuts will hit profits by more than £300million a year over the next three years. But chief executive Dalton Philips said the ‘big four’ chains had lost millions of customers and billions of pounds in sales to Aldi and Lidl, and needed to catch up. The grocery sector is facing the biggest structural shift ‘since the 1950s and the advent of supermarkets’ as shoppers – even those not struggling financially – turn to budget stores, he said.

‘The biggest challenge that we face is that there has been a fundamental change in how consumers view discounters.

‘They are no longer going to them out of necessity. The perception has changed and there is a new price norm.’ A study suggested this week that the big four have lost sales worth £4.4billion a year over the past three years.

The cost of living squeeze saw millions of middle-income shoppers switch to the budget chains – and many have stayed. Sales at Morrisons are down by 3.2 per cent in the past year, while Aldi’s are up a remarkable 33.5 per cent and Lidl’s 16.5 per cent. Mr Philips said: ‘We are going to lower our prices on a permanent basis.The rules have changed and we must change too. It is absolutely critical that we begin winning again in our core supermarkets. To do that we must compete on price.’ The money to cover the loss in profits will come partly from the sale of property thought to be worth £1billion. A snapshot survey of prices at Morrisons and Aldi yesterday, suggests it will have to make significant reductions to match its German-owned budget rival.

Plunge: The company's share price fell by 10 per cent this morning after the loss was announced

For example, Aldi charges £5 for a 200g jar of Nescafe Gold Blend, which is £6.58 at Morrisons and the other mainstream chains.



A large white sliced loaf is just 55p at Aldi versus 65p at Morrisons and anything up to £1 at the other giants.

A 500g pack of fusilli pasta is 49p, against 95p, while a 1kg bag of basmati rice is £1.29, compared with £1.79. A 500g box of corn flakes is 99p at Aldi versus £1.45 at Morrisons.

Morrisons is to press ahead with the roll-out of its online shopping service and the opening of small convenience stores in a bid to catch up with its major rivals, who have cashed in by offering home deliveries and filling high streets and petrol stations with smaller stores.



Its annual loss of £176million included one-off costs of £903million.



But underlying profits were down 13 per cent to £785million and these are expected to fall by more than half to fund the price cuts.

David Cumming of Standard Life, who is responsible for investing billions of pounds of pension funds, said: ‘Investors know a price war is coming.

‘Aldi and Lidl are growing shares at double digit while the majors are losing market share and they have to do something about it. If they are relatively expensive – and the customers know it – they need a price reset, or price war, whatever you want to call it, before they can move forward in terms of sales.’

Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said: ‘The discount supermarkets have become a thorn in the side for the bigger players.

‘Morrison’s has now decided that it is time to revitalise the business, which will inevitably come at a cost.’

The reputation of Aldi and Lidl were enhanced last night as both picked up prizes at the Oracle Retail Week Awards. Lidl won own brand range of the year, while Aldi was named retailer of the year.