Food prices fall fastest since 2006

Supermarket price war is good news for shoppers

AM38GT Man looking at bill in grocery store. Image shot 2007. Exact date unknown.

The supermarket price war has reached fever pitch, the latest grocery sales figures reveal.

Over the last three months, according to Kantar Worldpanel, prices have been 1.6% lower than this time last year - the biggest fall since 2006.

This means that, as prices fall, shoppers have been able to save as much as £400 million during the quarter.

"All of the major supermarkets are cutting prices to win shoppers, especially within everyday staples such as eggs, vegetables and milk," says Fraser McKevitt, Kantar's head of retail and consumer insight. "Retailers are focusing their efforts on simple price cuts rather than complicated 'multibuy' deals."

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Among the big four, Tesco seems to be the winner, posting its strongest performance in 18 months, with sales up 1.1%. After a difficult 2014, the company's almost halted the decline in its market share, now just 0.1 percentage point lower than this time last year.

The improvement is largely down to a recent policy from new boss Dave Lewis of cutting prices across hundreds of lines as well as shutting down 43 loss-making stores.

And Tesco's gain has been Asda's loss, with the two chains competing for many of the same customers. While Asda was one of the first supermarkets to make big price cuts, its competitors have now followed suit, eroding that advantage. Asda's sales were down by 2.1% during the quarter, taking its market share to 17.0%. It's the chain's worst performance in 20 years.

Meanwhile, Morrisons and Sainsbury's both showed a small increase in market share, although sales fell by 0.4% and 0.5% respectively. And at the top end of the market, sales at Waitrose increased by 4.9% as the company put more products on promotion. Its market share is now its highest ever, at 5.2%.

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But the big winners, in what's become a long-term trend, are the discount retailers. Aldi's continued to grow well ahead of the market, with sales up 19.3% compared with a year ago. This is the company's slowest rate of growth since June 2011 - but enough to take it to a new record market share of 5.0%.

Lidl, meanwhile, showed growth of 13.6%, increasing its market share to 3.5%.

The falling prices are, of course good news for the consumer. But they add to the likelihood of the economy falling into negative inflation, or deflation, over the coming months - something that hasn't happened since 1960. The consumer price index is now running at just 0.3%.

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