Experts believe that if Britain’s high street price war continues, one of the major supermarkets could be wiped out.
An industry report says that as Britain’s biggest supermarkets continue to expand, one leading chain’s profits will be eaten into and could spiral downwards.
The established big four – Asda, Tesco, Sainsbury’s and Morrisons – have invested finances in the hundreds of millions of pounds to battle falling sales and the ascent of Aldi and Lidl.
Germany’s two cheap supermarkets currently account for 10% of the grocery market. Aldi recently overtook Waitrose, and is closing in on the big four and the Co-op, according to the Sunday People.
But industry analysts believe that whilst prices being driven down are a good thing for shoppers, some chains may not survive the competition.
According to a HSBC report, retailers could begin closing stores due to such an “aggressive environment”. Asda is the most profitable retailer in the UK with an operating margin of approximately 5%, compared with Tesco’s 1.2%.
The report says: “If Asda decided to invest half its margin into price, a competitor reaction could wipe out almost all industry profitability and would force an industry restructure.”
“We believe that it would create a loser in the industry, a struggling retailer that the rest of the sector can feed on.”
Morrison’s have slashed more than 1000 items by 18%, serving as a microcosm of the current environment. The UK’s biggest retailer, Asda, is expected to follow suit.