Supermarket prices are still rising, but the pace is slowing. According to UBS’s latest grocery price monitor, inflation across like-for-like items in September eased to 3.6%, down from August and well below the 5.2% figure recorded by Kantar.
That suggests the worst of the pricing pressure may be behind the sector – though the picture isn’t even across the aisles.
ASDA, in particular, is still pushing through higher prices. UBS puts its inflation at 4.3%, up from 3.2% a month earlier and ahead of the “Big Four” average of 3.8%.
That is despite the chain’s much-discussed attempt to reposition itself on price this year. The bank’s analysts note that the gap between ASDA and its rivals has been choppy rather than consistent, and they see no sign of a renewed price war.
ASDA’s market share has nonetheless slipped by 0.9 percentage points in the latest 12-week Kantar data.
ALDI, by contrast, continues to keep things tight. Its price inflation of 2.6% was unchanged on the month and well below the rest of the pack.
UBS points to signs of financial discipline at the German discounters: ALDI recently paid out a hefty £250 million dividend, while Lidl has enjoyed a margin improvement. That hardly suggests a race to the bottom.
Among the traditional grocers, Tesco’s price measure came in at 4.6% and Sainsbury’s at 4.0%, while Morrisons was the most restrained at just 2.3%.
Promotional activity has steadied, too (ASDA’s deals and rollbacks cover around 22% of items, unchanged from August after a sharp pullback in the spring).
With talk of festive price cuts already circulating, there’s potential for a little more movement before Christmas.
But UBS reckons the market remains “rational”, with no sign yet of a damaging price skirmish. For now, that’s good news for investors: the bank’s analysts are sticking with their buy calls on Tesco PLC (LSE:TSCO) and J Sainsbury PLC (LSE:SBRY).