Results from Tesco PLC (LSE:TSCO) today and Greggs PLC (LSE:GRG) yesterday show the battle for customers in the UK food retail sector remains intense with consumers on the hunt for value and looking to get more for their money as the cost-of-living crisis accelerates.
Shopping habits are changing with consumers buying more own brand goods, buying less in their weekly shop and being prepared to jump around from store to store in a bid to get more with their weekly budget.
Tesco boss Ken Murphy said customers were trying to "make their money go further, whether they are switching from branded products, between categories or cutting back on eating out".
Tesco, like J Sainsbury PLC (LSE:SBRY), Asda and Morrisons, have been battling since the financial crisis a challenge to their dominance from discounters Aldi and Lidl who have grown strongly as consumers have warmed to their value offers.
The shift to value has seen Lidl become the fastest-growing supermarket in the UK, according to the latest Kantar figures, while Aldi has overtaken Morrisons to become the UK's fourth-largest supermarket.
Only yesterday grab and go retailer Greggs said its value offer had helped push up total sales by nearly 15% in the 13 weeks to 1 October, driven by meal deal offers and demand for its signature sausage roll, priced at £1.15.
Tesco’s strategic target is to offer what it calls “magnetic value for customers” as it said customers are "watching every penny" as they try to make ends meet.
Tesco said customers are switching from branded to cheaper own label products, making more frequent shopping trips and putting fewer items in their baskets as well buying more frozen food.
Like other supermarkets, Tesco is also having to absorb some cost price increases to protect customers and stop them from shopping elsewhere. And that is hitting retail profits, as well as the return to more normal shopping habits after the pandemic.
Tesco has reacted to the competitive pressures with its Aldi price match promise and also said it would lock in the prices of more than 1,000 everyday products until next year.
It is not only the battle for consumers that food retailers face, there is also the battle for staff.
Today, Tesco announced that its shop staff in the UK are set to receive another pay rise, their second this year, following similar moves from rival chains Morrisons, Sainsbury's and Asda as it seeks to retain employees in the tight labour market.
Matt Britzman, equity analyst at Hargreaves Lansdown, said Tesco was “under pressure from competitors as shoppers felt the pinch”.
"Amongst the larger players, Tesco's arguably been one of the standout businesses in the battle against low-cost outfits [such as Aldi and Lidl] but pressures on consumer spending can only build for so long before something must give."
Indeed, Tesco’s financial strength leaves it better placed than others in the market such as Morrisons and Asda who, as results have shown, have proved more vulnerable so far to the discount retailers.