Sainsbury's / Asda merger: Aldi and Lidl join supermarket price war

With Sainsbury's boss promising 10% price cuts, a supermarket price war is hotting up as rivals fight to hold on to their market share, with Aldi and Lidl both promising discounts.

If Sainsbury’s is successful in merging with rival supermarket Asda, it could lead to a supermarket price war as discount retailers Aldi and Lidl have both vowed to remain the cheapest grocery options on the market.

Sainsbury’s boss Mike Coupe has stated that the supermarket plans to cut prices of everyday items by 10% if the deal goes ahead. He hopes that a Sainsbury’s/Asda goliath can put pressure on suppliers to lower prices.

Now Aldi and Lidl have responded by saying they too would cut prices in order to hold their position as the cheapest supermarkets in the UK.

“We will never be beaten on price and are absolutely committed to maintaining a significant price gap between us and our competitors,” an Aldi spokesperson has said.

A Lidl representative echoed that sentiment: “Our customers can be assured that we cannot be beaten on price.”

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It’s not all good news

A supermarket price war is great for customers who can look forward to lower bills for their food shopping, but it isn’t all good news.

While the amount disappearing from your wallet to cover your supermarket shop may go down, many people could face unemployment or wage freezes. The most obvious group is employees of Sainsbury’s and Asda who could face job losses as a result of the merger.

But, the price war could also lead to more than 2,500 other people losing their jobs.

The New Economics Foundation has warned that the price cuts Sainsbury’s has promised will put huge pressure on suppliers. Just a 5% cut in output for suppliers could lead to the loss of more than 1,200 jobs, while a 10% cut may mean over 2,500 redundancies.

“Increased scale means increased buying power, so the 10% price cuts discussed by Mike Coupe will be largely funded by a squeeze on suppliers,” Russ Mould, investment director at AJ Bell told the Daily Mail.

“Unilever has stopped pushing prices higher so the effects of the spat over Marmite prices with Tesco 18 months ago continue to rumble on. And if the supermarkets are strong enough to stand up to a multi-national such as Unilever, with its powerful brands, then smaller suppliers could be in for a really tough time.”

Low prices may not last

Any reduction in supermarket prices could also be short-lived as the threat of Brexit could lead to food prices rising, according to a report from the House of Lords.

A third of the food that is eaten in the UK currently comes from the EU. Post-Brexit trade barriers could disrupt that supply and cause cost increases that would be passed on to the consumer.

At present food imported from the EU faces no tariffs or customs barriers, but that could all change if the UK leaves the EU customs union.

The House of Lords EU Energy and Environment Sub-Committee has been investigating Brexit’s fall-out on food and found that EU food imports cannot easily be replaced by increasing UK food production or importing more from non-EU countries.

But, Food Minister George Eustice MP downplayed any problem when he appeared before the committee.

“The Minister may not be worried about the potential for Brexit to impact on the price and availability of food, but the representatives of the food and farming industry, importers, port authorities and consumer organisations were vocal in their concerns,” says Lord Teverson, chairman of the EU Energy and Environment Sub-Committee.

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