Food wars: A tale of two nations

Latest supermarket figures show Aldi, Lidl and Waitrose profits soaring, but everyone else is under huge pressure

Anyone looking for evidence that the age of austerity is turning Britain into a squeezed, divided society could do worse than check the latest supermarket sales numbers.

Yesterday's Kandar World panel figures for the past 12 weeks show a sharp split in fortunes among Britain's leading grocers.

At the top end, Waitrose is doing very nicely with sales at the food arm of the upmarket John Lewis Partnership up 8.3 per cent from a year earlier. Marks & Spencer is also faring relatively well.

At the other end of the market, the German value chains Lidl and Aldi increased sales by 13.8 per cent and a whopping 24.4 per cent respectively. Most of the others, including many of the high street giants, face major pressure as their customers' income is squeezed in a country more divided than ever between the rich and the rest.

Edward Garner, a director at Kantar, says the booming discounters show middle-income shoppers trading down to rein in spending and combat the effects of high inflation, which rose slightly to 4.4 per cent in July and is likely to increase in the autumn. Kantar says grocery inflation was 5.2 per cent in the period its figures cover.

He says Aldi and Lidl are acquiring some new shoppers but that most of their extra sales are coming from existing customers who also went elsewhere for the bulk of their shop, mainly Tesco and Asda.

"They don't have to change where they are tilting or walking to. They are tilting their expenditure with more of their money going to Aldi," he says.

"The challenge for the big four is they are not niche operators. They need to be a broad church and be all things to all men."

The big four, stuck in the middle, registered pedestrian growth. Tesco, the UK's biggest retailer, saw sales rise just 2.6 per cent, Asda up 2.6 per cent and Sainsbury's gaining 3.6 per cent. Only Morrisons beat the industry average of 3.8 per cent growth with an increase of 4.6 per cent.

Asda said yesterday that shopper numbers fell 1.2 per cent in the second quarter of 2011 but that the average amount spent meant sales increased slightly.

Beneath the surface the supermarkets are all targeting the middle ground to some extent. Tesco is taking on Waitrose with its fast-growing Finest range while Waitrose has pushed its Essentials range to show it can provide good value everyday goods.

Waitrose and Sainsbury's have also introduced comparisons on everyday items to match Tesco, and Aldi and Lidl are well known for selling some luxury items such as champagne and lobster.

The supermarkets' fortunes help shine a light on wider trends as Britain's consumer-driven economy grapples with reducing government and household debt along with high prices. The middle, as we are often told, is being squeezed hard.

Shoppers are faced by rising inflation on food goods, driven by the increased price of commodities such as wheat and high energy costs and tax increases that are squeezing real incomes. Consumer confidence is also fragile amid talk of a global slowdown and with public sector cuts yet to bite.

Matthew Whittaker, an economist at the Resolution Foundation, says: "For someone who is relatively well off, they can absorb those increases relatively easily and maybe cut back on luxury items but someone of more limited means can't absorb increases in bread and meat so easily.

"The people who have benefited from low interest rates have been wealthy people with big mortgages and they have still got money to spend in Waitrose."

The Resolution Foundation is credited with coining the phrase "squeezed middle" to describe the effect of inflation and austerity on UK households but Mr Whittaker says a decade-long squeeze on middle earners has been masked by women entering the workforce, higher levels of debt and the falling cost of goods such as clothes.

With austerity set to last, the big supermarkets will be feeling the squeeze along with their customers for some time to come.