The pressure on the major supermarkets in the UK has led to an explosion of rage - and it came from a straight-talking Yorkshireman.
At the annual meeting for WM Morrison in Bradford - which is normally a sleepy affair where the most exciting thing for shareholders is the lunch - the man who built the business into a leading grocery chain compared management’s existing strategy to “bullshit”.
Sir Ken Morrison is renowned for speaking his mind, but his comments to Morrisons’ chief executive Dalton Philips reverberated around the industry. Days later, another former chief executive of one of the “big four” supermarkets, this time Sir Terry Leahy, described the performance of his company Tesco as “very disappointing”.
Of course, for Morrisons and Tesco these interventions are not particularly helpful. But more than anything else, they highlight that there is tension at the top of the grocery industry about the direction the leading companies should take.
The reason for this chaos is that Morrisons and Tesco are churning out quarterly sales figures that are the worst in a generation. Morrisons’ like-for-like sales tumbled by an eye-watering 7.1% in the 13 weeks to 24 May, while Tesco’s like-for-likes fell by 4% in the UK in the three months to the end of May. Philip Clarke, chief executive of Tesco, admitted this was the worst performance he had seen in his 40 years at the company.
Despite protests from some leading industry figures that the pressure on Tesco, Asda, J Sainsbury and Morrisons is cyclical, a structural change is taking place in the grocery industry.
While UK grocery sales rose by just 1.7% in the 12 weeks to May 25, Aldi grew by 35.9% and Lidl 22.7% in the same period. Clarke has stated that one of the reasons the German discounters are growing so fast is that they are opening 50 stores a year each while the major supermarkets end the so-called “space race”.
Other critics of the discounters claim that they are simply benefiting from the fact that wages have only just started to grow ahead of prices for most British families, while Sainsbury’s boss Justin King says the combined market share of the discounters is no bigger than 20 years ago when KwikSave was a big player.
Sure, Aldi and Lidl hold just 8.1% of the market compared to 29% for Tesco, but the German discounters are gathering a head of steam that is taking more and more spending from out-of-town supermarkets.
If you visit an Aldi or Lidl car park you will see BMW, Mercedes and Audi cars. The discounters are attracting a new kind of shopper, one that the UK boss of Lidl describes as “Maidstone mums”.
Many British families are no longer embarrassed to shop at Aldi or Lidl; indeed they take pleasure in finding bargains and rave about the quality of the fresh food. They welcome the consistency and transparency of the pricing - you can write a shopping list and know how much your food will cost.
The German discounters have built a virtuous circle for themselves - growing sales are leading to more investment for better-located stores, improved food and a growing market.
One respected City analyst predicted to me last week that Aldi and Lidl are on course to claim 15% of the UK grocery market within the next few years, or 20% if the big four do not properly respond.
It is this issue of the response that is splitting the big four. Do they fully commit to a price war and lower prices across their stores? Or do they attempt to protect their profit margin?
The second option now looks unsustainable. It is this tactic that got the supermarkets into trouble in the first place. Tesco tried to sustain a 6% profit margin in the UK - one of the highest margins in the industry worldwide - but customers now wonder what the benefit is to them of Tesco being so large and profitable. This has given Aldi and Lidl the room to breathe, and they are taking full advantage.
In the 1990s and early 2000s the big four could offset these pressures by opening more stores. However, every British postcode now has a supermarket, and the internet has opened shoppers’ eyes to the choices available.
The rise of the German discounters has parallels to the growth of Easyjet and Ryanair in the early 1990s. The established airlines such as British Airways initially dismissed the low-cost airlines because they did not believe that British holidaymakers would sacrifice the higher service levels to fly at a lower price. They were wrong.
Sir Ken and Sir Terry are right to be concerned that the major supermarkets could make the same mistakes today. The financial firepower of Morrisons and Tesco means they can respond, but at the moment they are not stopping Aldi and Lidl.
Graham Ruddick is retail correspondent at the Daily Telegraph