Ocado to price-match Tesco as supermarket battle steps up

Online grocer Ocado has stepped up the battle between supermarkets by announcing it will price-match 10,000 Tesco goods.

Ocado's move comes as the company reported a hefty loss of more than £500m for last year.

Despite fierce competition between supermarkets, research from analysts Kantar suggested grocery prices are rising at a record pace.

Kantar also said one in four shoppers were now struggling financially.

Rising milk, egg and margarine prices have contributed to grocery prices in the four weeks to 19 February rising 17.1% from a year ago, Kantar said, the highest rate since its records began in 2008.

Food prices began to surge last year when the war in Ukraine triggered a huge rise in energy costs and disrupted supplies of grains, vegetable oils and fertiliser.

While prices at supermarkets have risen, all of the big chains are competing fiercely to maintain their market share amid the cost of living crisis.

Ocado has price-matched Tesco in the past, but does not do so currently. However, from 1 March it will compare prices with 10,000 "like-for-like" products on Tesco's website and give customers money off their next shop if their goods would have been cheaper at Tesco.

Many supermarkets have cut prices on some lines, or have pledged not to charge more than a rival. For example, both Tesco and Sainsbury's price-match some of their products against Aldi.

Discount supermarket chains Aldi and Lidl have continued to see rapid growth in the UK. Kantar's latest figures show both of them have seen their sales grow by more than a quarter over the past year.

Kantar also said Ocado had put in a "strong performance", bucking a downward trend in online sales.

Ocado latest annual results showed that the average number of items bought per visit fell from 52 in 2021 to 46 last year, although this was the same amount as before the pandemic. Online grocery shopping saw a huge rise during the pandemic as people sought to avoid travelling to stores.

Ocado said that Ocado Retail, its joint venture with M&S, had shown "resilience against a backdrop of higher costs and smaller baskets... by growing customer numbers and increasing online market share".

"The last thing a retailer haemorrhaging money like Ocado wants to do is initiate a price war, but they'll need to strengthen their value proposition given that food price inflation shows no signs of abating," said retail analyst Natalie Berg.

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The head of retail and consumer insight at Kantar, Fraser McKevitt, said the company's research had found that grocery price inflation was "the second most important financial issue for the public behind energy costs".

Kantar found that households faced an £811 increase to their annual grocery bill if they did not change their shopping habits.

It said that shoppers were continuing to favour supermarket own-brands in an attempt to save money.

Speaking to the BBC, Mr McKevitt said: "There was hope at the beginning of this year that inflation in food and drink was going to start falling but it seems to have kicked up again and that's before the latest news about shortages in fruit, veg and salads.

"We're hoping that price inflation will start moderating this year… but that doesn't mean that prices will fall, it just means they won't be going up quite so quickly," he added.

Regarding the recent limits that supermarkets have been placing on fruit and vegetable sales, Mr McKevitt said: "While 43% of all grocery baskets contain at least one fresh produce item, pack limits are unlikely to drastically affect consumers as we usually buy fruit and veg in smaller quantities."

Research carried out for the BBC found that some basic goods have nearly doubled in price over the past two years. For example, a standard 500g bag of pasta that cost 50p two years ago is now priced at 95p.

The research found that the cost of a small basket of 15 everyday essentials has gone up by £5.34 - from £15.79 in 2021 to £21.13 in 2023.