Supermarkets set for a new price war?

A good article in the Observer today which helps students make the link between a changing economic environment & competitive behaviour.

The bottom line? Competition in the UK grocery supermarket sector looks set to become even more intense than normal - due to a series of adverse changes in the economic environment. The key factors increasing competitive rivalry include:

• Fuel & transport costs rising (higher operating costs)
• Mortage rates no longer declining (households are now used to the existing level of disposal income)
• Food price inflation very low (little opportunity to increase profits from higher selling prices)
• Consumer confidence dropping again (perhaps anticipating the “double-dip” recession and much higher unemployment from cuts in government spending)

Might the result of the above changes be a sustained price war? Difficult to say - a price war is just one way to compete based on lower pricing. Perhaps we are more likely to see greater use of sales promotions. The market certainly looks set for a tough year or two.