Asda boss sees another tough year for food retailers in 2015

Asda's chief executive Andy Clarke has told the BBC he has never seen profitability fall so quickly in the UK supermarket sector.

He says 2015 could be as challenging.

In an interview with BBC 5 live's Wake Up to Money, broadcast on Wednesday, he said discount grocers have had a striking impact on retailing.

Analysts Kantar Worldpanel say Aldi and Lidl have reached a record combined market share of 8.6% of all shopping done at major UK grocery chains.

Their rise has come at the expense of the "Big Four" supermarkets, Tesco, Asda, Sainsbury's and Morrisons.

"The level of profitability decline in some retailers over the course of 2014 - we've never seen it before," said Mr Clarke. "It suggests 2015 is going to be equally as challenging."

Although Asda has suffered less than rivals such as Tesco from the rise of the discounters, its market share fell 1% in the three months to December according to Kantar Worldpanel.

The discounters are planning to make bigger inroads into the UK this year.

So confident are they that Danish discounter Netto is returning to the UK after a 4 year absence.

Interestingly, the company is being partnered by Sainsbury, in what some see as a "can't beat them, join them" move.

Established Aldi is on a major expansion drive, with plans to create 35,000 new jobs in the UK and to almost double its total number of stores to 1,000 by 2022.

The former UK managing director of Aldi, Paul Foley, told Wake Up to Money the rise of the discounters was "unstoppable."

"The golden age of food retail profits by big, very successful, very well run businesses is over and discounters are the disrupters."

Mr Foley said the discounters were likely to grow to take a 20% market share.

Morrisons has been hit hard by the rise of Aldi and Lidl. It reported a 6.3% fall in sales in the three months to November and a fall in half year profits of just over 30%.

In October the supermarket responded with the launch of Match & More, a loyalty card that matches prices against Aldi and Lidl, as well as the Big Four.

Morrisons' Group Marketing Director Nick Collard told Wake Up to Money that customer behaviour had "really changed".

"The number one driver of store choice used to be convenience - it's absolutely now about price.

"We still have the same relative number of customers, they're just shopping slightly less frequently and buying slightly less."

The bitter supermarket price war has forced the grocery market into deflation. According to the latest figures from the Office for National Statistics food prices have fallen by 1.7%.

Kantar Worldpanel reported that the value of UK grocery sales fell for the first time in two decades in November.

Supermarket expert and Loyalty Magazine editor Annich McIntosh, says the changes the industry is experiencing are profound.

"This modern shopper is unlike any we've known before - a person with a mobile phone who can compare prices instantly.

"There are a lot of very worried executives of food stores out there."

Global Research Director at analysts Planet Retail, Natalie Berg describes the rise of the discounters as part of "a perfect storm".

"I think there's been a real shift just in the past 18 months.

"Shoppers are generally more accepting of the discounters. They view it as a badge of honour and they're happy to shop those own brands"

"On top of the shift in mindset the discounters have significantly upped their game."

Despite the threats, Asda Chief Executive Andy Clarke sees grounds for optimism.

"Kwik Save had a place in this market for a good period of time and it disappeared from the landscape.

"I'm not suggesting that's going to be the case with the current discounters but they are a retail format that's been in this country for a good period of time."

"They're a very different shopping experience. They've got roughly 10% of the product range of a superstore."

But Mr Clarke had this warning: "The discounters will grow and there will be winners and losers."

Former Aldi UK boss Paul Foley is bullish about the German retailers' prospects. "The game's only half over."

Mark Price, the managing director of Waitrose, is also upbeat.

The high-end supermarket has grown market share, and said discounters aren't having an impact on sales.

Mr Price had this advice for Waitrose's rivals: "Be very clear with your customers what you stand for.

"The ones that do that well will do extraordinarily well and they'll survive. The ones that do it less well will find the going tougher."

Wake Up to Money is broadcast weekdays on BBC 5 live. You can sign up to the podcast via the 5 live website.