UK supermarkets vs German discounters: Morrisons gets tough as Buffett attacks Tesco

Oliver Smith
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Warren Buffett: “I made a mistake on Tesco. That was a huge mistake by me.”
Britain's embattled supermarkets have finally begun their fight back against German discounters Aldi and Lidl who have been eating their lunch in recent months with double-digit growth in the sector.

Morrison, the UK’s fourth biggest supermarket, will launch its first customer loyalty card today, along with a price-matching scheme that its chief executive has labelled “game-changing”.

This, it hopes, will open up a new front in an escalating price war with Aldi and Lidl, as well as its traditional high street rivals.

At the same time, legendary inves­tor Warren Buffett labelled his 3.7 per cent investment in troubled supermarket rival Tesco “a huge mistake” yesterday, prompting shares to tumble a further 1.1 per cent.

Britain’s supermarket sector has been in turmoil over the past fortnight.

Tesco’s stock has tanked 22 per cent since it revealed an accounting impropriety in which it overstated first-half profit by £250m. And Sainsbury’s earlier this week cut its annual sales forecast, warning of the most challenging market conditions for 30 years.

Morrison’s chief executive Dalton Philips yesterday pledged the grocer’s “Match & More” scheme would reverse the slump that saw the retailer report a 30 per cent fall in profits for the six months to August. The retailer will offer shoppers money back if their shop would have been cheaper at rivals Tesco, Asda, and Sainsbury, as well as Aldi and Lidl.

Shore Capital analyst Clive Black said Aldi’s and Lidl’s “free lunch” was coming to an end as the so-called big four – Tesco, Morrison, Asda and Sainsbury’s – finally react to the challenger supermarkets who are siphoning market share.

Despite praising Morrison for “turning up the heat” on Aldi and Lidl, Black said he would prefer Morrison simply to cut store prices.

On investing in Britain’s largest supermarket Tesco, Buffett told CNBC yesterday: “I made a mistake on Tesco. That was a huge mistake by me.” This year, via his Berkshire Hathaway holding company, Buffett’s stake has lost around £465m in value.

Tesco is now the subject of an independent investigation into its ac­count­ing, and has come under the gaze of several regulators, including the Financial Conduct Authority and the Financial Reporting Council. Four of its executives have been suspended during the investigation.

Sainsbury’s new chief executive Mike Coupe earlier this week pointed the finger at a “perfect storm” of food price deflation, customers shopping around and people eating out more often that had caused a 2.8 per cent decline in like-for-like sales in the 16 weeks to 27 September.

The volatility in the supermarket sector doesn’t seem to have put off Sports Direct founder and majority shareholder Mike Ashley, who publicly took a £43m put option on Tesco last week praising its “long-term” prospects.

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