Household staples are the new battleground, writes Laura Slattery.

FROM BELOW-COST beer to ready-to-reheat meals, supermarket wars have been fought on many fronts. But with Irish consumers now adjusting their mindsets and their spending habits to recession, grocery retailers are directing their price skirmishes towards everyday household staples. The battle of bread and loo roll is upon us.

Tesco Ireland is claiming first mover advantage this weekend, going overground with the Cash Savers range of cut-price essentials such as tea and coffee, meat and veg, shaving gel and shampoo, which will be crammed into specially designated aisles highlighted in black and amber.

The 1,000-strong range, which Tesco says is part of a €100 million price-cutting move, is primarily designed to stop customers from migrating to the discounters Aldi and Lidl at a time when their disposable cash just isn't going as far as it used to - in part because food prices have spiked dramatically over the past year.

"We're well aware that people are feeling the pinch," says Tony Keohane, Tesco Ireland's chief executive.

Keohane is hoping that times don't prove all that tight for Tesco. The group, which enjoyed a near 10 per cent increase in Irish sales last year to €2.99 billion, tends to do well during recessions, he says. But this trend is based on its performances elsewhere in Europe. In Ireland, this is the first time it has encountered tough times.

And the retailer can't just sit on its hands. According to a survey published earlier this month by the National Consumer Agency (NCA), recession-struck shoppers are drifting inexorably toward the once unfamiliar aisles of Aldi and Lidl. NCA surveys have found Lidl and Aldi to be substantially cheaper than other retailers, with Lidl up to 50 per cent cheaper on a basket of 28 goods than either Tesco or Dunnes Stores.

The fear among the major multiples must be that Aldi and Lidl are still only warming up.

If Tesco's price drive, which includes a further 3,000 price cuts, does elicit a tit-for-tat reaction from its fellow retailers, it could prompt further reductions.

"We will respond to any moves that are made," says Keohane, stressing that he does not know what those moves will be.

"This is not a one-off promotion, this is a strategic move for us," he says, describing Tesco Ireland as "quite nimble".

There are many people who will be cheering on Aldi and Lidl, who together have done more to shake up the Irish groceries market than any other force.

Meanwhile, Tesco's grip on the British groceries market is sometimes referred to as a Tescopoly by those who are wary of its power. If its influence over household spending in Ireland extends rather than recedes, questions will be asked about how sensible it is to have such a dominant player.

Keohane maintains that Tesco is a discounter - just not exclusively so. Instead, it is "a broad church", catering for both price-unconscious folk mainlining Tesco Finest gruyere and truffle oil and the budget-strapped for whom low prices are paramount.

So how does Keohane feel about the NCA's grocery price surveys, which consistently praise the discounters and diss the majors. "I think there's been a lot of hype about. But I don't want to rake over previous surveys . . . in a broad survey, Tesco will be the cheapest," he claims.

Advising people to split their grocery shopping among different retailers is neither practical nor necessary, he believes.

"Not only do people not do that, but people don't need to do that."

Ideally, people who want to shop around will keep it all in-house, moving from a branded good to a Tesco own-label, he says. And with wages remaining static as the cost of mortgages, fuel and food skyrocket, the switch is already happening, Keohane says.

"Tesco's standard own-brand range sales have increased significantly on things like toilet paper."

Certainly, there is sometimes nothing that seems as profligate as paying €9 for a 12-pack of toilet roll when you can sacrifice a bit of quilting and get it for €2.50.

But this is just one of the ways that Keohane does his best to make the dip in Ireland's economic fortunes actually sound like good news for Tesco. Recession has not affected its expansion plans. The retailer, which has 107 outlets, will open 16 stores here this year. Everybody's got to eat.

Exactly how well Tesco Ireland will do during 2008's troubled economic climate will remain a mystery, as the retailer never discloses its Irish profits - a policy that Keohane says is in line with its peers and international practice. But if its European division's margin of 5 per cent were applied to Ireland, it would suggest a 2007 trading profit of about €156 million here.

Keohane won't say if this is accurate. "This is a low net margin business in any case. Everyone knows the grocery business is low margin."

Suppliers who endured a time lag between a spike in their input costs and the renegotiation of their contracts will be all too aware how low the margins can fall. They also complain that the promotion of own-label goods means that unless they are number one or two in their product category, there is just no room for them on the shelves.

Any price war will prompt the question: is it even desirable that consumers can pay lower prices for food if it means indigenous food producers and processing companies are starved out of existence?

There is little point in consumers feeling an ethical responsibility to pay more for food in order to support suppliers if there is a powerful retailer in the middle, helping itself.

Keohane says that Tesco invests in price reductions every year and that "obviously we have had to cut our cloth to do this".

The challenge now is for the brands to compete with its own-label goods, he adds.

"Shelf space is limited. Customers like a choice, but we have to do our job and make sure customers get a good price that we've negotiated."

The next event on the calendar for those interested in the finer details of the groceries landscape is a report by the Competition Authority on the impact of the planning system on the grocery sector. The report will assess just how difficult it would be for a new grocery retailer to enter and expand in the Irish market - a development that many argue is necessary in order to kick-start a fully-fledged, profit-slashing supermarket price war.

Food prices: every little helps?

CAN A supermarket price war stop the cost of food from rising?

The grocery aisles declare "every day low prices" and "long-term price cuts" but the Central Statistics Office (CSO) data tells another story: the cost of food has gone up 7.5 per cent over the last 12 months.

As prices started to rise in early 2007, the cumulative rate of increase is even higher.

So any bout of price cuts inspired by an economic recession in which consumers are understandably reluctant to spend money will only partially reverse recent price trends.

The upward spiral in food prices for consumers is the result of the higher cost of raw materials for food manufacturers, which in turn is the result of a global grain shortage and surging demand for dairy produce in China.

Extreme weather conditions and the use of land for growing biofuels rather than food contributed to the shortages, while speculators also helped drive up commodity prices.

But according to Tesco Ireland chief executive Tony Keohane, the worst has probably passed. "It is always challenging to make predictions on commodity prices, but in much as we can tell, with a health warning on it, we're through the worst of it," he says.

"We are one of the few countries where the rate of food inflation is actually going down," he adds. Prices fell marginally - by 0.1 per cent - in June.

Tesco's price campaign will contribute to a lowering of the food inflation rate, he adds.