UK shoppers, battered by tough financial realities, have embarked on the biggest supermarket switch in modern retail history. Tesco has no option now but to surrender its long-cherished profit margins, shareholder payouts and customer loyalty.
However, it is not just the threat of Aldi and Lidl that hangs over Britain's biggest store empire. For the big grocery chains, there are signs that things will get worse long before they get any better.
Annual profits are expected to be about £2.5 billion, or 24 per cent lower than last year's £3.3 billion. The dividend payout to shareholders will be cut by three-quarters, while spending on capital will be £600 million less than last year.
Today's profit warning from Tesco makes no bones about the challenges, uncertainties and reductions in spending the company faces. It is in a pitch battle with no-frills discount stores. Tesco had aimed to lower prices; today it is having to lower much more than that - including the expectations of investors.
The company's chairman said: "Our new chief executive, Dave Lewis, will now be joining the business on Monday and will be reviewing every aspect of the group’s operations. This will include consideration of all options that create value for customers and shareholders. The actions announced today regarding capital expenditure and, in particular, dividends have not been taken lightly."
At the current rate of growth, within five years traditional supermarkets will account for a smaller portion of our food spend than the discounters, internet and convenience stores.
Today we can all look back and see just how far we have come from the days when families were bonded to their local supermarket and all the retailers bothered to do was fight for the 10 per cent of consumers who were prepared to switch. Now we are all supermarket switchers.