Somerfield's investment in promotions and advertising at its Kwik Save deep discount chain hit margins and contributed to Monday's profit warning, say analysts.
The embattled grocer announced that market conditions had worsened and that operating profits would be below analysts' expectations.
Chief executive Alan Smith resigned and the business will now be run by executive chairman John von Spreckelsen.
Deutsche Bank analysts believe that Kwik Save's aggressive promotional and advertising strategy has been a factor in the grocer's latest difficulties.
The broker noted: 'In addition to top-line deflation, we believe that margins in the Kwik Save fascia will have seen some pressure as a result of a more aggressive promotional campaign, as well as TV advertising.'
The broker said that, although like-for-like sales increased at Kwik Save in the first quarter, the margin investment in promotions may have been as much as£40 million, equivalent to 2 per cent of sales.
'We have argued for some time that it (the investment) represented a potential threat to profit growth,' said Deutsche Bank.
Somerfield blamed 'lower market growth and deflationary pressure' for its profit warning. The retailer's capital expenditure programme, including store refits and updated IT, will continue.