The UK food retail sector has always been an interesting one to watch, but news in recent weeks confirms that it is at a fascinating stage right now.

The UK food retail sector has always been an interesting one to watch, but news in recent weeks confirms that it is at a fascinating stage right now. In the recovering UK economy, investors have more confidence in general retail, with shares up by almost 40% on a year ago, while food stocks have risen by just 12%. Falling food inflation may well add to the challenges in the coming months.

Looking at the key players, Sainsbury’s is a standout performer. Through the recession it skilfully avoided being seen as the ‘middle-class grocer’. Its Brand Match coupled with the use of contemporary, relevant celebrities and continued reinforcement of food heritage have been a powerful combination and its results last week were impressive.

Asda clearly faces more impact from discounters, given its store locations and customer demographic. It is not a surprise, therefore, that it announced last week a £1bn price investment plan, spread over several years and reminiscent of the Tesco response to Asda’s acquisition by Walmart in 1999.

The combination of these efforts by Sainsbury’s and Asda will raise the pressure on Tesco and Morrisons.

Tesco has moved its focus towards product quality and enjoyment with its recent advertising campaign, sponsorship of Downton Abbey and even changing the famous blue-striped carrier bag. It is also vouchering heavily and using in-store collection schemes, suggesting that it is not satisfied with the level of customer loyalty.

Morrisons has a huge change agenda with the rapid roll-out of convenience stores and the launch of its online partnership with Ocado. These will provide long-term benefit, but the performance of the core estate will determine business profitability for the foreseeable future.

The Co-op has the largest convenience store estate and has developed a clear strategy, but the financial and management distraction caused by the problems with its bank must be a factor.

At the quality end of the sector both Marks & Spencer and Waitrose are doing well and have ambitious growth plans. The recovering economy will be a tailwind for them.

In the discount space, Aldi has proven that, by varying its traditional price-based everyday low-price model to emphasise food quality and the use of promotions, it can step-change growth. Lidl is also doing well.

Interestingly, however, there is a group of variety store discounters led by Poundland, B&M and Home Bargains that is selling increasing volumes of grocery products. The retailers will expand store numbers dramatically, putting more pressure on the mainstream players. Also, their profiles will rise as they seek to join the public markets through IPOs.

As if that is not enough change, I learnt a few weeks ago on a trip to the US that Amazon is working hard to perfect both grocery and fresh food home delivery models. I would not bet against it choosing to roll it out in the UK once it is working.

All this points to a continuing fascinating period, but what Sainsbury’s proved last week is that in a large market there are always opportunities to grow when customer offer, marketing and operational effectiveness are right.

  • David Wild is the former chief executive of Halfords