How to cut the cost of the weekly shop

Planning policy makes your groceries more expensive

“Cutting the cost of living is this government’s number one priority.”
Rachel Reeves MP, Chancellor of the Exchequer

There’s been a clear shift in how the Government talks about the economy. A year ago, ‘growth’ was the priority. Today, it is ‘affordability’. It is easy to exaggerate what this means for policy. After all, the point of boosting growth is to put more money in people’s pockets so they can afford more stuff. But when the public talks about affordability and the cost of living, they are likely to be referring to two things, energy bills, and the cost of the weekly shop.

Unlike energy, Britain’s groceries are not particularly expensive by international standards. In the United States, the price of eggs went as high as $8 a dozen in late 2024. That’s more than twice as expensive as a free range pack here.

Still, the weekly shop is getting a lot more expensive. Average grocery prices are now around 23% higher than they were in 2022. Some goods have risen by much more. A 1kg bag of sugar cost about 53% more in January 2025 than it did in January 2022, while a loaf of bread costs about 30% more.

Most of the Government’s interventions post-affordability push have involved spending. Rail fares, for example, have been frozen at a cost of £600m. Extra charges are being taken off energy bills (and in most cases put onto general taxation). There are limits to this approach – we are already close to maxing out the national credit card. The good news is there is a way to cut the cost of the weekly shop without running up the deficit. Let me explain.

It is common to blame high prices on profiteering, but Britain’s supermarkets run on tight margins. The average supermarket profit margin is under 3% – about as low as any industry gets. Margins are low because Britain’s grocery sector is intensely competitive. And we have good evidence that competition has cut prices here.

Discount supermarkets Aldi and Lidl went from having a combined market share of just under 3% at the turn of the century to having 19% today. In that time, average profit margins have fallen a lot. The IFS studied Aldi and Lidl’s rapid expansion and found that when Aldi/Lidl enter an area, households make big savings. It’s not just that Aldi and Lidl have tighter margins and cheaper products, even shoppers who stick with Asda, Tesco or Sainsbury’s see lower prices as supermarkets respond to local competition by lowering prices, stocking cheaper ranges, and running more aggressive promotions. Some supermarkets even launched explicit “Aldi Price Match” marketing campaigns.

Aldi and Lidl want to open even more stores, yet there is one big problem stopping them from doing it as fast as they would like: the planning system.

Almost every time Aldi or Lidl try to open a new store, they face a legal challenge. Between 2020 and 2022, Aldi’s rivals submitted 77 planning objections and launched 12 separate judicial reviews designed to block the low-cost retailer’s expansion strategy. At the time, there were 40 Aldi stores held up due to planning complaints from rivals.

There’s nothing to suggest that the problem is getting better. Just last year, Tesco brought a lawsuit to try to block the opening of a new Lidl shop in Stockport. They were unsuccessful, but even the threat of legal action can lead to planning permission being withdrawn, as it did when Tesco threatened legal action against Wiltshire council’s decision to approve a Lidl.

By the way, don’t be fooled into thinking this is a story of heroes and villains. Aldi and Lidl are the losers’ overall from legal challenges against new stores because they are the supermarkets with the biggest expansion plans, but when they get a chance to block their rivals from expanding they take it. In an interview with The Telegraph, former Aldi UK Chief Exec Paul Foley stated “Aldi and Lidl also object to competitors that are opening up in areas where they are already established … It’s just the way it is.” In other words, don’t hate the player, hate the game.

Even when legal challenges fail, they still cause damage. Supermarkets are less likely to open new stores if they know there’s a risk of a long drawn-out (and expensive) legal battle. And every week of delay is a week of higher prices for shoppers.

Britain isn’t the only country with this problem. The problem got so bad in New Zealand, that as of 2009, supermarkets (and all other businesses) are heavily restricted from bringing planning complaints against competitors in the same trade. Supermarkets can only object if there’s a direct environmental impact on their store.

While I’m sympathetic to it, this wouldn’t solve the problem. It is much harder to restrict access to JR and even if a firm is restricted from objecting they can still bring a legal case down the line. Restricting standing (whether or not you’re allowed to bring certain legal challenges) is worth trying but if the challenges are on environmental grounds, even loosely, then it is likely to be incompatible with some of Britain’s treaty obligations.

Better to target the source. Since 1996, England’s planning system has had a ‘town centre first’ policy. The fear that out-of-town shopping centres and supermarkets would kill the high street led to rules that blocked out-of-town development unless developers could prove that there were no viable sites within the town centre (or edge-of-centre).

New out-of-town retail developments are also required to carry ‘retail impact assessments’. Just like a railway project might have to carry out an impact assessment to see whether a new line might kill rare bats, a new Aldi or Lidl must carry out an impact assessment to see whether it might kill any high street shops.

Planning policy is a devolved matter in Britain. Scotland, initially, didn’t bring in a ‘town centre first’ policy and when they did, they brought in a less strict version. This created a natural experiment for economists to study. LSE academics Paul Cheshire, Christian Hilber and Ioannis Kaplanis did just that.

The aim of the ‘town centre first’ policy is to protect the high street and cut car use. The evidence suggests it has failed on both fronts.

Consumer shopping patterns in England didn’t change much. People still preferred to drive out-of-town and do a big shop. And because supermarkets have greater ability to pay than smaller independent retailers, it pushed up rents for small shops as supermarkets opened up ‘Tesco Express’-style smaller branches. In fact, a policy designed to help small independent retailers appears to have had the complete opposite effect. A further study from the LSE’s Raffaela Sadun found that the extra competition from smaller centrally located supermarkets caused by the policy led to a 15% decline in employment among independents.

Worse still, it made England’s supermarket sector much less productive pushing up prices as a result. High street properties are more expensive to rent, often awkwardly shaped, and can’t stock as broad a range as bigger out-of-town stores. The study’s authors estimate that labour productivity in England’s supermarkets is between 20-25% lower as a result. In a competitive sector like supermarket retail, the benefits of higher worker productivity are likely to be quickly passed on to consumers in the form of lower prices.

This isn’t the only study to find that ‘town centre first’ policies cut productivity. A further study by Raffaela Sadun and Imperial’s Jonathan Haskel found that by nudging retailers to smaller stores, the entire retail sector saw declines in productivity. They estimate the policy explained 40% of the slowdown in retail sector productivity growth.

It’s likely that the full productivity loss is even greater than the above studies estimate once you take into account the impact on competition and the expansion of more efficient discount retailers like Aldi and Lidl.

Town centre first policies make up the bulk of the grounds supermarkets bring against the opening of new rival supermarkets. In the last decade, a multi-year court case was fought over it in Stockport (Tesco v Lidl). Planning appeals and inquiries have also been fought in Altrincham (Tesco v Lidl) and Sutton-in-Ashfield (Asda v Lidl) on the same grounds.

It would be one thing if there was evidence that the ‘town centre first’ policy works. Politicians would have to judge the benefits of lower supermarket prices against the risk more out-of-town shops would lead to less high street footfall. But the best economic evidence we have suggests that the ‘town centre first’ policy fails on its own terms. If Rachel Reeves is telling the truth and the number one priority really is cutting the cost of living then they should scrap the ‘town centre first’ policy and unleash supermarket competition. As one supermarket nearly said, every Lidl helps.