By James Davey

LONDON (Reuters) – The British arm of German discount supermarket group Lidl on Tuesday reported a rise in sales over the Christmas period and reiterated its pledge to offer the lowest prices in the market, a day after rival Aldi made the same promise.

British consumers are about to be squeezed on spending, with energy prices, food inflation, mortgage costs and taxes all heading higher in 2022, leaving retailers looking at a much tougher environment.

“As inflation continues to rise, I want to reassure each and every one of our customers that we remain resolute in our promise of being the destination for the lowest grocery prices in the market,” said Lidl GB chief executive Christian Hartnagel.

On Monday, his counterpart at Aldi UK & Ireland, Giles Hurley, said his firm “will always offer the lowest prices for groceries, no matter what.”

The German discounters’ price pledges have caused concern amongst some analysts.

“Are we entering a stage now where deep discounting in certain areas of the market represents a form of market failure due to the damage into the supply chain, especially farming?” asked Shore Capital analyst Clive Black.

Britain’s food retail sector has been transformed in the past decade by the rise of Lidl and Aldi, which have driven down returns at the big four of Tesco, Sainsbury’s, Morrisons and Asda.

Lidl GB is owned by Germany’s Schwarz group and is Britain’s seventh largest supermarket group, with a market share of 6.3%.

Its sales rose 2.6% year-on-year in the four weeks to Dec. 26 and were up 21% against 2019, before the pandemic impacted trading.

On Monday, Aldi UK & Ireland reported a 0.4% rise in December sales.

Lidl GB said Christmas pudding sales jumped 23% year-on-year and sparking wine sales 24%. It also highlighted strong demand for Lidl Christmas jumpers and scented candles.

Unlike its bigger rivals, but in common with Aldi, Lidl is still opening new stores but does not have a significant online business.

Last November, Lidl GB set a new target of reaching 1,100 stores by 2025. It currently trades from over 890.

($1 = 0.7357 pounds)

(Reporting by James Davey; Editing by Kate Holton, Jan Harvey and Tomasz Janowski)