Of course [some] shoppers will shop where the supermarkets have set the lowest prices. But the shoppers don't walk into Aldi and say "Your pre-packed broccoli needs to be 50p" and Aldi comply. Shoppers can only buy the cheapest option available to them; if the cheapest pre-packed broccoli was £1, then shoppers would pay £1. Worth noting also that Aldi/Lidl are able to undercut the likes of Tesco, Sainsbury, etc by having much lower general overheads (more basic stores, smaller product ranges, less facilities, etc) not necessarily by strongarming suppliers more.
Supermarkets will aim to secure competitive advantage and/or maximise profit by seeking the lowest price for the produce they sell. I have clients who supply a whole range of retail giants and they all say the same thing: retail giants constantly pressure them to lower their prices, fund 'special promotions', agree to longer payment terms, etc.
Of course, suppliers then seek to maximise sales whilst maintaining at least some level of margin so look to cut costs; generally a large proportion of the costs is labour and this is one area (thanks to legislation shackling the abilty of employees to fight erosions of their income/t&c's) that is usually targeted.
Originally Posted by: Saint Snow