As rivals go, Waitrose and Aldi don't seem like natural foes. The idea of the grocers battling it out would have been unthinkable six months ago, but the phenomenon of customers trading down from luxury foods to cheaper basics has sparked an about-turn at Waitrose.

The chain has invested £50m in lowering prices, and its managing director, Mark Price, is keen to emphasise the good value that the upmarket supermarket offers. "Our opening price point is lower than Aldi's" he insists. "We now have more than 700 promotions, the same amount as M&S and Sainsbury's."

Mr Price believes that the chain can compete not just with high-end food shops such as Marks & Spencer, but also on discount street, taking customers from the likes of Aldi, Netto and Lidl. With "value" now the watch-word in retail, chains that trade on the quality of their produce rather than its cheapness are nervous. Morissons is the biggest beneficiary of shoppers switching from premium to value retailers, gaining 2.2 million customers over the six-week Christmas period. That Morrissons has seen massive growth in sales of its organic range is a sign that middle-class shoppers are trading down.

Mr Price seems acutely aware that Waitrose must reposition itself if it is to weather the downturn. "We deliver in value terms, and we want to make family cooks appreciate that."

But these cuts affect margins. Blue Oar, a specialist broker, warns that aggressive grocery promotions are threatening supermarkets' profitability. Of British grocers' total sales, 30 per cent are promoted.

Repositioning Waitrose will be no mean feat. While Mr Price stresses his company's bargain-basement credentials, the chain is still decidedly middle-class. It is the only big supermarket not to carry an own-brand "value", "basics" or "economy" range, its shelves stocked instead with ready-made dinner-party goodies.

One only needs to look at the celebrities associated with supermarkets to guess which end of the market they are aiming at: Iceland is represented by Kerry Katona; Waitrose is often plugged by Nigella Lawson. "Waitrose is the place you go for real quality at special times because we sell caviar and Krug," Mr Price says. "What people don't see is that our bacon is the same price as Sainsbury's. On milk, we are the same price as Asda. We sell cornflakes for the same price as Tesco, but we also sell the best food and wine."

This strategy seems a little confused. While Mr Price is keen to emphasise the low-priced goods on offer, he is also quick to conflate low-cost products with exploitation. "People often confuse cheapness and value. With some retailers, the reason they can offer cheapness is that someone pays the price. Be it animal welfare or working conditions, it has an impact. This is why we won't sell a "value" range or an "economy" range. We take a stance."

Customers, he believes, should take the same stance and buy organic and free-range products even when it may be tempting to plump for a cheaper alternative. "People have to make choices. It is my fear that in this climate we'll forget the consequences of buying cheap food."

The Independent 1/2/09