By Patrick Foot, financial markets writer at IG, the leading UK financial spread betting company.

Tesco’s disastrous performance in recent years is well known. Back in September, Tesco announced its worst news yet: a previous profit warning – released on August 29 – had added an estimated £250 million to its potential for profit. A month on, and it has done little to recover from the setback this caused.

That announcement, even given Tesco’s recent poor performance, shocked the markets and knocked over $1 billion off of its total value in minutes as traders turned away from the company in droves.

But it isn’t just investors that should be taking notice of Tesco’s failings. The turbulence in the supermarket industry will be felt by shoppers, especially families, in a big way too.

The numbers surrounding Tesco’s fall are shocking. It’s been over a decade since the value of the company has been as low as what it is now, and if it carries on the way it is going (dropping 36% from January 1) then this will be the worst year for the company in some time.

Tesco, Sainsbury’s and Morrisons over the year so far.

The malaise goes beyond just Tesco, though. Their biggest rivals on the UK stock market – Morrisons and Sainsbury’s – are down 32% and 25% respectively. For Wal-Mart, the US supermarket giant behind Asda, the picture is not as bleak; but growth has stalled and the company has dropped 2% as the Dow Jones has grown over 8%.

Clearly, times are tough amongst major supermarkets. The rise of discounters such as Lidl and Aldi has been blamed for the issues, as the recession forces shoppers to save money. The continued popularity of both brands, however, points to a deeper issue than mere penny squeezing – especially as upmarket brands like Waitrose and Marks and Spencer have not suffered from the same issues as their lower-end rivals.

Tesco in particular has been criticised for switching its focus away from the core UK market, with forays into major hyper stores and US expansion both going down badly. What seems clear for all, however, is that competition is going to escalate dramatically and quickly in the next few months.

So what does that mean for shoppers? Price has already emerged as the key battleground in any competition between supermarkets. The flagging performance of Ocado (down 33% in value this year) indicates that online shopping is not yet as important as many had predicted, and Morrisons have already began drastically lowering prices.

The biggest impact, then, will be the opportunity to buy  cheaper groceries across all the major supermarket chains. How Lidl and Aldi react to such a move is not yet really known.

As the long-time leader in the sector, Tesco has the means and resources to come out on top against its major rivals: though much depends on how much Wal-Mart will back Asda in the coming months. First of all, though, Tesco needs to arrest its current run of bad news and start to turn things around. New CEO Dave Lewis is unlikely to have a long honeymoon period before the pressure begins to tell.

If, as many commentators believe, a quick remedy will not materialise then there may well not be room for four major supermarket chains in the UK market. If that is the case then expect an intense battle, with perhaps more than one significant casualty: quite possibly one of Tesco, Asda, Sainsbury’s or Morrisons.

Finally, the impending months could provide some interesting avenues for investment. Every major supermarket will be aggressively targeting each other, some will fail and some will probably come out even stronger. If you believe that you can predict who that will be, some major gains may be possible – thought the chance to lose out is also heightened. For shoppers, traders and supermarkets: dramatic times lie ahead.

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