Prague can be inexpensive if you stay outside of the city center. Downtown hotels are priced at western european levels. The city has a good subway system, so getting around is very fast and easy.
You will find a number of people at the central train station seeking to rent out spare bedrooms (especially during the daytime hours). In the evenings, you find more professional room "hawkers". This is your best opportunity for finding an inexpensive place to stay. Avoid the "hotel booking windows" at the train station, as their options are overpriced.
Tesco is the biggest grocery store chain in Prague.