LONDON BRIEFING:Do consumers really benefit from price- cutting campaigns or are they all for show?
LIKE SWEATY wrestlers grappling to entertain the bloodthirsty crowds, Britain’s supermarket groups regularly embark on price-cutting campaigns, “slashing” thousands of prices and boasting of the millions of pounds that lucky consumers will save if only they shop at the right store.
But are these intermittent price wars any more real than the scripted performances of wrestlers in the ring? And do consumers really benefit, or is it all for show?
Tesco launched what it called its Big Price Drop at the end of September, cutting prices on 3,000 lines for a grand total of £500 million (€571 million) of savings. Or so it said. It has since become apparent that the bulk of the £500 million will be funded by a reduction in customers’ Clubcard points, and rivals have dismissed the initiative as “smoke and mirrors”.
Today Sainsbury’s fights back with its Brand Match scheme against Asda and Tesco, under which it will match its rivals on more than 12,000 branded grocery lines. If customers find their basket of goods would have been cheaper at Asda or Tesco, they will be given a coupon to the value of the difference. The basket must be £20 or more in value to qualify.
While both Tesco and Sainsbury’s will see their margins shaved a little by these latest skirmishes, this is by no means a price war. According to analysts, there hasn’t been a genuine price war in the industry since 1999, when US retail giant Wal-Mart took over Asda and went head-to-head on prices with Tesco, with a knock-on effect on profits across the industry.
Sainsbury’s is launching its Brand Match scheme after a trial in its Northern Ireland stores, so analysts are reassured this is not simply a knee-jerk reaction to Tesco. But there is a danger that, rather than reassuring customers they will not lose out, Sainsbury’s scheme will instead serve to highlight its higher prices.
In these days of austerity, rock- bottom prices seem the safest bet, and the success of that simple strategy seems to be borne out by the latest market-share figures.
Aldi, the pile-it-high, sell-it-cheap discounter, remains Britain’s fastest-growing grocer, taking further trade from the major players. Data from Kantar Worldpanel yesterday showed its share of the market soared by just over 25 per cent in the quarter to October 2nd, taking it from 3 per cent a year ago to 3.5 per cent.
There was double-digit growth at budget chains Lidl and Iceland, while Morrisons led the big four major chains with growth of 6 per cent. Tesco slipped from 30.9 per cent a year ago to 30.6 per cent and Asda fell from 17.8 per cent to 17.1 per cent.
Kantar analysts said the figures reinforced the view that shoppers were far more impressed by low prices than marketing gimmicks.
Kantar data put the overall growth of the grocery market at 5.1 per cent a year, although grocery price inflation is running at 5.7 per cent.
The price skirmishes come against the backdrop of Tesco’s worst sales performance in the UK for 20 years. Underlying sales in its core UK operation declined by 0.5 per cent over the first half, including a drop of 0.9 per cent in the second quarter. But profits published last week still showed healthy growth, rising by 12 per cent to £1.9 billion before tax over the first half.
Like the wrestlers in the ring, we’ll know there’s a genuine fight under way only when we see the supermarkets suffer some real pain.
THE STOCK market is an unsentimental place – just ask Ben Gordon, who yesterday quit as chief executive of Mothercare, the mother and baby products group.
News of his departure by “mutual consent” after nine years at the helm saw Mothercare shares soar as much as 14 per cent at one stage, their biggest one-day gain in eight years. That added £24 million to the group’s stock- market capitalisation but still leaves it well short of where it was a week ago – before Mothercare hit the market with a grim profits warning that sent its price crashing by 42 per cent.
Gordon, who leaves next month, has won plaudits for successfully expanding overseas – but at the cost of the core UK operation. Mothercare shares ended the day 9 per cent higher at 210p, valuing the business at £186 million, as the market hoped the new chief executive – who has yet to be found – would get to grips with the ailing UK unit.
The share-price reaction must have been galling for Gordon. No matter how much a departing boss wishes his former company well, he must secretly hope its shares will plunge on news of his departure.
Fiona Walsh writes for the Guardiannewspaper in London
