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Tesco Launches Price War In The U.K.

Jim Prevor’s Perishable Pundit, June 21, 2007

Just the other day Whole Foods was opening in London and The Economist, an esteemed British publication, was covering the event by telling us about changes in consumer attitudes:

People nowadays will pay a lot more for food they think is fresher and healthier. Whole Foods plays to this by spraying its great pyramids of bright red apples and head-high vegetable hedges so that they glisten as with morning dew.

Yet it seems that not all consumers are focused on the glistening of the morning dew on their produce. For Tesco, which needs a price war in the U.K. like a hole in the head as it prepares to invade America, has announced a price war:

TESCO LAUNCHES 270 MILLION POUNDS PRICE BLITZ

Tesco is to slash an inflation-busting £270 million off the cost of shopping in its biggest-ever price blitz, showing once again why it is Britain’s Favorite Supermarket.

Starting from next week, prices will tumble on more than 3,000 products ranging from nappies to bread with cuts as deep as 34%. And unlike some of our competitors’ price claims, these are genuine reductions and do not include the hundreds of promotions throughout the store which save customers even more money — and of course we reward customers with Club card points too!

Tesco’s Commercial Director Richard Brasher said:

“Consumers have had a tough start to the year with interest rate rises hitting many people hard and inflation creeping into some areas of household spending. We want to make sure that our customers don’t start their summer worrying about how to balance the budget and cutting the cost of their weekly shop is the best way we can help.

“These price cuts will go right across the store so whether you are a busy mum looking to cut the cost of entertaining the kids this summer or young, free and single but wondering how to pay the mortgage, there is something for everyone.”

Our independently-compiled price checker www.tesco.com/todayattesco/pricecheck.shtml consistently shows that Tesco is Britain’s cheapest supermarket, comparing the prices of thousands of products from Tesco, Asda, J Sainsbury and Morrisons. No other supermarket gives customers the chance to compare prices in this way so that they can judge for themselves who is the cheapest.

Examples of prices set to fall include:

ProductNew
Price
Old
Price
Percentage
Cut
Tesco Cranberry & Raspberry Juice Drink, 1l£0.98£1.49-34.2%
Clover spread, 500g£1.32£1.37-3.6%
Fresh Pork chops, kg£4.49£4.98-9.8%
Tesco Salmon Fillets, Skinless Boneless, 1.04 kg£9.99£10.99-9.1%
Tesco Value Mild White Cheese, kg£3.23£3.34-3.3%
Tesco Thick Sliced White Loaf, 800g£0.49£0.54-9.3%
Tesco Sparkling Diet Lemonade, 2l£0.35£0.39-10.3%
Loose Beef Tomatoes, each£0.49£0.59-16.9%
Pampers Baby Dry Economy J54£8.69£8.96-3%
Tesco Olive Oil, 1l£3.48£3.99-12.8%
Nestle Cheerios, 600g£2.40£2.48-3.2%

It is said that Wal-Mart never launches a price war, but never loses one either. So, predictably, Wal-Mart’s U.K. subsidiary ASDA, launched its own price war:

ASDA declares price war with
£250m of Rollbacks

Research Shows Average Family’s Disposable Income is £146

ASDA fired the first salvo in a £250m supermarket price war today (15 June), lowering 10,000 prices across food, George and general merchandise to celebrate winning the Grocer’s lowest price supermarket award for the tenth year running.

The move is especially pertinent after ASDA research, released for the first time today, shows that the average British family has only £146 per month of disposable income after they’ve paid all the bills.

The price move builds on ASDA’s consumer championing history following a decade of winning Britain’s lowest price supermarket award.

The average ASDA shopper’s inflation busting basket is now 17% lower in real terms than in 1997 as a result of ten years of price cuts.

‘We have a ten year history of fighting to keep prices low for consumers. We are declaring a supermarket price war today. Our research shows how little the average family has left once they’ve covered their living expense, which makes me even more committed to delivering Britain’s lowest basket of groceries,” said ASDA’s CEO Andy Bond.

“Rip-off Britain, where other retailers con their customers, is alive and well and we’re determined to put a stop to it once and for all. Over the next year we’re going to expose businesses that prey on customers, forcing them to pay through the nose for goods and services while they pocket massive margins,” added Andy.

ASDA has a longstanding history of championing the consumer and undercutting standard industry prices in order to pass savings on to customers.

In the past the company played a pivotal role in challenging the Net Book Price Agreement, meaning that retailers were no longer forced to sell books at recommended retail prices and also put an end to the over-the-counter medicine rip-off.

More recently it challenged greedy soccer bosses and sports stores over extortionate football strips and championed the parent’s right to choose where they buy their kid’s school uniform.

Amongst other things, today ASDA doesn’t charge a premium for higher factor suncreams, is now able to offer the latest book releases at hugely discounted prices and guarantees that products in its healthy eating range are never more expensive than the standard own brand equivalents.

The supermarket has also led the way with unbeatable prices offering products such as a complete school uniform for less than £10, a £19 men’s suit, £60 wedding dresses and DVD players for just £9, as well as delivering Britain’s lowest priced petrol*.

* Asda economic boffins compared the price of 26 every day groceries in 1997 and 2007. The price in 1997 was £29.39, by 2007 this had dropped to £29.10. However if you apply inflation to the 1997 basket it should actually cost £35.28 today, a difference of 17.5%. A full list of products and prices are available on request.

OutgoingPer MonthSource / Assumed
Take Home Pay£1588Based on 28k household pre tax annual income
Mortgage£510Based on 75k mortgage with 20 years at 5.5%
Car Loan£1765000 spread over 3 years
Insurances£60Estimate based on 1.4 Astra, 100k house, 50k life
Food (inc alcohol)£304Market divided by # households. Source: TNS
Council Tax£92Office of national statistics January 2007
Petrol£11212000 miles per year at 87ppl and 33mpg
Utilities£92Source: The Scotsman, £692 gas, £363 electric, £131 TV pa
Clothing£96Market divided by # households @ 90%
Truly Disposable Monthly Income£146

Examples

Bananas
Champagne
62p kg to 59p kg
£19.98 — 10.00
Asda Back Bacon 250g (8 rashers)£1.77 to £1.25
Asda Back Bacon 500g (16 rashers)<£2.96 to £2.47
Mince (standard) 500g£1.40 to £1
Warburtons Sliced Rolls 12 Pack£1.25 to £1
Shredded Wheat 18’s£1.58 to £1
Asda Cheddar Cheese 500g (Mild, Med, Mature)£2.32/£2.48/
£2.74 all to £2
Kelloggs Bran Flakes 500g£1.64 to £1
Rice Krispies Multigrain350g£1.98 to £1
Sugar Puffs 450g£1.83 to £1
John West Red Salmon 213g£2.31 to £1
Asda Olive Oil 500ml£2.33 to £2
Herbal Essence Shampoo &
Conditioner 400ml
£2.78 to £2
Hollow Fibre Pillow£5.00 to £4.00
Egyptian Cotton Pillow£9.00 to £7.00
Cotton Towel Bale£9.00 to £7.00

Following Tesco and Asda, fourth ranker Morrisons joined the fray:

Two Thousand New Lower Prices

Morrisons has announced 2,000 more lower prices, to be effective within the next two weeks. The move is on top of 3,000 prices lowered since 1 January and is in addition to over 4,000 promotional price cuts and £350 million worth of multi-save savings already delivered to customers so far this year. There will be similar activity throughout the rest of the year.

Separately, this week the Company is launching a ‘Summer Price Freeze’, guaranteeing that baskets of selected fresh food items, which are already very competitively priced in the market, will not increase in price for the rest of the Summer.

“These 2,000 more lower prices confirm our commitment to giving Morrisons customers consistently great value,” said Group Trading Director, Martyn Jones.

“Also, our own in-house production facilities give us the ability to offer a great quality basket of fresh foods at on-going low prices.

“Through this combination of low prices, multi-saves and strong promotions we continue to give our customers outstanding value on their shopping throughout the year.”

As its future in North America is about to be decided, what would motivate Tesco to launch such a battle in the U.K., its home base from which its profits flow to fund the American effort? Well, The Independent put it this way:

Both companies also indulged in tit-for-tat name calling, with Asda accusing rivals of “conning” their customers while Tesco said its cuts were “genuine, unlike some of our competitors’ price claims”….

Both companies claimed they were acting “in the interests of consumers”, citing figures showing customers were finding it tough after the rate rises. But it is significant that last night’s announcement came before Tesco’s first-quarter trading update on Tuesday, when analysts are predicting that it will report a slowing rate of same-store sales growth.

Tesco is facing tougher competition from the revived J Sainsbury and William Morrison as well as Asda. Citigroup noted yesterday that Tesco’s trading "seems to have slowed" and that the tougher competition from rivals "seems to have rattled Tesco".

The launch of a renewed supermarket price war would help to divert attention from the figures as Tesco seeks to claw back ground from its rivals.

We have another theory. Perhaps ASDA was about to launch a price war as Bentonville decided to put a little heat on Tesco and distract them from their American venture. Tesco got wind of it and decided to take a pre-emptive strike?

Whatever the case, we find it enlightening in this way: Sometimes an observer of the British supermarket sector and, especially, anyone who pays attention to the pronouncements of the CEOs, would think that the British consuming public is a uniquely selfless group, far more concerned with the well being of poor people in tropical climates — thus the interest in Fair Trade — and with the well being of their grandchildren — thus the interest in Carbon Footprinting — than in any day-to-day concerns like their own budgets.

Yet then the same executives turn on a dime (or a shilling?) and declare that the British consumer is struggling and barely able to make it through the week.

The question is this: is it the British consumer who is schizophrenic or are the CEOs of British supermarket chains?

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