Issue 490 - Tesco cutting prices
26 July 2023
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Retail by Email - Issue 490 - Tesco cutsTesco have been ever so consistent in recent years, almost boring. 1-0 to the Arsenal. Very formulaic in their approach, strategical on price and not moving from their focus.
The challenge is that it becomes stale and customers accustomed to the prices then need further stimulation. Aldi price match and Low Everyday prices are consistent but formulaic.
Clubcard prices did help, that brings a layer of interest given loyalty only pricing. But the challenge is the cuts have to be deep enough for it to be “special” enough.
They may go to a discounter for their central aisle of fun (increasingly brand focused) but as inflation reduces. The real work then starts, as I have said repeatedly.
Suppliers are great at coming in for a price rise when energy is up, fuel is up, raw materials are up. Far less so when the prices are coming down, so there is work to do around negotiations and who is taking the slack.
Heinz, one would imagine will be hauled in given their rampant rises on price last year. Interestingly, some of the retailers who are becoming over reliant on supplier monies are then in a situation…..
How can you go for better terms when you are heavily reliant on commercial monies that are propping up the bottom line? Supplier could say ok, you can have a better price but we’re using the commercial spend to fund it.
Then it’s a negative loop scenario and you are giving up potential volume because the commercial money is “guaranteed” whereas improved sales are not.
The customer suffers, sure they see more branded floor media, but the chain suffers because the price perception suffers. Customers go elsewhere.
It’s intriguing because Tesco, as we know, ran in to trouble with their commercial income a few years back. Sponsored signage does have a place, of course it does.
The challenge is where buyers are using it as a vehicle to bridge profit gaps. Thus giving their store real estate over to suppliers and media agencies, essentially become a company who also happens to sell food.
It decreases innovation, everyone becomes risk averse and then there’s a bigger profit gap to fill.
The stories of retailers employing a whole media division to capitalise on this branded oasis of cash is a real concern. Customers never tell retailers they want even more sponsored messaging across the piece.
It’s a drug that becomes very easy to rely upon and very difficult to then get off.
Lots of price cuts around the store, reflecting that inflation is on the wane somewhat, these cuts are not huge. But they do have a permanent feeling to them, versus short term promotional deals.
The identity is also linked to the everyday low prices that populate the store, highlighting branded price matches with Aldi (Special Buys). But also versus other retailers like Home Bargains and B&M too.
So there’s a fair bit in the arsenal for Tesco, and their consistency will win through, the challenge is around cost savings. Particularly their preference to score own goals when chasing shrinkage targets, for example.
They have to prove that their addiction to pushing through cost savings for stores, that don’t make sense are not going to happen again.
Because whatever the price points look like, or comparatives are with Aldi, or Lidl.
Customers do not want to shop in a store that looks as though it hasn’t been filled in a week.
Tesco won’t change the world for customers with these price cuts, but it’s an important marker for inflation starting to reverse a little.
As they say “every little helps.”
From the Grocery Insight newsletter archive, first sent to subscribers on 26 July 2023. Steve now writes at read.groceryinsight.com. See also the blog archive and briefings.