Asda - Price activity
13 October 2016
Some activity has been noted in Asda with their pricing efforts, seemingly after indicating they wouldn't do much and instead focus on their leaflet to communicate pricing.
Overhead boards have gone up to push on the price message, with cuts across essentials. Notably Aldi were at 75p / 69p on sauces and then dropped to 65p with Asda bringing sauce to 75p.
On such a directly comparable line, is it right that Asda don't then go again? A 10p gap is notable, whereas 2/3p may not be....
To be fair to the business; they're having a go once again. We did see a blunting of the wider Asda offer as they drove profits for Wal-Mart, who needed to fund their US reshaping.
As they've now laid out their ambition to grow international sales once more, focusing on the UK and protecting share rather than profits. Price activity is expected to continue.
The challenge is marked out for them, 10 from the 11 markets are in positive like for like growth within Wal-Mart, the only not growing is Asda of course...
Examples like the below in aisle are where Asda did well when they started growing volume as the market suffered with discount. Basically fitting virtually every line within multipack Chocolate into a price point, adding flags to highlight the price (£1) and away they go.
Simple for customers to understand, and helps to strengthen their proposition. Beware Tesco with the brand guarantee....
More cuts flagged across the shop; no sign of any 'was/now' activity - are these permanent cuts? Now, always will be 50p for the washing up liquid?
It's unclear, and this is the Asda challenge. Price volatility remains an issue with their depth of promotion. The market has come around to EDLP as a wider rule now, yet Asda remain heavily promotional - which is right for their customer mix, but there needs to be a layer of 'stay low' pricing too.
Difficult to do at the best of times, let alone with Brexit, FX woes and all kinds of cost pressure being stored up in the supply chain. It's quickly looking like 2017 will become the year of inflation being kept under control, whoever does that the best will win through.
With Asda yet to spend any meaningful money in terms of their margin (assuming it's a true c. 5% given Wal-Mart situation etc), them spending their money on maintaining price levels and absorbing any inflationary pressure could be an interesting tactic.
It's only to get harder in the food market, and Tesco have come out of their spat with Unilever quite well thus far.
Lots of 'banter' about Marmite and Brexit, but Dave Lewis makes an interesting point. When the reverse was true, stronger pound et al - cost reductions weren't passed down the chain, so why should cost increases?
It's a fair point, however large conglomerates are one thing but the smaller suppliers are another thing entirely. There's a lot of pressure to come in 2017, just as the major retailers looked to be getting on top of discount, inflation comes along....
Can discount absorb it given their margins? Aldi are already under pressure with falling profits.... Cost pressure in the supply chains could well see a reduction in Capex and new stores even....
All to play for of course, but no one wants to put prices up - least of all before Christmas.....
From the Grocery Insight newsletter archive, first sent to subscribers on 13 October 2016. Steve now writes at read.groceryinsight.com. See also the blog archive and briefings.