*flash* Produce war for Christmas
15 December 2016
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Well, the Tesco festive five a couple of years back showed that the market leader were finally serious about taking on discount, their farm/fresh food brands have deflated the category with a lower value of sales ringing through - but increased volumes.
Giving it away in Meat means there's a greater chance of overall growth in like for like and volume. A customer won't ever just to go Tesco for cheaper Meat and Produce - but they may well go to Aldi for just that.
Before you know it, 75% of the core shop has disappeared to Aldi too.. Plus specials / non food etc.
The reaction from everyone, but Tesco in particular has concerned them, despite a huge rate of space growth, their sales on Kantar at least haven't 'wowed' as much as we'd expect. Similarly profits are under pressure, given a number of factors around inflation (although that's a newer one), planning for the living wage and the very real competition from Tesco (and everyone else too).
The Festive five was effectively the Aldi Super 6 but for Christmas, it was 49p then 39p for Easter I think.. But the cheaper message on core staples was out there. A big winner for customers and a key driver to the store... Of course most people will buy Veg for Christmas anyway, so getting them to Tesco for that means well stocked Extra's with loads of non food gifting ideas then benefit.
It was replicated last year by Morrisons too; who went for a price point but also pushed through much larger pack sizes to solve that value equation. Asda too had a go last year.
Fully expect everyone to be in the mix again this year, every penny counts at Christmas after all. We know that Tesco are in the game, Festive Five is 39p but interestingly features fresh food brands (Farm brands to you and I) rather than any core mid tier products.
Interestingly using their tertiary tier, but it enables some brand affinity to be developed perhaps.
Sorting out the rest of the value equation has been steady progress and they've never tried about x price cuts, or indeed highlighted how much prices have come down. They've just continued to do their range work, push own label to the fore and reduce prices where they can.
Value is being recognised, Tesco were also flagging this online - better value than the rest for Christmas dinner by the looks of it.
So, Festive Five from Tesco aside (it's a part of their offer now, rather than the sole purpose). Aldi have reacted with a Super 6 for just 19p a pack?
19p! Nineteen pence. Echoes of Ireland where some retailers were knocking out Oranges for 9c which is clearly unsustainable and lead to all retailers vowing not to sell below the cost of production (etc) to ensure suppliers are not being hammered.
Of course, Aldi will pick up the tab here but what do the guerilla tactics say about them? 19p is a great headline price but for 2kg of Potatoes? How can it ever be right?
Customers are concerned where food comes from (look at the 100% British meat near enough in aisle in Aldi and Lidl) and the wider supply base. So whilst most customers will appreciate the price, I think some may well consider what the reality is for the farmer.
Sometimes things can be 'too cheap' thus generating a negative quality impression, which is where discount have worked so hard, marketing themselves to death near enough in order to resolve the price vs. quality equation.
It does show that Aldi are keen to win Christmas, and the Tesco activity has hurt them. We've seen reactions in the past but it was to go to 29p on Potatoes last year to make the per kg value sharper.
With lower prices across the board in Aldi, and a decent quality offer. Was the 19p Produce move necessary?
Time will tell, but it's incredibly aggressive. It did upset the Irish, Musgrave refused to go further to the bottom as it made no sense.
With inflation on the horizon, all eyes on 2017 for more moves like this, but Aldi cannot afford to keep stumping up to maintain these price levels for sure.
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From the Grocery Insight newsletter archive, first sent to subscribers on 15 December 2016. Steve now writes at read.groceryinsight.com. See also the blog archive and briefings.