Tesco launches supermarket price war
Tesco wages a major price offensive on rival supermarkets, aggressively cutting as much as 20 per cent from the cost of everyday items.
The UK’s biggest supermarket chain has announced plans to cut the price of 3,000 essential items in a bid to halt the gradual slide of its share price.
Tesco says the move, which will cost the company £500m, is in response to the demands of its cash-strapped consumers. The group has suffered in recent years as Britons have cut back on groceries and switched to discounters such as Aldi and Lidl.
Families have seen the biggest fall in living standards in 30 years in the last financial year, and according to the Institute for Fiscal Studies (IFS) household budgets could be squeezed for another 10 years.
Tesco, where one in every ten pounds in Britain is spent, said it will reduce the number of multi-buy promotions and scrap its double Clubcard points offer in order to cover the cost of the price drop.
Rumours of the move emerged earlier this week, sending the shares in rival groups tumbling.
On the menu for the Big Price Drop:
White sliced bread was 69p, now 55p
Braeburn apple pack was £1.75, now £1.40
Pepperoni pizza was £3.59, now £2.85
Chocolate digestive biscuits were 86p, now 69p
Dave McCarthy, an analyst at Evolution Securities, said in a note yesterday: “The impact of such a move by Tesco would be wide-ranging and heavily felt across the industry. Morrisons would not be unaffected but with a substantial self-help programme would be able to cope to a large degree. Sainsbury’s would come under significant pressure.”
Tesco has been leaking market share for over three years as rivals have upped their game and its broad appeal has been challenged by trends towards both low-priced staples and premium foods as shoppers eat out less and cook more at home.
It launched a range of “discounter” brands in 2008 in a bid to see off the likes of Aldi and Lidl, and a year later doubled rewards for members of its Clubcard loyalty scheme.
Neither move has boosted its market share, which currently rests at 30.4 percent – though it is still well ahead of second-placed Asda’s 17.4 percent.
Asda and Morrisons however already have strong low-price images with consumers, and are in a better financial position, with the former owned by US retail giant Wal-Mart and the latter generating enough cash to fund a share buyback programme.
Meanwhile, online grocer Ocado could suffer because it matches prices on over 7,000 Tesco products.
This will cut through the fog of promotions and concentrate on very low pricing. It should put Tesco on the front foot. Philip Dorgan, Panmure Gordon analyst
The price war will kick off on Monday on everyday products from milk to pasta, fresh fruit and vegetables.
Tesco’s UK chief executive Richard Brasher said: “We’re giving customers a more straightforward shop – reducing the number of promotions and putting the emphasis on clear and reliatble savings that everyone can benefit from.”
The group said customers had told them that multi-buy deals such as 2-for-1 often resulted in wasted food.
Philip Dorgan, an analyst at Panmure Gordon said the move would cut through the smoke and mirrors of supermarket price cuts – which are often compensated for by raising the price of other items.
He said: “This will cut through the fog of promotions and concentrate on very low pricing. It should put Tesco on the front foot.”
The news follows a warning from the IFS that households across Britain will experience one of the weakest decades of growth in living standards since World War II.
“The great recession thus looks set to cast a very long shadow,” the IFS said.