Tesco, Britain’s biggest retailer, is to cut the price of 600 of its own-brand everyday items by as much as 30%, igniting speculation that a price war is set to break out among the big retailers.
The cuts, which are permanent and not just a seasonal promotion, amount to £80m. Although consumer behaviour over the past two years has indicated a shift towards quality and freshness, price remains the key determinant, after location, as to where and what consumers buy.
Tesco commercial director Richard Brasher said the cuts were part of the retailer’s desire to re-establish price as the key area of competition between the supermarkets in 2007.
Robert Newbury, NFU senior food chain and policy adviser, said the returning focus on price was of real concern to the NFU.
“While we have no problem with price promotions we are concerned if it’s about preserving the retailer’s own margin at the expense of producers. If producers are to bear the brunt, then it should follow a consultation with the affected producers.”
He added: “We have worked hard to demonstrate to retailers some of the other benefits and attributes of food procurement, such as local and added-value rather than price.”
Gavin Rothwell, Senior Business Analyst at IGD said: “Price cuts in the New Year period are nothing unusual, at a time when consumers tighten their belts after the excesses of the Christmas and New Year holiday. But with this move, reported right at the start of the year, Tesco has reinforced its own price credentials at a very early stage in 2007.
“As well as helping Tesco to retain customers and to attract them from major rivals, it will give Tesco more ammunition with which to compete with the discounters. Expansion has been a recent priority at all three UK hard discounters, with Aldi in particular showing considerable growth over 2006.
“Indeed, TNS Worldpanel market share figures have reported Aldi’s growth at consistently strong double-digit rates in the past year. And while the discounters, and Aldi in particular, have moved away from a pure price-led offer, delivering outstanding value for money remains a core tenet of their proposition.
“While the start of the year is a period that is often rife with pricing initiatives, two of the leading four operators must counterbalance this against the need to rebuild margins, and across the sector the impetus towards price cuts needs to be tempered with ongoing cost inflation in areas such as staffing and property.”