Farmers wary of Tesco’s price cuts
Household budgets are seriously squeezed these days and farming families feel the pinch like everyone else. So it would be silly to suggest that Tesco’s £500m worth of price cuts across more than 3,000 products will not be welcome.
But farmers will rightly be wary of the impact of the Big Price Drop campaign on their businesses as they simply cannot tolerate any pain from in-store price slashing at a time when input costs are going through the roof.
Tesco has made assurances that its aggressive battle for market share will not be paid for by suppliers. That commitment will be monitored ruthlessly by the industry and even by DEFRA secretary Caroline Spelman, to ensure it holds water.
There is also the worry of the knock-on effect on prices with other retailers and how that might impact on farmgate prices, too.
Pricing shake-up
Tesco’s action marks the biggest shake-up of its pricing strategy in nearly 20 years and amounts to price cuts of up to 30% on certain foods. Britain’s biggest supermarket chain has traditionally relied on promotions and its Clubcard scheme to keep shoppers loyal.
It is switching to an everyday value-for-money approach like Asda, as customers have grown weary of shopping around for the best deals and have complained that prices change too often. The massive investment will be made by clawing back on Clubcard promotions.
With pre-tax profits up more than 10% to £3.4bn last year, Tesco can afford to take some risks but not at the expense of fragile supply chain relationships.
Milk prices
Dairy farmers have benefited from a more conciliatory Tesco tone lately, with the price it pays for milk going up at the same time as it has reduced the cost in the chiller cabinet.
Tesco liquid milk contracts have led the market and long may that continue, but there are still areas where retailers are left wanting on the way they deal with farmers.
Soaring living costs have definitely led to adjustments in consumer spending, and yet the whole picture on food is more complicated.
Consumers
The Institute of Grocery Distribution insists that shoppers want to maintain quality and are prepared to pay for it despite the recession.
Nearly half of consumers (49%) in a recent IGD ShopperTrack survey say that supporting local or buying British products is important to them when choosing certain groceries.
Despite gloom and doom, shoppers are still prepared to splash out, with eight out of 10 telling the IGD that they will pay extra for premium products every now and then. Consumers are also more likely to support those retailers known to operate fairly with the farmer.
Labour’s message
This week, Labour leader Ed Miliband spoke out about the UK’s “fast buck culture”, our moral decline and called for improvements in the way the commercial sector behaves.
He wants a new bargain in the economy so reward is linked with effort and greater value is placed on those that work hard. There’s a take-home message here for Tesco in its future practices with farmers and in developing sustainable supply chains.
As a world-class retailer, the way it treats its suppliers is as important as the way it handles its customers. Reputations have been won or lost on less.
Editorial by FW Editor, Jane King
