TESCO’S announcement today of a new price-matching plan is a clear escalation of the arms race between the supermarkets over the cost of the nation’s weekly shop. As with many previous UK retail battles, this latest bout of warfare is not being waged via across the board price cuts but through an ambitious price matching programme.
With inflation on the rise and suppliers already squeezed, there just isn’t much room for an across the board discounting strategy – at least, unless you are Aldi or Lidl, where an unashamedly no-frills policy but rock-bottom-prices saw the best growth among the grocers this year. In the 12 weeks to 20 January they both strongly outperformed the market, with Aldi showing year-on-year growth of 28.2 per cent and Lidl 10 per cent – both above the nearest rival Waitrose on eight per cent. Tesco managed 3.3 per cent growth over the same period. That meant Tesco matched the overall pace of the industry and as such it was seen as an indication of stabilisation for the retailer, which suffered its first decline in profits in almost two decades when it reported its half-year figures in October 2012. But it was still a long way from the success of the bargain basement chains.
Offering up to £10 in vouchers for your next shop if your basket would have cost more at Sainsbury, Asda or Morrisons is a material bonus and will make shoppers more loyal. By including own-brand products Tesco also steals a march on Sainsbury’s popular Brand Match promotion. Still, as Sainsbury’s offer shows, Tesco is hardly leading the way here. Asda also offers a discount via an online tool if it shows your basket wasn’t 10 per cent cheaper at Asda than rivals.
So perhaps Philip Clarke, the Tesco chief executive, isn’t being bold enough. Should he take a leaf out of the book of his fast-growing, truly cut-price rivals? The research shows it isn’t that simple.
A study by Kantar at the end of last month into shoppers’ price sensitivity found that while there are customers prepared to change supermarkets in search of a bargain, they are in a minority. Kantar identified eight per cent of UK shoppers as promiscuous purchasers and 16 per cent as strategic savers, the only two groups for whom price and savings are key. That leaves three quarters of shoppers who look to other factors beyond the total cost of their trolley: quality and convenience among them.
That makes sense: while I would happily take advantage of Aldi’s bargains, the only practical choices near my home are Tesco and Waitrose. Until Tesco offers a click-and-collect service where I get to add Aldi’s top-quality cut-price wines to my basket’s everyday value chicken, a £10 voucher is some consolation for the limits to supermarket arbitrage.
Tesco won’t be able to rely on this strategy if Aldi and Lidl keep nibbling away at it. For now, though, they remain minnows to Tesco’s whale: it has 10 times Aldi’s market share. Only prices at Tesco’s near neighbours in nationwide scale matter – and Price Promise looks set to do a good job of keeping up with the shops that matter.