The Retail Price War

Simon Couch, RPM's Head of Retailer Engagement, discusses the retail price war that is currently bringing major multiples Tesco and Asda to a head...

In hard economic times, consumers are after the cheapest price, exemplified by the ethos of both Asda's ‘Saving You Money Every Day’ and Tesco’s ‘Every Little Helps’, which clearly show that price comes first. To support shoppers through the hard economic times, grocers are engaged in a fierce price-slashing battle, and for the time being, the emphasis on creating an engaging, high-quality consumer experience has fallen by the wayside. Despite these rigorous, retail price reductions, however, not every retailer is putting price as a high priority. Some have other game plans. Waitrose, for example, along with the likes of Sainsbury’s, do very well to avoid going ‘all out’ on the price war, by playing up other key areas in-store, such as the staff service, quality of product and shopper experience.

It’s difficult to tell whether the price battle is really working for Asda and Tesco, because the reality is that they are always going to be competitive as per their strategic agenda. The question is how far the battle can go in its current guise. I went into Tesco the other day, and there was a bumper packet of crisps priced at 98p. Underneath, in big words, was written ‘Asda 99p’. That is seriously going to war! In this instance, consumers don’t necessarily care about the fact that they’re saving 1p on a packet of crisps, but what it does do is put immediately front of mind that Tesco is really committed to this price war. No matter how much consumers are saving, whether it’s 1p or £1, Tesco is delivering. In this case, the amount of space given to that message is a Brand Manager’s dream in terms of how clear it was, the size of it and the POS exposure.

This is how price-matching evolves, and it’s never got to this state before on this scale, so we’re entering uncharted territory. However, I believe that despite these price drops, it is in fact Waitrose that will come out best. Why? Because it isn't wholly involved in the price war and isn't changing its strategic direction. It's confidently illustrating the fact that it's not out of the ball park when it comes to cost, and it's not getting embroiled wholeheartedly in the price war. For consumers, there are no sporadic comms stating that a particular butter brand is cheaper than that at Tesco. That’s not what Waitrose is about, and people shop there for that very reason. Arguably the only price comparison done by Waitrose is its Essentials range. The pattern is that a shopper will usually go to Waitrose to buy good-quality meat or fish, but then head to Asda or Tesco to buy their essentials. So Waitrose launched the Essentials campaign, price-matching 1,400 key products.

Primarily, major retailers want to be price competitive and get shoppers through their door, yet despite this sales drive, Tesco’s performance was a few % down last quarter, compared with Sainsbury’s that was a few % up. This could be a good time for Tesco to take a good look at itself and ask whether the price match is actually working. Quite simply, it's not winning against its competitors at the moment. With the all-important Christmas trading period just around the corner, it will be interesting to see who the winners are.

The future state of the retail price war will reflect and follow the future economic state of the country. For instance, a serious focus on price-matching started when the economy dived in 2008, and now that we’re double dipping it’s becoming even more prevalent. Economically, we’ll come out of that over the next two to three years, or perhaps even longer, and when we start recovering it is highly likely that multiples will focus on diversity of product. Both Tesco and Asda, for example, will focus on becoming a one-stop shop selling everything from petrol to car insurance, to clothing to bank accounts.