Friday, 3 June 2016

Big 4 Grocers Pricing Strategies - Who is Winning?

Latest Kantar worldpanel data for 12 weeks ending 22nd May 2016 shows Tesco sales “stabilising”, Sainsbury falling and Asda falling disastrously.  Morrisons is difficult to read because of their store disposal programme.

Each has adopted a different pricing strategy in an effort to hang on to their customers and fight Aldi and Lidl, who are still showing double digit growth.

Tesco continues to promote with offers like buy x number for £y, and buy one get one free. It has rebranded its fresh product value lines, turning them into the “Farms” range, and calling them nice, rural British sounding names like Boswell Farm beef, and Woodside Farm pork products.

Questionable as this move may appear, given that these farms are entirely fictitious and the produce often comes from abroad, Dave Lewis the Tesco CEO has spent vast sums of money on developing the range and is convinced that it allows Tesco to compete with discounters but with consistent quality. So Tesco continues with a mix of pricing approaches, most notably continuing with heavy promotions.

Asda by contrast is totally committed to everyday low pricing (EDLP) with few or no special offers. They are convinced that this is what consumers want but their sales decline is accelerating with the latest 12 weeks data showing a drop of 5%.

Sainsbury also reckon that consumers do not want promotions, preferring instead to know that prices will be consistent week after week. Sainsbury are in the process of transition to their new EDLP strategy, but sales dropped by 1.5% in the recent 12 weeks.

Overall, it is a patchy picture, but the evidence so far suggests that abandoning promotions leads to a drop in sales.

The fact is that what consumers want and what they say they want are two totally different things. Any change in strategy, particularly in an area as sensitive as price demands a thorough understanding of consumer behaviour.

Making the right decision is made more challenging when a strategy plays into the hands of competitors. Both Aldi and Lidl follow an EDLP strategy, but the flaw in Asda’s approach is that they will never be as cheap as Aldi or Lidl, and adopting EDLP makes the price comparison totally transparent. Transparency is of course to be welcomed, but shoppers need to be offered something which in their mind offsets the price differential. It could superb quality, or a range more tailored to their needs than a discounter can offer.

And to the point that price is not everything, the Kantar data also tells us that Aldi’s premium own label brand Specially Select grew by 15%in the latest 12 weeks, and Lidl’s deluxe range has grown by 65%.

None of the pricing strategies adopted by the “Big 4” seem to be proving outright winners in the fierce competition to grow sales.