September 4, 2007
Tesco Refuses to Play Chicken with Asda on Price
For at least as long as Asda has been owned by Wal-Mart, there has been an on-going competition between that chain and Tesco over which would be seen by U.K. consumers as having the lowest prices. While there is no real reason to suspect the competitors are calling an end to the price battles, Tesco, in one instance, has chosen not to follow Asda in its cost-cutting ways.
According to a report by The Observer, Tesco chose not to match Asda’s price on chicken when that chain lowered the price by 22 percent to “less than a tin of cat food.” In fact, when Asda lowered its price, Tesco actually increased what it charges by four percent.
Tesco is hoping that by taking its stand it can establish itself as a seller of healthy chickens that have been humanely treated. According to The Observer, farmers in the U.K. have cautioned that the pressure to sell lower-priced birds make it increasingly difficult to assure the quality of the animals delivered to market.
According to The Observer, Sir Terry Leahy, Tesco’s chief executive officer, said he believes that changing priorities mean consumers are going to make purchasing decisions on factors other than the lowest price.
“I believe we’re seeing a fundamental shift in the priority that consumers place on food,” Sir Terry said at a recent company meeting. “The link between diet and health, interest in cooking, provenance – including local and fair trade – is also not only about affluent customers. The growth in the proportion of our customers buying organics is fastest among less affluent customers. This could be a big long-term positive for the industry.”
Count Charles Bourns, chairman of the National Farmers’ Union poultry board, among the supporters of Tesco’s price increase.
Mr. Bourns told The Observer, “This
price hike is the first sign that we’re finally coming to an end of cheap food.
Tesco has been the first to move and that needs singing from the rooftop. It
has resisted the move towards the £2 chicken and is now going the other
way. Other retailers will have to follow suit. There are people out there who
will always buy £2 chickens, but we can’t go on selling chicken for less than
the cost of cat and dog food.”
While it is routine for retailers in the U.S. to lower prices in response to competitors, the question in the U.K. is whether grocers will reverse themselves and follow Tesco as it raises its chicken price. The other question is if Tesco will begin edging up prices in other categories.
Alex Waugh, director of the National Association of British and Irish Millers, told The Observer, “This is a sign that supermarkets are finally beginning to understand that persistent below-cost selling is not a sustainable practice. It is not even what customers want any more: the market for the cheapest lines has declined for bread by about half in recent years. There is a growing market for quality and fairness where price is not predominant.”
Discussion Questions: Is there “a fundamental shift” taking place in how consumers determine which food products to buy? Is price becoming less of a factor while others are rising in importance? What factors other than price do you think are moving up on consumers’ purchasing hierarchy list?
BrainTrust
Recent Discussions
Discussion Questions
Poll
First, who cares about U.K. consumers? Except for the few who live there, why are we concerned with their so-called retail breakthroughs (this is for you, Bern)? Is this somehow a bellwether for real bidness? In what universe?
Come on, fellow retailers, what’s this about? “Sir Terry” believes that “we’re seeing a fundamental shift in the priority that consumers place on food?” In the U.K.? And who is “Sir Terry”? Do we bow, genuflect, or kiss the ring?
Second, who is Count Charles Bourns and why do we care what he/she thinks about chicken consumption in a small island country? Is this important in the U.S. or on a global scale?
Obviously a slow news day.
Right, folks, here are two more personal confessions.
1. I detest Tesco and everything it stands for. I visit occasionally in order to see what is going on and who is buying what but I never, ever buy anything myself and refuse to add a penny to their corporate coffers.
2. I am aware that I am overly suspicious and cynical/paranoid.
Now, then, please remember that you read this here first. Raising the price of the chickens is an excellent PR move on Sir Terry’s part. The article actually says that his remarks were made a while back but were “previously unreported.” I wonder why. Tesco is fighting several major battles at the moment, on different fronts, and Asda is no longer a really serious adversary. Tesco can afford to raise chicken prices because they’re keeping so many other prices low. If they do start raising other prices, they can blame it on the fact that they are being so good to their suppliers who are struggling with rising costs (because Tesco is such a very good company) and also point out that they are competing with Sainsbury’s which appeals to a slightly more upmarket audience and Waitrose which appeals to a much more upmarket audience and has recently gone on the offensive and decided to spread its wings further afield than previously. The new markets in which Waitrose is opening are greeting them with open arms. Possibly someone at Tesco HQ has noticed. Meanwhile, more towns are resisting Tesco and they are being investigated more openly and frequently with suppliers finally becoming brave enough to talk about the ways in which they have been pressured. Add that to customers more vocally demanding transparency and quality than just plain old-fashioned cheap and you can begin to understand the thinking behind the chicken price. It really isn’t as simple as it seems. Nothing ever is.
Price isn’t everything! This situation reminds me of a conversation I had with my daughter when she was in college. While her allowance was more than adequate, she always seemed to run short of money (Any of you ever been there?). At this point in history Taco Bell was selling tacos at 3 for $1.00. I pointed out to her (jokingly) that she could stretch her allowance by eating Taco Bell. She gave me the most serious look I ever saw and told me that no one could sell quality food for that price. She further informed me that she would fear for her health if she ate at Taco Bell. I of course relented and gave her the Queen Mary, a string of Pearls, $200 cash and a new copy of the King James Bible. Maybe Tesco knows there customers a little better than Asda. And heck, if you can’t be the cheapest guy on the block what’s the point of selling at a loss? A price increase seems not only reasonable but intelligent.
Consumers use a “value equation” for making purchasing decisions. Price is one component of the equation but not the only component and not usually the most important component. The value equation changes by product or category. If you provide value that consumers want enough to pay for it, you can raise the price.
This is a difficult dilemma for retailers. It sounds like Asda has gone too low on chicken prices and that creates a separate issue for consumers. They begin to think what’s wrong with the quality of that product if they can afford to sell it that low? If they can’t sell it that low and make money on it, why are they doing it? Are they just trying to run their competitors out of business so they can then raise prices and charge what ever they wish? If they can sell it that low now, they must have been really making a killing on it at the old prices at my expense. I can’t see the average consumer feeling very good about this for these reasons.
Tesco, on the other hand, has to be careful as to not become thought of as too high priced and not being competitive. Not matching Asda was probably a good move but the four percent increase might be bad timing. It might signal that they have given up on being competitive and are going to start making up for lost time by charging more in general.
The Asda/Tesco battle underscores one of my favorite sayings, “Anyone can give product away, it takes brains to sell it.”
I think customers do become skeptical about prices being too low. There are times I believe major brands are using lower quality formulas to keep some retailers so low. During down economic times, I spend less or not all on entertainment or travel and clothing but buy a few more upscale foods I can prepare at home. I do know how to get to the food channel website. As the other post states, Buyer beware “If It’s too good to be true it just might be.”
This may be a bit rudimentary for this crowd, but I’ll write it anyway. The importance a consumer places on price is cyclical and corresponds directly to the way that consumer feels about the economy and their potential income for the coming period. The more uncertainty in the economy and their own place in it, the more they pay attention to prices at the supermarket. As the economy rebounds, the more forgiving consumers are about price. This is why we always see dramatic growth in store brands during recessions. Right now, there is an air of uncertainty in the economy and in the markets. Fuel prices remain high, the housing credit problem is not going away any time soon and there’s a war on that’s sucking billions from domestic spending on things like bridges and food safety. People are now paying more attention to prices and will, I predict, continue to pay more attention through mid 2008. Then, as the housing credit problem wanes and the economy strengthens, we’ll more to the next cycle. Just to note, I’m not forecasting a recession, just a year of uncertainty.
I think David is correct–I’m not sure consumers were ever shopping on price. I do think they were shopping on value (price + quality). Tesco is trying to raise the value of their chicken–raising the price is part of that value equation.
I know that under certain circumstances, low prices can be a deterrent to sales. When prices drop too much people have a tendency to become suspicious of the quality. It’s the old saying that if something sounds too good to be true, it probably is.
Quite frankly, high prices can be as much of a point of differentiation as low prices. This may not be exactly the right analogy but you’re never going to see coupon days at Tiffany or sidewalk sales at Saks Fifth Avenue. Maybe not the same as supermarket retailing but you get what I mean. The value of a retailer and what enables them to hold the line or increase prices, is the name–their brand.
It boils down to the fact that consumers are getting smarter. Price is a factor but not if quality is sacrificed, especially on certain products like meat & poultry. I agree with David, this is not an overnight happening but a gradual shift of consumer trends. The key question is, with a smarter consumer, how should you shift your pricing/marketing strategies?
There is a “fundamental shift” taking place in how consumers determine which food products to buy within some product categories, however, the shift was not an overnight development. Price is less of a factor when the perceived or actual quality of a value brand or private brand is inferior. This has been the case since the mid 1980s. Consumers desire value brands that are priced under the norm but without the sacrifice of quality, even where packaging and design quality are concerned, more than they might realize or admit. In contrast, if a given retail chain, retail brand or value brand is able to take substantial sales away from the pricier brands, than it should become apparent that the pricier brand, or the pricier retail store, is failing to live up to consumer expectation.
It’s harder to make money if your supermarket matches every competitor’s loss leader. But if you’re not going to match the competition, then you need a Unique Selling Proposition (USP). In other words, a story about why your product is better. Unfortunately, in the grocery business, it isn’t easy to to convince a mass audience that any USP is worth the extra price, even if they understand and accept the story. Humanely-raised chicken at a higher price might find a minority audience, but it’s unlikely to find majority acceptance.
For those who believe the retailing universe (particularly the best and most innovative ideas) begin and end in the U.S., it’s time to get on a plane and do some traveling.
Price is more of a factor; once you know the prices of the things you may need, it is easy for you to prepare your scale of preference. People have many needs but limited income.
More Discussions
Has Same-Day Delivery Become an Expectation Across Retail?
Are expectations around retail delivery speed in flux?OpenAI Names the Infrastructure Standard for Agentic Commerce
Will OpenAI or Google (or another entity) set the gold standard for agentic commerce?Is Five Below Poised For Even Greater Growth?
Five Below is hitting serious growth numbers. Can this trend continue?
First, who cares about U.K. consumers? Except for the few who live there, why are we concerned with their so-called retail breakthroughs (this is for you, Bern)? Is this somehow a bellwether for real bidness? In what universe?
Come on, fellow retailers, what’s this about? “Sir Terry” believes that “we’re seeing a fundamental shift in the priority that consumers place on food?” In the U.K.? And who is “Sir Terry”? Do we bow, genuflect, or kiss the ring?
Second, who is Count Charles Bourns and why do we care what he/she thinks about chicken consumption in a small island country? Is this important in the U.S. or on a global scale?
Obviously a slow news day.
Right, folks, here are two more personal confessions.
1. I detest Tesco and everything it stands for. I visit occasionally in order to see what is going on and who is buying what but I never, ever buy anything myself and refuse to add a penny to their corporate coffers.
2. I am aware that I am overly suspicious and cynical/paranoid.
Now, then, please remember that you read this here first. Raising the price of the chickens is an excellent PR move on Sir Terry’s part. The article actually says that his remarks were made a while back but were “previously unreported.” I wonder why. Tesco is fighting several major battles at the moment, on different fronts, and Asda is no longer a really serious adversary. Tesco can afford to raise chicken prices because they’re keeping so many other prices low. If they do start raising other prices, they can blame it on the fact that they are being so good to their suppliers who are struggling with rising costs (because Tesco is such a very good company) and also point out that they are competing with Sainsbury’s which appeals to a slightly more upmarket audience and Waitrose which appeals to a much more upmarket audience and has recently gone on the offensive and decided to spread its wings further afield than previously. The new markets in which Waitrose is opening are greeting them with open arms. Possibly someone at Tesco HQ has noticed. Meanwhile, more towns are resisting Tesco and they are being investigated more openly and frequently with suppliers finally becoming brave enough to talk about the ways in which they have been pressured. Add that to customers more vocally demanding transparency and quality than just plain old-fashioned cheap and you can begin to understand the thinking behind the chicken price. It really isn’t as simple as it seems. Nothing ever is.
Price isn’t everything! This situation reminds me of a conversation I had with my daughter when she was in college. While her allowance was more than adequate, she always seemed to run short of money (Any of you ever been there?). At this point in history Taco Bell was selling tacos at 3 for $1.00. I pointed out to her (jokingly) that she could stretch her allowance by eating Taco Bell. She gave me the most serious look I ever saw and told me that no one could sell quality food for that price. She further informed me that she would fear for her health if she ate at Taco Bell. I of course relented and gave her the Queen Mary, a string of Pearls, $200 cash and a new copy of the King James Bible. Maybe Tesco knows there customers a little better than Asda. And heck, if you can’t be the cheapest guy on the block what’s the point of selling at a loss? A price increase seems not only reasonable but intelligent.
Consumers use a “value equation” for making purchasing decisions. Price is one component of the equation but not the only component and not usually the most important component. The value equation changes by product or category. If you provide value that consumers want enough to pay for it, you can raise the price.
This is a difficult dilemma for retailers. It sounds like Asda has gone too low on chicken prices and that creates a separate issue for consumers. They begin to think what’s wrong with the quality of that product if they can afford to sell it that low? If they can’t sell it that low and make money on it, why are they doing it? Are they just trying to run their competitors out of business so they can then raise prices and charge what ever they wish? If they can sell it that low now, they must have been really making a killing on it at the old prices at my expense. I can’t see the average consumer feeling very good about this for these reasons.
Tesco, on the other hand, has to be careful as to not become thought of as too high priced and not being competitive. Not matching Asda was probably a good move but the four percent increase might be bad timing. It might signal that they have given up on being competitive and are going to start making up for lost time by charging more in general.
The Asda/Tesco battle underscores one of my favorite sayings, “Anyone can give product away, it takes brains to sell it.”
I think customers do become skeptical about prices being too low. There are times I believe major brands are using lower quality formulas to keep some retailers so low. During down economic times, I spend less or not all on entertainment or travel and clothing but buy a few more upscale foods I can prepare at home. I do know how to get to the food channel website. As the other post states, Buyer beware “If It’s too good to be true it just might be.”
This may be a bit rudimentary for this crowd, but I’ll write it anyway. The importance a consumer places on price is cyclical and corresponds directly to the way that consumer feels about the economy and their potential income for the coming period. The more uncertainty in the economy and their own place in it, the more they pay attention to prices at the supermarket. As the economy rebounds, the more forgiving consumers are about price. This is why we always see dramatic growth in store brands during recessions. Right now, there is an air of uncertainty in the economy and in the markets. Fuel prices remain high, the housing credit problem is not going away any time soon and there’s a war on that’s sucking billions from domestic spending on things like bridges and food safety. People are now paying more attention to prices and will, I predict, continue to pay more attention through mid 2008. Then, as the housing credit problem wanes and the economy strengthens, we’ll more to the next cycle. Just to note, I’m not forecasting a recession, just a year of uncertainty.
I think David is correct–I’m not sure consumers were ever shopping on price. I do think they were shopping on value (price + quality). Tesco is trying to raise the value of their chicken–raising the price is part of that value equation.
I know that under certain circumstances, low prices can be a deterrent to sales. When prices drop too much people have a tendency to become suspicious of the quality. It’s the old saying that if something sounds too good to be true, it probably is.
Quite frankly, high prices can be as much of a point of differentiation as low prices. This may not be exactly the right analogy but you’re never going to see coupon days at Tiffany or sidewalk sales at Saks Fifth Avenue. Maybe not the same as supermarket retailing but you get what I mean. The value of a retailer and what enables them to hold the line or increase prices, is the name–their brand.
It boils down to the fact that consumers are getting smarter. Price is a factor but not if quality is sacrificed, especially on certain products like meat & poultry. I agree with David, this is not an overnight happening but a gradual shift of consumer trends. The key question is, with a smarter consumer, how should you shift your pricing/marketing strategies?
There is a “fundamental shift” taking place in how consumers determine which food products to buy within some product categories, however, the shift was not an overnight development. Price is less of a factor when the perceived or actual quality of a value brand or private brand is inferior. This has been the case since the mid 1980s. Consumers desire value brands that are priced under the norm but without the sacrifice of quality, even where packaging and design quality are concerned, more than they might realize or admit. In contrast, if a given retail chain, retail brand or value brand is able to take substantial sales away from the pricier brands, than it should become apparent that the pricier brand, or the pricier retail store, is failing to live up to consumer expectation.
It’s harder to make money if your supermarket matches every competitor’s loss leader. But if you’re not going to match the competition, then you need a Unique Selling Proposition (USP). In other words, a story about why your product is better. Unfortunately, in the grocery business, it isn’t easy to to convince a mass audience that any USP is worth the extra price, even if they understand and accept the story. Humanely-raised chicken at a higher price might find a minority audience, but it’s unlikely to find majority acceptance.
For those who believe the retailing universe (particularly the best and most innovative ideas) begin and end in the U.S., it’s time to get on a plane and do some traveling.
Price is more of a factor; once you know the prices of the things you may need, it is easy for you to prepare your scale of preference. People have many needs but limited income.