Low prices guaranteed but what about everything else?

Sainsbury’s Brand Match. Asda Price Guarantee. Tesco Price Promise. And now Ocado has its own Low Price Promise. With all these promises, how can a consumer go wrong?

Who's cheapest? Everyone.

Who's cheapest? Everyone.

The fact is that price alone is not enough, further evidence of which we’ll see tomorrow when Tesco is expected to report its first drop in profits in two decades. Low prices are not a differentiator, they are an expectation. I recently tried out the Asda Price Guarantee, which promises to be 10% cheaper than the competition, and was surprised to find that on this occasion the retailer with the smallest price gap was in fact Waitrose. Retailers who are able to offer genuine value for money with better quality foods, improved customer service and a more compelling instore experience will be the ultimate winners.

Waitrose turned out to be cheaper than Tesco, Sainsbury's and Morrisons

Asda won, but surprisingly Waitrose turned out to be cheaper than Tesco, Sainsbury's and Morrisons.

But that’s not to say that price isn’t important. You only need to look at Aldi who saw sales rise by nearly one-third last year. While Justin King and Philip Clarke point the finger to cash-strapped shoppers putting fewer items in their basket, Aldi says they are in fact the only UK supermarket seeing volume growth. Just how they measure this is another story, but the point is that in a market with negative to flat volume growth the last thing Tesco needs is a discounter upping its game with higher quality foods, more brands and crucially better sites. And unlike most of the grocers, Aldi isn’t quitting the space race just yet.

The much bigger challenge for Tesco of course is sorting out its own stores. Investment has begun with 100 outlets having been remodelled. But what about the other 3,000 odd stores in the UK? Improvements in own label (overhaul of value line, extension of Venture brands) are encouraging but consumer perception will not change overnight. An ongoing concern is what to do with those large out of town superstores that shoppers today are simply shunning. Tesco, like its French peer Carrefour, is testing the removal of some non-food categories and replacing them with food. Not sure I entirely agree with this model – is the answer really to replace a few TVs with 20 varieties of tomatoes? But hypermarkets are stuck between a rock and a hard place and in categories where they cannot be the cheapest, they need to offer a point of differentiation or simply exit the category. Carrefour is doing the same with jewellery and mobile, for example – two categories that are not only non-core but also quite labour intensive.

In any case, Tesco will need to find its feet soon.

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