Leading UK retailer Tesco's announcement this week that it is aiming to strengthen its position in the market by revamping its entire product pricing structure has received a mixed reaction from those in the industry.
The move, which Tesco has called the 'Big Price Drop', will see price cuts across thousands of essential items including fresh fruit and vegetables, through an investment of more than £500m (€571m).
'Across the country families are telling us the same thing - their budgets are under real pressure,' said Tesco's UK chief executive Richard Brasher in announcing the move. 'They want more help today to afford everyday essentials. We have listened carefully and for families facing hard times and looking for genuine savings, The Big Price Drop will cut prices on the products they need to buy the most.'
Analyst Kat Calvert of broker Seymour Price has welcomed the move, saying that the Big Price Drop will put Tesco back on the front foot as it bids to win back customers.
'Whether the campaign will be innovative enough in the eyes of the consumer for Tesco to start winning back market share remains to be seen, but this does appear to place Tesco on the front foot again as the giving out of points hasn't been viewed as attractive, we feel, by the cash strapped consumer who prefers lower prices,' she told Proactive Investors UK.
And Philip Dorgan of Panmure Gordon noted that the suggested £500m was a 'real' number, that would reduce the retailer's price inflation by two per cent.
'The devil is in the detail but, in the weeks and months ahead, we think that the ‘Big Price Drop’ will be seen as having been a good strategic move, he told the publication. 'Itis clear that this investment is underpinned by a desire to get on the front foot once again with its customers, after too many years of allowing others to act like market leaders.'
However, Tesco's retail rivals have reacted negatively to the price campaign.
'We are 10 per cent cheaper today, we will be 10 per cent cheaper tomorrow, and we will be 10 per cent cheaper come Monday,' a spokesperson from Walmart-owned Asda told the media. 'Others can huff and puff as much as they like – shoppers want savings not spin; pounds in their pockets, not points on their plastic.'
And a spokesperson from Sainsbury's even went as far as claiming that the move was a reaction to its own initiatives.
'It is no surprise to us that Sainsbury's price match policy, together with a stronger brand offer, has forced Tesco to take this kind of action,' a spokesperson was reported as saying. 'This is classic smoke and mirrors from Tesco, giving with one hand and taking with the other. Removing double Clubcard points will save Tesco £350m.'
However, Eurofruit understands that it is 'highly unlikely' the price reductions will in fact cost Tesco £500m mentioned in some initial press reports.
Although the company is preparing to slash prices on around 3,000 products – including fruit, vegetables, bread and milk – as well as 1,000 private label lines, from Monday 26 September, it has also admitted that regular customers signed up to its Clubcard loyalty schemewill no longer receive double points on their purchases.
The supermarket said that the decision to end its Double Points offer and focus on reducing prices in stores was a direct response to a recentpoll of 200,000 customers and analysis of data by Dunnhumby, the company which manages Clubcard.
A representative for the supermarket said: “People are saying they need more help with the cost of living. With rising utility bills and soaringpetrol prices, families are having to cut back on the staples, not justthe extras.'
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