Supermarket’s reduction strategy

By | Business
ASDA have announced it will add £100million to a price reduction plan. credit via - www.flickr.com/photos/markscott/

In recent months, the German-based discounter chains Aldi and Lidl have seen their sales go up by 32 per cent and 17.2 per cent respectively in the UK, in the three months leading up to February, according to Kantar Worldpanel.

Based on this evidence, more people are moving away from the big four supermarkets in the UK. Tesco, Morrisons, ASDA and Sainsbury’s are seeing their customers and market share going to competitors in a UK grocery market worth £170billion.

Ronny Gottschlich, Lidl’s UK boss, said the recession had helped bring in a new group of middle class shoppers. Lidl is now about to reach 600 stores in the UK. Gottshlich says it is here to stay, with a long-term plan for a 1,500-strong chain. Aldi, with over 500 outlets, also has ambitious growth plans, with 50 openings planned this year including its first on the Isle of Wight, in Cowes.

“Our growth is due to more and more shoppers choosing Aldi for their main weekly shop, people want to, rather than need to, shop at Aldi,” said Matthew Barnes and Roman Heini, Aldi’s joint group managing directors in a statement.

To try and counteract customers moving to Aldi or Lidl, the ‘big four’ have all unveiled price reduction plans. Morrisons plans to increase its investment in pricing in order to “strengthen” its competitive position. They have revealed that they will invest £1billion in price reducing measures over the next three years, with a £300million investment planned for 2014/15.

Morrisons chief executive Mr. Dalton Philips said the plan involves using savings on procurement, systems and other costs, as well as to launch a new loyalty card scheme. He said: “We are going to lower our prices on a permanent basis. The biggest challenge that we face is that there has been a fundamental change in how consumers view discounters. The perception has changed and there is a new price norm.”

Last month, Tesco unveiled plans for £200million of price cuts and will open 150 convenience stores a year under plans to halt sliding UK sales. Tesco will also decelerate existing store space growth by halving expansion from around 1.4million square feet in the current financial year to 700,000 square feet in 2014/15. This is down from the previous 2.5million additional square feet of store space per year. It will rein in annual spending to lower than £2.5billion for at least the next three years as a result of the dramatic reduction in store expansion, nearly half the £4.7billion spent in 2008/09. Instead of snapping up land for new superstores, it will spend £500 million a year on revamping its entire store chain within the next three years, starting with its Extra stores as a priority.

Alongside Tesco, ASDA have announced it will add £100million to an already planned £200million plan to reduce prices. It will focus on ASDA’s own-line brand, and will lower the prices of essential goods. ASDA will also invest £750m in opening new stores, extensions and refurbishments in 2014.

Sainsbury’s has seen a nine-year run of uninterrupted sales growth slow to a halt as shoppers look for lower price goods at discount chains like Aldi and Lidl. However, boss Justin King has said that an investment to lower prices is unlikely to happen, stating: “Although some economic indicators are showing an improvement in the health of the economy, we expect the outlook for customers to continue to be challenging for the coming year.”

Instead of unveiling a price reduction campaign, Sainsbury’s have decided to highlight the value for money of its popular own-brand ranges, claiming they were already 20 per cent cheaper than branded equivalents and now make up 51 per cent of all sales. Sainsbury’s also stated that “it has already lowered the cost of milk, bread and eggs in response to moves by its competitors and confirmed it would follow suit as and when they bring prices lower.”

What ways do you believe supermarkets could gain more customers in a tightly contested market? 

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