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'We're seeing opening shots in all-out supermarket price war'.

Byline: Sion Barry Business Editor sion.barry@walesonline.co.uk

We are at the beginning of all-out price wars as the big supermarkets struggle to compete with the big discount chains and changing consumer shopping habits, believes retail entrepreneur Peter O Toole.

Mr O' Toole is chief executive of Retail Merchandising Services, a Newport-based specialist retail services firm working with many of the UK's largest retail chains, including John Lewis, Boots and B&Q. He claims that while price is important to consumers, value for money and convenience are becoming more important than ever.

Falling sales at Britain's biggest supermarket Tesco announced last week could mean good news for consumers as a price war has kicked off with rivals.

It followed Asda in announcing a raft of price cuts on some of its best-known products, giving hope to customers that there could be big savings across the board.

The news follows the price of oil falling to its lowest for five years, and Sainsbury's chief executive Mike Coupe said earlier this week that petrol could fall below the PS1 a litre mark, chased down by supermarket competitors.

Tesco announced its price cuts ahead of releasing disappointing Christmas sales figures, claiming the move meant average savings of 25% on 380 items including brands such as Hovis, Coca-Cola, Marmite and Tetley.

Mr O' Toole said: "What we are seeing are some of the big supermarkets firing the opening shots in a new year price war.

"We will be seeing all-out price wars for the big chains in 2015, but consumers aren't necessarily willing to shop around for the lowest prices anymore.

"What is certain is that offering flash in the pan low-cost deals won't be enough to overcome the multiple challenges the big supermarket chains face in a rapidly changing retail environment.

"While the big names are busy fighting each other on price, they face increased competition for the so-called 'squeezed middle' market, which is being eroded by Waitrose at the higher end, and the rapidly expanding discounters Aldi and Lidl at the bottom end.

"But if we look closely at performance of the supermarkets, there are some interesting lessons to be learned. Local convenience stores such as Tesco Express are actually increasing their sales, while it's the bigger superstores that are really struggling.

"We are also seeing a rise in sales in the convenience grocery sector, and this is because customers value an easy shopping experience, and there's such a thing as too much choice.

"Aldi and Lidl appeal because navigating a 6,000sq ft store is much easier than having to traipse around a 50,000 sq ft warehouse.

"The discounters keep stores small because they offer limited lines, offering two choices of toilet roll brand as opposed to 10.

"This allows them to buy in bulk from fewer suppliers, passing the discount on to customers in the form of permanently low prices.

"It's no surprise that last September Aldi announced that sales were up 30%, and pre-tax profit up 65%, compared with the previous year.

"Customers value convenience, local presence and want a combination of consistent low prices and high-quality products.

"The problem with so-called price wars is that consumers increasingly see them as smoke and mirrors, and are looking for more than low prices from their retailers.

"Also, price cuts are often balanced by prices rising across other product lines, and the best deals often don't last long.

"Aldi and Lidl are worrying the big chains because they keep prices consistently low while keeping quality of products consistently high, and this combined with the growing demand for convenience, is exactly what shoppers want."

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Peter O' Toole is chief <B executive of Retail Merchandising Services, a Newport-based specialist retail services firm working with many of the UK's largest retail chains
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Title Annotation:Business
Publication:Western Mail (Cardiff, Wales)
Geographic Code:4EUUK
Date:Jan 14, 2015
Words:633
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