Who will pay for Tesco’s £500M price cuts?

By Graham Holter

- Last updated on GMT

Related tags Food Retailing Supermarket Tesco

Every little helps. But food manufacturers are nervous about Tesco's £500M price cut plan
Every little helps. But food manufacturers are nervous about Tesco's £500M price cut plan
Food suppliers have reacted nervously to Tesco’s announcement of £500M of price cuts, and warned that the grocery sector’s discount culture will cost more jobs.

Tesco’s Big Price Drop initiative will see about 3,000 products reduced in price, including 1,000 own-label lines. The focus is on everyday items including carrots, chicken, cheddar cheese, ham, bread and biscuits.

The retailer said it hoped suppliers would be as ‘excited as we are’​ by the initiative and see sales increases as a result. It is changing the way Clubcard points are awarded to help finance the scheme, but would not be drawn on how much of the burden would fall on suppliers.

Share the pain

National Farmers Union director of corporate affairs, Thomas Hind said: “Our main concern is about the prices farmers receive for their products, rather than retail prices, but experience tells us that retailers often expect their suppliers to ‘share the pain’ of any cut in retail pricing.

“This would be unacceptable in the current climate when farmers and manufacturers are facing massive cost pressures.”

The Chilled Foods Association said consumers were failing to understand the true cost of food production. Secretary general Kaarin Goodburn said: “If there is going to be a food supply in this country then we need to be able to pay for it.

“With population increasing, demand for food also increases and the price of it therefore goes up. If you keep squeezing the suppliers they might well go out of business. It’s been happening for several years and the situation is not improving at all.”

Tesco UK chief executive Richard Brasher insisted the initiative would benefit food companies. “We talk to our suppliers regularly and I’m hoping they are going to share in the upside - which is that we will sell more volume of the products that they supply to us,”​ he told FoodManufacture.co.uk.

“As long as I have been doing the job, the debate about squeezing the supplier base has been discussed and fortunately, 20-odd years on, I’m still talking to roughly the same companies - testament to our long-lasting relationships.

“Of course, we are a commercial operation. Of course, we sit down with our suppliers. We don’t expect our supplier base to fund the entirety of our investment in price, but we do see them as partners, and I know many of our suppliers are going to be very excited about this.”

Tesco said it would be simplifying promotions, reducing the number of multi-buys ‘particularly in fresh foods, where customers have said they can drive waste’.


The Food & Drink Federation issued a measured response to Tesco’s initiative. “It is important to acknowledge that the grocery retail market is very competitive, especially at the moment when profit margins are being squeezed across the board,” ​said director of communications Terry Jones.

“Retailers and suppliers need to work together to ensure that shoppers continue to get a choice of products at a range of prices they can afford.

“The success of suppliers is vital to maintaining consumer choice, so retailers need to act fairly within the rules of the Grocery Supply Code of Practice to ensure that manufacturers can continue to thrive and there is no abuse of market power.”

The initiative begins on Monday, September 26.

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The usual

Posted by David Faires,

The power of the supermarkets, with Tesco the most significant, is too much. It is clear to anyone with even the smallest knowledge of economics that the supplier squeeze is quite out of control.
Farmers cease to produce while supermarket profits expand remorselessly. It has to stop. If you want to run a promotion you pay the cost out of profits. No one else should have to contribute. Reduce your margin do not bully the supplier.

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Quality or price?

Posted by Iain Girling,

According to the article Tesco has made a decision and expect the suppliers to agree to it. What has happened to the art of conversation where you talk first and the make agreement on the decisions before making announcements? However this is a high street supermarket …

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