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