Hannah Maundrell is editor-in-chief at money.co.uk, the free, online comparison service that allows UK customers to compare a range of personal finance products and utility services. Here, she analyses the impact of the UK supermarket price war and points out potential pitfalls for both consumers and food suppliers if the situation persists
The rise of Aldi and Lidl in the UK set the cat amongst the pigeons and started a brutal price war in supermarket aisles, but a different picture is emerging for consumers that don’t have the time or inclination to shop in store.
Ocado’s positive results were significant, not just because it marks a turnaround from years of struggling with profitability. It’s also a clear indication that an increasing number of consumers want more than cheap – they’re are looking for that winning combination of convenience, quality, a decent user experience AND value for money.
The online supermarket’s focus on personalisation and lifestyle products has won over a large number of customers, while its saturating marketing strategy has attracted new ones.
Other customer friendly touches like text message reminders, receipts indicating when fresh goods will go off, unlimited deliveries for £6.99 a month, an incredibly slick app and one-hour delivery slots are all tactics to befriend their customers and make them brand protagonists. Importantly, this doesn’t come at a price; by keeping the cost of groceries comparable with the Big 4 [Tesco, Sainsbury’s, Asda and Morrisons] they’ve put themselves on an even playing field for the cost-conscious.
Ocado can’t afford to rest easy as more online retailers are emerging; Amazon poses a threat with its new Pantry and Prime services, and the online king could struggle as Aldi and Lidl look to take the next step in to online shopping too.
The budget brands are a particular threat as the transparency of Aldi and Lidl’s simple, cheap-as-chips pricing policy has won growing loyalty off-line. Consumers want choice, fair and transparent pricing and quality food but a lack of transparency within the sector has left them disillusioned and looking for a better solution.
It’s no surprise that discount chains have eaten into the profits of bigger rivals, tempting away shoppers that have learned to be strategic with their budgets and forcing the current market leaders to reconsider their business plans and copy. Relying on BOGOF [buy-one-get-one-free] offers no longer cuts the mustard but this price war has wider implications.
The bigger picture
On the surface consumers are delighted that their weekly shop is cheaper, but are consumers really getting a good deal and how long can this reasonably continue for?
Drastic supermarket business models that focus on slashing prices to claw back market share from the discount chains don’t seem to consider the bigger picture or the future. As the savage supermarket price war continues, the number of UK food suppliers and farmers struggling to keep their heads above the water has almost doubled, according to insolvency specialists Begbies Traynor. With so many supermarkets adopting a race to the bottom model, this is only set to become a bigger issue.
Smaller chains and independent shops are the unintended victims of the price war too. Shopping locally may once again be growing in popularity but the price pressure means stocking everyday goods could become unsustainable. Those who look to local shops for last minute and luxury items will be forced to re-think once their budgets can no longer stretch, and consumers unable to get to supermarkets will be punished too.
The long-term effects of driving costs into the ground and the sustainability of rock bottom prices appears to be overlooked in the savage supermarket struggle. There is a significant risk to the survival of British suppliers and this will have a devastating impact on the industry and on consumers’ wallets and shopping lists.
Over time as more growers and farmers are forced out of business, prices at the till could be forced up. Suppliers could be forced to cut production costs, putting the quality of produce under threat, and British produce could become the preserve of a few.
Ultimately, if supermarkets continue to drive their suppliers out of business by paying them rock bottom prices, we will have to increase our reliance on suppliers overseas; this isn’t good for anyone.
There needs to be compromise somewhere. Consumers have spoken loud and clear – they want cheaper goods, but are the supermarkets being responsible in allowing this to happen?