Every basket helps, as supermarkets battle for shoppers

Price cutting is only one tactic

Laura Chesters
Sunday 09 October 2011 00:00

Families living close to Waitrose stores could receive a "Try Me" 10 per cent off card in the post this week – a ruse to tempt shoppers to try out the more upmarket chain.

By contrast, Sainsbury's is introducing a "brand match" scheme across all of its stores this week – a scheme whereby shoppers can get a voucher for the difference if its branded grocery products are more expensive than at Tesco or Asda.

These tactics are just the latest in the battle of the big supermarkets for new customers triggered by Tesco's recent Big Price Drop campaign in which it invested £500m to slash prices by about 12 per cent.

All the big four – Tesco, Sainsbury's, Asda and Morrisons – are trying to gain market share and there is now no "weak" player. Every customer counts, and getting each customer to spend more is key. The latest Legal & General MoneyMood survey shows that more than a million more households in the UK say they are worse off now than a year ago, while about half of all households in the UK are in danger of sinking into debt.

Last week Tesco and Sainsbury's revealed updates on trading, with Tesco's British sales the worst for at least two decades, dragged down by non-food sales. Tesco's finance director, Laurie McIlwee, said the retailer is planning for flat second-half profits in UK as "it will take time for Price Drop to work through". He added: "Volumes are down. Everyone's got more customers as people shop around, but they're putting less in their basket."

Tesco sales volumes fell by 1 per cent during its first half in the UK but, despite the sales fall, UK profits increased by 4.5 per cent and group profits grew by 12.1 per cent to £1.88bn. But it's the overseas markets which have boosted Tesco. Dave McCarthy of Evolution Securities says: "To reflect our concerns and our disappointment with Price Drop, we are cutting full-year profit before tax by about 5 per cent, and moving to a reduced recommendation. We retain our target price of 350p."

Consumers are spending less on each shopping trip but visiting a supermarket more frequently. Sainsbury's said there are 800,000 more customer transactions being recorded each week, compared with a year ago. Sainsbury's boss Justin King says: "We are serving 21.5 million people a week. But fuel prices continue to impact customers' disposable income and put pressure on household budgets."

The big four continue to open new shops, with Morrisons and Asda focusing on growing in the South where they traditionally have fewer shops and Sainsbury's expanding in the North. Waitrose is expanding its small and large stores nationally.

But the cheaper Lidl and Aldi are also continuing to open shops with both focusing on the South-west. Upmarket US chain Whole Foods has finally made a push to open stores this year and will open in Kingston, Glasgow and Fulham.

The big four are also struggling to improve sales of their non-food lines. Tesco and Asda are increasing their clothing and electrical products while Sainsbury's is launching its clothing range with TV style guru Gok Wan this month. Tesco said last week it plans to "reset" the UK, improve its sales performance and expand in every nook and cranny it can. It already sells second-hand cars, carpets, insurance, bank accounts, clothes and food. And last week it got the go-ahead to set up as lawyers with "Tesco law".

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