As of yesterday, Britain’s largest supermarket had reduced its milk prices, in line with Asda, to £1 for four pints.
This time last week, the supermarket’s price was £1.39, in line with Morrisons and Sainsbury’s, but the move is part of a £200m attempt by chief executive Peter Clarke to reduce prices and lure back the shoppers it has so famously lost in recent years. Other recent price decreases have centred around fruit and vegetables, with tomatoes and cucumbers among the products with slashed costs.
Yet, before retailers worry that they, like the dairy farmers, might be a victim of supermarket pricing, let me provide a counter to this view. For three reasons (and perhaps many more) I think this is merely the latest idiotic move by a retailer which has lost its identity and purpose. Here’s why:
1. It’s out of date
At Lidl or Aldi, a good deal usually feels like a good deal because the brands are different from ones that consumers know and the short-lived nature of many lines encourages customers to buy now instead of missing out later. In contrast, especially since the horsemeat scandal, the rock bottom prices of Tesco now appear tainted by the production methods and buying strategies by which they’re achieved. It’s not surprising that the new price hit the news, not because it was smart retailing decision but because farmers, already often working for tiny wages, are frightened that a price war might finally tip them over the edge. The story comes less than a week after the Guardian ran a story about the industrial methods of banana growing used by producers that Tesco uses. With low wages for workers and a local nickname for the banana of “the chemical fruit” it was enough to make you rush to the fairtrade bananas in Sainsbury’s. A few years ago, price might have been everything, but Tesco’s move shows its thinking is more 2008 or 2009 than post-Horsegate 2014. For this reason, many retailers could well see that providing local milk, celebrating its freshness and provenance and holding it up as a contrast to the mass produced pints for Tesco, could be the way to successfully selling this staple in 2014.
2. Prices will be driven up by this move
Between 2011 and 2012, 200 British dairy farmers left the industry and the reason is almost always the same: the reduction in profitability of modern farming. So while, in the short term, Tesco might reduce prices on milk in its stores, the long-term effect might be quite different. If this triggers a wider price reduction among supermarkets then many farmers’ livelihoods may well become untenable. The reduction in farmer numbers would lead to a reduction in milk production which would, ultimately, lead to a scarcity of resources and a rise in prices. In Australia, a vicious price war in 2011 hit the headlines and hit major dairies such as Lion there very hard. Years later, the effects of the price war on dairies small and large is still being written about.
3. It still doesn’t know what it is
It’s a testament to the power of his report that, among all of the poor numbers and hard words that Tesco endured last year, the report by city analyst Bruno Monteyne stood out for its damaging perspective. “It is neither value nor quality, it is simply everywhere, and can’t compete with either the quality or value retailers,” he said. That note came out in December last year, just after the supermarket had relaunched its Finest range with 400 products that were positioned as so premium (in price and quality) that the company had to fend off claims that it was looking to compete directly with premium supermarket chain Waitrose. Less than six months later, it is now engaged in a price war on milk, cucumbers and tomatoes. It begs the question, who exactly is Tesco trying to attract to its stores?
Update: Since publishing, supermarket Morrisons has joined the price war, reducing the proce of a single pint to 24p and 2l bottles to 84p.