Food May Be Cheap, but It's Not Cheerful
Posted on: Saturday, 5 July 2008, 00:00 CDT
Ave you heard the one about the two ugly sisters, Bogof and Halfprice? Nor had I - but this is no laughing matter.
The BOGOF (buy one, get one free) and half-price offers are back in our supermarkets with a vengeance, as retail price wars escalate to new heights.
Anyone picking up a national newspaper last week would have found it hard to miss the full-page colour advertisements by the leading supermarkets as they vie to keep the customers coming in. In a pounds500 million tit-for-tat with its biggest rival, Asda was asking its customers "why pay more?" while claiming that it was selling 5,391 products cheaper than Tesco, while Tesco only had 1,426 products cheaper than Asda - for the same brand and size of product. Asda's offer included pork chops, bread, cereals and bananas. Sainsbury's, meanwhile, was promoting strawberries and cherries at less than half price, or offering buy one get one free on some tomatoes and potatoes. An e-mail from Tesco that arrived in my inbox proclaimed "100s of price cuts" including a "champagne and sparkling extravaganza" with savings of up to 50 per cent.
Why this summer madness - to borrow a well-worn marketing phrase? It must be the credit crunch and fears of losing market share as the cash-strapped are changing their shopping habits and switching from the four major supermarkets to the cost-cutting discounters, Aldi, Iceland and Lidl.
Look carefully at the small print on these cries for customer loyalty. Sainsbury's offer, for instance, published on Friday, ran only until Tuesday; Tesco's champagne offer is only valid on a minimum purchase of six bottles; not all the offers are available in every store, and some include products already on promotion. Even more aggressively, on Friday Asda announced that it would slash the prices of its ten core groceries to just 50p, and foot the bill itself. The catch is that this was limited to three days.
Recent research from TNS Worldpanel shows that the no-frills, low- price stores such as Aldi and Lidl are increasing their market share faster than the big four multiple retailers. Aldi showed sales growth 21 per cent higher in the 12 weeks to the middle of June than in the same period last year; sales at Lidl are up 13 per cent, year on year, while Tesco is struggling at 5.1 per cent and its shares are falling. The budget stores may not stock as many lines as their competitors, but they certainly offer value for money.
Meanwhile, more of the big retailers' customers are switching to basic, budget products or "value" brands, and TNS estimates that as much as 30 per cent of goods passing through the tills are on special offer. Low-cost lines use cheap, imported ingredients, with no guaranteed provenance or assurance that they meet the same production and animal welfare standards that we have come to expect in British produced food.
The case of indoor broiler chickens, as raised by Hugh Fearnley- Whittingstall at Tesco's annual general meeting last week, illustrates the dilemma. Poultry producers have faced massive increases in feed prices over the last year, with more forecast during 2008. Most make only a few pence profit per bird, which means that many, just like pig producers, are taking a long, hard look at their future. If we lose these producers more of the "cheap" chickens, bacon and sausages in supermarkets will be imported from countries such as Brazil or Thailand, where conditions are even worse.
Price cuts can only be bad for the suppliers and processors, growers and producers further down the good supply chain who ultimately carry the cost, while supermarket profits keep growing. Tesco is forecast to make pounds3 billion in this financial year, up from pounds2.8 billion last year. Asda's declaration that it was underwriting last weekend's price cuts is surely a tacit admission that this is not always the norm.
These short-term measures have potentially disastrous long-term consequences. With British agriculture already struggling with rising production costs across the board, not just for fuel and feed, it seems incredibly short-sighted to put further financial pressure on farmers and food producers to pay for these deals. As pressure grows on global food stocks and more land is taken out of food production to meet growing demands for biofuels, we need supermarkets to support Britain's food and farming industries if they are to survive and be able to invest for the future.
Consumers also have a responsibility, and while price cuts offer immediate benefits they create issues for the future too. While belts are being tightened we should remember that until recently we were spending, on average, less than 10 per cent of our disposable income on food, compared with 22 per cent 40 years ago. That prolonged decline in real spend on food has come to an end and that proportion is already changing. At the same time, TNS argues that overall food inflation over the last year is only around 4.6 per cent, nowhere near the 20 per cent figures seen on some supermarket websites. Sainsbury's chief executive, Justin King, was reported as saying the latest government figures (from the Office for National Statistics) are wrong. On the one hand food inflation is being talked up to make us believe that we need bargains to make ends meet; on the other the reality is less threatening than the headlines suggest.
Price cuts may in the short term help families to balance their budgets, but they also shield them from adjusting to the new reality. If we could be sure that the supermarkets were taking up some of the slack rather than passing the cuts on to their suppliers, we might think better of them. They also have to recognise that as world food prices rise they need a secure domestic food supply; as the imported alternatives will no longer be cheap or easily obtained.
Surely the connections are clear? Rising food prices are just one element of the economic crisis - fuel and energy are at the heart of how we live, what we eat and how much it costs. There is no going back to the way we were. For the supermarkets to encourage their customers to think that "cheap" food will continue is highly irresponsible.
(c) 2008 Western Morning News, The Plymouth (UK). Provided by ProQuest Information and Learning. All rights Reserved.
Source: Western Morning News, The Plymouth (UK)
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