Tesco’s Price Promise will give Tesco a further tool to try and compete in a still subdued UK grocery market.

Tesco’s Price Promise will give Tesco a further tool to try and compete in a still subdued UK grocery market.

The scheme is to some extent a derivation of Sainsbury’s Brand Match programme, which was also trialled in Northern Ireland before national roll out.

Brand Match has been an important tool that has reassured Sainsbury’s shoppers and we sense enhanced its value credentials. We also sense that it has surprised its major competitors in its effectiveness.

It’s not hard to see therefore why Tesco has looked at check-out based measures to reassure and encourage its customers to be more loyal.

Tesco’s Price Promise also compares prices and reveals the differences versus Asda, Sainsbury’s and Morrisons. Where there is a difference in price, the customer receives a voucher to be redeemed in-store another time or it tells the customer how fortunate they were to shop at Tesco because it was cheaper.

There does seem to be a little more to Tesco’s initiative than comparing and where necessary compensating for branded product price differentials though. The Tesco Price Promise also seeks to indicate the differences in private label lines and may cover off promotions too.

Therefore it is arguably a larger or more sophisticated investment by Tesco into price reassurance than Sainsbury’s offers and may highlight to many customers the ongoing unit price differentials between the supermarkets on a broader scale.

This initiative helps to extol and underscore its value credentials without a material step down in gross margins. Price matching is a measured way to deliver value – nobody wants to start a price war.

More broadly, price and value is not Tesco’s only issues. They are variables that sit alongside brand perception, store service levels, product quality and the attractiveness of its outlets.

Tesco’s brand has recently taken knocks and we sense that management will be in no doubt as to challenges that it faces to perform more robustly on a sustained basis.

The fact that Tesco UK seems to have bore the brunt of a consumer reaction to the horse-gate scandal, to the extent that there has been one, and its laggard score in the Which? survey on the popularity of Britain’s supermarkets, are potent factors backing this assertion.

Whilst this is so, Philip Clarke, Group CEO of Tesco, has delivered an improvement in its in-store execution in the UK evidenced by better availability, a number of category and private label improvements and an step up in check out services. These initiatives have shown signs of stability in the relative performance of Tesco UK, as reflected in the market share data; albeit the February 2013 scores look to have taken a dip.

A measure of the underlying improvement in performance, to our minds at least, was Mr. Clarke’s ability to appoint Chris Bush as Managing Director of Tesco UK.

We expect any launch of Price Promise nationwide to be just one of a number of activities designed to enhance the competitiveness of the business in its core market.

We would expect to see movement on the modernisation of Tesco’s private label range, upgrades to its clothing F&F range and in-store delivery, steps to make Tesco more interesting such as the specialist bakery activity, and the joining up of Tesco’s digital offer.

Clive Black, analyst, Shore Capital