Sainsbury’s Brand Match is the latest in what has been a barrage of price promotions to entice hard-pressed shoppers. Are the grocers marshalling their forces for a price war? George MacDonald reports.

BrandMatch

Grocery price competition intensified on Wednesday when Sainsbury’s launched its Brand Match scheme across the UK.

The initiative was described by the grocer as a “revolution in retail and fantastic news for hard-pressed shoppers” and comes as the big four supermarkets slug it out in tough conditions, and just a fortnight after Tesco slashed prices  on 3,000 lines by £500m.

Despite increased focus on prices and the deafening promotional noise accompanying the pushes, industry observers do not believe that an all-out price war – which would threaten margins and returns across the sector – is looming.

Instead, the manoeuvring is reflective of the intensity of competition and changing shopper behaviour in the face of economic uncertainty, damaged confidence and a vice-like squeeze on consumers’ disposable income. It comes against a background of price inflation affecting everyday necessities from food to fuel.

The pressures have resulted in a food trading environment of volume decline and intense customer focus on price and value – it emerged in August that 51% of shoppers were checking the price of every item they put into their baskets.

But one of the differences of Sainsbury’s Brand Match, as well as Tesco’s latest investment in price, is that each reflects a change in consumer behaviour bringing an increased need to demonstrate price competitiveness to shoppers immediately or near-instantaneously.

Sainsbury’s group commercial director Mike Coupe says: “We have been listening to feedback from consumers and they tell us that stretched budgets mean they are shopping around to get the best deals on the brands they love. The introduction of Brand Match ensures they’ll no longer need to do this.”

Tesco Big Price Drop

Tesco Big Price Drop

His comments echoed those of Tesco’s UK boss Richard Brasher, when he unveiled the Big Price Drop last month.

Brasher said at the time that customers were telling the retailer that, although they valued Clubcard benefits, they also wanted “more immediate savings at the checkout”.

Tesco rejigged its Clubcard points rewards scheme – which also helped to pay for the new round of lower prices – simplified promotions and cut multi-buys to cater to consumers’ needs.

Brasher observed: “They want more help today to afford everyday essentials. We have listened carefully and for families facing hard times and looking for genuine savings, the Big Price Drop will cut prices on the products they need to buy the most.”

Making the difference

Price focus is nothing new, and Asda has long adopted an EDLP stance. It is more than a year since Asda fired what it described as “the final shot in supermarket price wars” with the launch in April 2010 of its Price Guarantee.

So what difference will Sainsbury’s venture make and what does it mean for the grocery industry?

Asda’s Price Guarantee involves customers entering receipt details online and – if any prices paid were higher than at rivals’ stores – printing out a voucher for the difference.

Asda’s Price Guarantee involves customers entering receipts online

Asda’s Price Guarantee involves customers entering receipts online

A Tesco counter-move against Asda also involves inputting purchase details online, but at first led to problems with what was described as a “cottage industry” of arbitrageurs who exploited the scheme to make money.

Coupe thinks Brand Match has powerful advantages. He notes: “Unlike some of our competitors we aren’t asking customers to do the hard work to check on our prices.

“We know shoppers don’t want the hassle of having to enter different pieces of information on their computer at home just to check they are getting the best deal. We are so confident that our prices are competitive with Asda and Tesco that we are happy to do the legwork for our customers.”

Brokers at Barclays Capital see Brand Match as good news for Sainsbury’s.  The analysts say: “We would argue that it shows Sainsbury is increasingly confident that its price reality is much better than its price perception – it would not be launching the scheme if it expected it to cost huge amounts of money.

“The fact that Sainsbury’s trialled this in Northern Ireland should have given the company plenty of opportunity to iron out any faults and to understand the competitor reaction.”

However, others point to some risks. Bernstein analyst Chris Hogbin thinks Brand Match is likely to improve Sainsbury’s price perception and therefore perhaps drive volumes.

But he cautions: “Price surveys generally show Sainsbury’s to have higher prices than Asda or Tesco. To the extent Sainsbury’s Brand Match programme reduces prices it would pressure already narrow operating margins – just 3.5% last year.”

He continues: “Every time Sainsbury’s issues a voucher, it is also telling a customer that without the programme they would have been better off shopping elsewhere.”

Nomura analyst Nick Coulter also has reservations. He says: “We are concerned that the scheme mechanic risks emphasising higher prices. Competitors may also consider accepting Sainsbury’s vouchers.”

However, Sainsbury’s noted in its announcement that the likely price differential on its baskets versus those of rivals is expected to be limited. It said: “Sainsbury’s is confident that a basket of goods will rarely, if ever, be more than £10 cheaper at Tesco or Asda, therefore the maximum value of a single Brand Match coupon is £10.”

Barclays Capital thinks that Sainsbury’s programme will not bring undue risk. The broker notes: “Unlike some other schemes, this does not promise to refund any more than the difference, which should help to deter any ‘professional arbitrageurs’.”

He also observes: “Generating a voucher automatically is much more proactive than any other retailer’s scheme, but we would not be surprised to find that a significant proportion of vouchers go unredeemed.”

Shore Capital analyst Clive Black thinks that Brand Match makes sense. He says: “Unlike Asda’s Price Guarantee, which we see as a pretty peripheral initiative in the big scheme of things, Brand Match requires no effort on the part of the shopper.

“We see Brand Match as a largely sensible reassurance process for Sainsbury’s customers to the extent that they are not being ‘ripped off’ at a time of genuine economic constraint and when there is much noise across the industry about value.”

And most observers do not believe that Brand Match or Price Drop will precipitate a full-scale price war.

Black says: “At an industry level, Sainsbury’s action represents a very minor turn of the industry gross margin screw, the point being that the retailer is not taking prices to new lows – it is about matching and reassurance.”

Panmure Gordon analyst Philip Dorgan, who broke news of Brand Match’s extension in a note last week ahead of the official announcement, is also confident that the recent initiatives – notably Price Drop – do not threaten complete upheaval.

He says: “We continue to believe that Tesco’s Price Drop does not mean there’ll be a price war – margins will remain stable for the quoted operators – but that it will impact profit growth to an extent. We believe that the impact will be felt hardest among the non-quoted operators as well as Ocado.”

Rivals’ reactions

The reaction of Sainsbury’s rivals remained to be seen as Retail Week went to press. No comment was available from Asda, but a Tesco spokeswoman was confident in its position.

She says: “The Big Price Drop was a response to the customer saying they want help immediately. We’re confident that’s the approach our customers really want. It’s got shoppers excited so we’re not surprised to see the competition getting excited too.”

Tesco’s Big Price Drop comes in response to changing consumer behaviour as shoppers look for genuine savings

Tesco’s Big Price Drop comes in response to changing consumer behaviour as shoppers look for genuine savings

She says that in the first week of the Big Price Drop, about 7 million Tesco customers benefited from the lower prices and that the combination of keen pricing, and Clubcard is a winner for consumers. “It’s jam today, but we’re still giving them jam tomorrow with Clubcard,” she maintained. Sainsbury’s, it should be pointed out, also offers its shoppers rewards through the Nectar loyalty scheme.

Barclays Capital concluded that Brand Match looks like a clever move by Sainsbury’s. The broker said: “Cynics might argue that if Sainsbury’s really wanted to help its customers then it should give them the cash back at the time of the purchase.

“Of course this would cost a great deal more to Sainsbury’s and, unlike the voucher scheme, would not necessarily generate a repeat visit. There are certainly a number of exclusions that mean that the cost to Sainsbury’s should be much less than some might fear.

“Points like the £20 minimum spend might indeed take the edge off the attractiveness, but Sainsbury’s is focused on getting existing customers to spend more and in this sense we could see the promotion working well.”

Brand Match, like Tesco’s Big Price Drop and Asda’s Price Guarantee before it, indicates that the big grocers continue to find new ways of emphasising their price credentials over rivals and that price remains – and will remain – one of the key battlegrounds.

Only last week, Waitrose launched its “biggest ever” value campaign. The multichannel drive, ‘1,000s of ways to great value’ highlights the strength of Waitrose’s value proposition, by focusing on three things: Essential Waitrose, the retailer’s 1,000 value staple lines, its commitment to price-match Tesco on 1,000 branded products, and 1,000 offers a week such as bogofs.

Morrisons continues to focus on its powerful price credentials through its Price Crunch campaign and promotional offer.

Such initiatives, and the growing market share of hard discounters, as well as the need to maintain competitiveness against bigger rivals Asda and Tesco, are the context in which Sainsbury’s innovation should be seen.

Brand Match, like the Big Price Drop, may not precipitate a price war but shows the war over prices is far from over.

Brand Match - The key features

Brand Match shows that Sainsbury’s is confident in its ‘price reality’

Brand Match shows that Sainsbury’s is confident in its ‘price reality’

  • The offer is only applicable against Asda and Tesco’s prices
  • The technology being used by Sainsbury’s allows the prices of 13,000 branded grocery products at Asda and Tesco to be reviewed overnight
  • Shoppers must spend £20 and buy at least one comparable branded grocery item to take advantage of the scheme
  • Brand Match will cover promotions in Asda and Tesco as long as the purchase is comparable – a customer would need to buy two items in Sainsbury’s for a bogof to be matched
  • Coupons are valid for 14 days from date of issue
  • Online orders are excluded from Brand Match

    Brand Match coupon

    Brand Match coupon

  • The maximum value of a single Brand Match coupon is £10