Tesco To Adopt EDLP Strategy (and Lose Wow-factor?) To See Off Discounters During Recession

With the UK heading towards a coronavirus-driven recession, the grocery industry could see an escalation in the price war between the major supermarket multiples and the discounters.

According to trade publication The Grocer, Tesco has told suppliers that it will not allow the likes of Aldi and Lidl to gain the price advantage that accelerated their growth following the 2008/9 financial crisis.

Tesco has reportedly held talks with suppliers outlining plans to push towards an everyday low pricing (EDLP) strategy involving both branded and own label products.

This is expected to involve a ramping up of its price-matching campaign against Aldi that launched in March just before the UK went into lockdown. The report stated that Tesco has told more branded suppliers that they will be expected to match Aldi’s prices as part of the renewed drive to enhance its competitiveness.

With Aldi carrying only a limited range of brands, suppliers also told The Grocer that they expect other discounters such as Lidl, B&M and Home Bargains to be considered in its negotiations.

Tesco’s plan will see it stop normal promotional activity, with all promotions driven through its Clubcard loyalty scheme, making them exclusive to the 19 million members.

A supplier quoted by The Grocer said: “All investment is to go into the lowest possible retail price. Promotions will be eliminated or have to start from the new lower price point. The message comes from the very top of Tesco and goes across the entire business.

“Apparently there is no flexibility. So we now face a major price war.”

Tesco is due to post first-quarter results on Friday that will show the full impact of the recent surge in demand for groceries during the pandemic. Industry data released yesterday showed Tesco’s take-home sales had risen 12.1% year-on-year over the 12-week period to 14 June.

NamNews Implications:

• You have been warned!
• …and this the more successful end of lockdown retail.
• i.e. suppliers in other channels and trade sectors can expect similar.
• As retailers that survive, fight over a diminished cake…
• In a low Wow! environment...