Supermarket Cuts May Not Amount to Price War
By Laura Elliott.
As recently reported, in the last week Sainsbury’s supermarket has announced a ‘Brand Match’ scheme to rival Tesco’s ‘Big Price Drop’. A number of commentators have predicted that in an economic climate that has seen Tesco’s sales fall for the first time in twenty years, and consumers cut back on non-essential spending, these changes in supermarket pricing campaigns might just signal the start of a ‘price war’. Consumers, in particular, would have been hoping that a war against high prices would ease the financial pressure, in a time when many are feeling the squeeze.
However, those watching the recent campaigns have expressed doubts over how much the price-cuts will really impact on the overall cost of the ‘weekly shop’. As reported in the London Evening Standard, Clive Black at Shore Capital called Sainsbury’s scheme “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”.
However, he is sceptical about whether this really means that a price war may be about to break out. He advised that “to our minds, 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.”
A number of investors have been concerned that with the supermarket giants beginning to squeeze their own margins, they will end up hurting profits and in turn damaging share prices. For consumers day-to-day, however, the financial burden of buying essential foods does not yet seemed to have eased in a very significant way.
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