The sneaky way Tesco funds price drops

by Robert Powell on 27 September 2011  |  66 comments
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Tesco has made £500m of price cuts across 3,000 everyday products. But all these savings have to be funded somehow...

For 14,000 employees of the supermarket giant Tesco, last weekend was a long one. Thousands of products were being re-priced as most of the nation bedded down for a Sunday.

It’s all part of Tesco’s biggest pricing shake-up in 20 years.

Big price drop

Tesco is ploughing £500m into price drops of up to 30% on over 5,000 foodstuffs. The cuts will focus on everyday products such as eggs, milk, fruit and veg. Tesco’s own brand products will see the biggest reductions.

Branded as “The Big Price Drop”, Tesco says its initiative will give customers a more straightforward shop. The number of promotions is also being reduced in favour of wide-ranging lower prices.

But this revamp isn’t all good news for shoppers.

Halving Clubcard points

Tesco is also making changes to its Clubcard scheme. In four weeks' time, the supermarket will award just one Clubcard point for every £1 spent. That’s half the number currently given away to shoppers.

However, Tesco will be improving the value of its Clubcard scheme. The exchange rate for points will rise from three to four times on popular rewards like Pizza Express and Strada.

The revamp has sparked negative responses from rival supermarkets. Sainsbury’s condemned the price-cuts as “classic smoke and mirrors”, since Tesco will be slashing Clubcard points to fund it.

Asda also shrugged off its rival's move, pointing to its price guarantee scheme. Vickie North, Head of Food PR for the supermarket tweeted last week: “Hi Tesco. One word. Yawn. We were 10% better value yesterday. We are today. And we will be on Monday. That’s why we have a price guarantee.”

So is this rehash just a big ruse on the part of Tesco? Or is it a genuine leg-up for struggling families?

Cuts on everyday items

Take a look at this table detailing some of Tesco’s price cuts:

Source: Tesco

Obviously these figures – obtained from Tesco – are just a snapshot of the full range of changes. However it is encouraging to see so many everyday items on the list.

Research conducted in June by Asda showed that households are about £60 a month worse off than they were last year. This can be in part put down to rising food costs.

Moreover, as the purse strings tighten, the temptation to turn to cheap, low quality and unhealthy food is often too great for many stretched families. This is fuelling the widely trumpeted ‘epidemic’ in childhood obesity.

Granted, cheap, unhealthy food is still rife throughout Tesco. But by taking the step of including foodstuffs like fresh fruit and veg, meat and pasta in its price cuts, the supermarket should be applauded.

Cutting down on redundant promotions is also a positive step. For too long shoppers have been forced to buy more than they need just to obtain a reasonable single-unit price. This has often led to an increase in household waste when foodstuffs are not used before they go off.

All in this together

Tesco has made these price drops after speaking to 200,000 customers and analysing Clubcard data. And it shows. The supermarket’s move is an appropriate reaction to the current economic climate and a wise public relations move for the chain.

As Mark Kleinman noted in the FT, the language used by Richard Brasher, Tesco’s UK Chief Executive, when announcing this price-cut was rooted in a common current theme. Mr Brasher spoke of ‘families suffering under budget pressures’ and the role of Tesco in helping them ‘make ends meet’. For anyone who’s watched a David Cameron or George Osborne speech recently, the sentiments should be familiar.

The message from the supermarket is clear. We’re all in this together.

Image problem

Tesco began to develop an image problem; what was a reliable chain quickly became a faceless monster. The “Big Price Drop” is an attempt to stem this shift.

Save more money on your shop

Despite slashing its pounds to points ratio, the Clubcard scheme is still a good way for Tesco customers to save money on their shopping.

One way to boost your points balance is to get hold of Tesco’s Clubcard credit card.

The product functions both as a credit card and a Clubcard. You’ll earn one Clubcard point for every £4 you spend anywhere in the world. That’s in addition to the standard Clubcard points earned when shopping in Tesco.

Using the card to purchase fuel at Tesco petrol stations will also earn you extra points. You’ll collect one point for every £1 spent.

In addition to the Clubcard benefits, the card also comes with 15 months at 0% on purchases and nine months interest-free on balance transfers. That's market leading!

Finally, for some more tips on slashing your shopping spend read Save money at the supermarket.

What do you think?

Is this an admirable move by Tesco?

Have your say using the comment box below.

More: Compare credit cards with lovemoney.com | Shop at Tesco and save £100s | The pros and cons of online supermarket shopping