Tesco Flags Continuation Of Discounter Price War; Sector Shares Crash On Inflation Hit Warning

Alongside its impressive annual results statement yesterday, the CEO of Tesco vowed to support shoppers “in their hour of greatest need” by continuing its price battle with Aldi, Lidl, and other discounters.

"(Consumers) are already planning changes to the way they shop, and we will make sure that we will be there to support them."

The group noted that the final outcome depends on customer shopping habits, cost inflation levels in the months ahead, and the extent to which rising costs are absorbed or passed on to consumers.

Murphy highlighted that Tesco was managing to keep price inflation in its stores a “bit under the number for the overall market” as it battles the discounters that are gaining share by attracting cash-strapped shoppers.

Tesco have really strong levers through the Aldi price match, low everyday prices and Clubcard prices
He also noted that it was offering competitive prices on thousands of household and beauty items to stop customers from going to fast-growing chains such as Home Bargains and B&M.

“We plan to make sure we stay close to the situation and offer no reason to go anywhere else from a price competition point of view,” Murphy said. “That’s our commitment and that’s unwavering regardless of what happens in the market.”

He declined to say whether the business would be cutting prices further or be forced to increase them.

“We stay close to our suppliers and work with them to manage their input inflation but we are very rigorous about making sure that we don’t accept any cost that would be unnecessary."

The bleak outlook sent shares in all the listed grocery retailers tumbling and comes just a week after Morrisons cautioned that its sales and profits would be affected by geopolitical and inflationary pressures.

Sainsbury’s shares lost 2.5%, whilst Marks & Spencer shares tumbled 2.1% and Ocado’s slipped 2.6%.

Shore Capital retail analyst Clive Black downgraded his recommendation for Tesco from ‘buy’ to ‘hold’, and added that if the supermarket catches a cold he would expect others to catch ‘influenza’.

AJ Bell financial analyst Danni Hewson added: “There is a real risk that cash-strapped families will cut back on their shopping and if this trend does play out as expected, it won’t just be Tesco feeling the pain.”

NamNews Implications:

• Aldi price match, low everyday prices and Clubcard prices will help fight the other mults…
• Meanwhile, Tesco determination to offer no reason to go anywhere else from a price competition point of view…
• …spells continuing price war in 2022…
• …no matter what happens in the market.
• Listed retailers fell approximately 2% yesterday, reflecting inflation and other market factors.
• Meanwhile, little/no mention of discounters’ ability to fund UK price cuts via global businesses to grow share…

#PriceWars #Inflation #DiscounterShare

Owner Of Morrisons Offers To Sell Petrol Stations To Ease Competition Concerns

Clayton, Dubilier & Rice (CD&R) has offered to sell several of its petrol stations to gain final clearance for its acquisition of Morrisons. The Competition and Markets Authority (CMA) launched a Phase 1 investigation into the £7bn private equity deal back in January.

Whilst the takeover has already been completed, the regulator had ordered all parties to remain separate and hold off on integration plans until its probe had taken place.

Concerns centred around CD&R also owning the Motor Fuel Group (MFG), the largest independent operator of petrol stations in the UK with 921 sites under brands such as Esso, BP, Shell, Texaco, Jet and Murco. Meanwhile, Morrisons operates 339 petrol stations, the vast majority of which are located at its supermarkets across the country.

The CMA announced last month that it found the deal raises competition concerns in relation to the supply of petrol and diesel in 121 local areas across England, Scotland and Wales. These are all areas in which MFG and Morrisons both have petrol forecourts and would face only limited competition after the merger, meaning that the deal could lead to an increase in prices.

Facing the prospect of a full Phase 2 investigation, it was announced yesterday that CD&R has now offered to divest a number of the petrol stations to gain approval for the takeover.

While the competition watchdog did not disclose how many sites the private equity firm was offering to sell, it said: “There are reasonable grounds for believing that the undertakings offered by CD&R, or a modified version of them, might be accepted by the CMA”.

Similar concerns were raised when the Issa brothers bought Asda due to their ownership of the EG forecourt empire. The CMA eventually forced them to sell 27 petrol stations to get the Asda deal across the line.

Recent reports have suggested that CD&R wants to sell off the entire MFG business via a £5bn auction, with another private equity firm the likely buyer.

NamNews Implications:

• A no-brainer decision (given the stakes involved…)
• Therefore proactive suppliers (and retail rivals) will have already factored this outcome into their trade strategies…
• …hopefully.
• Meanwhile, a what-if re CD&R selling off the entire MFG business via a £5bn auction is worth conducting.
• NamNews subscribers See 'Moving from Managing a Traditionally Owned to a PE Owned Mult'

#Petrol #Competition #PrivateEquityOwnership

Grocery Shoppers Turning To Own Label And Discounters As Inflation Bites

The latest market data from Kantar shows that grocery price inflation has hit its highest level in 10 years, with consumers appearing to be adjusting their shopping habits to save money.

Take home grocery sales fell 6.3% over the 12 weeks to 20 March as people continued returning to eating out of the home again. Sales were still up versus two years ago, although only by 0.7% as the comparison now includes the record buying seen before the first lockdown.

“What we’re really starting to see is the switch from the pandemic being the dominant factor driving our shopping behaviour towards the growing impact of inflation, as the cost of living becomes the bigger issue on consumers’ minds,” said Fraser McKevitt, head of retail and consumer insight at Kantar.

Over the latest four weeks, grocery price inflation reached its highest level since April 2012 at 5.2%. Prices rose fastest in markets such as savoury snacks and pet food.

McKevitt commented: “More and more we’re going to see consumers and retailers take action to manage the growing cost of grocery baskets. Consumers are increasingly turning to own-label products, which are usually cheaper than branded alternatives. Own-label sales are down in line with the wider market but the proportion of spending on them versus brands has grown to 50.6%, up from 49.9% this time last year.

“Meanwhile, the grocers are also adapting their pricing strategies in response to the rising cost of goods. One trend we’re already tracking is the move away from selling products at ‘round pound’ prices. The percentage of packs sold at either £1, £2 or £3 has dropped significantly from 18.2% last year to 15.9% this March.”

Despite Covid loosening its grip on day-to-day grocery habits, Kantar highlighted that some pandemic trends are proving stickier than others. The acceleration of online shopping over the last of years appears to have resulted in the permanent enlargement of the channel. 12.6% of sales were made online in March 2022 compared with only 8% three years ago. Shoppers over the age of 65 are leading the charge with the proportion of this demographic buying online having doubled from 9% to 18% over the past three years.

NamNews Implications:

• Actual inflation of 5.2% morphing into perceived inflation of something close to 10%…
• …in terms of the effect on shopping behaviour.
• Continued uncertainty (about most things) driving switches to own label and the discounters.
• Real issue: Aldi & Lidl now have a share of market growth window…
• …whereby they can each afford (as global retail players) to run losses in the UK…
• …for as long as it takes to increase their share of grocery as much as they want.
• (Note the ‘oldies’ buying into the convenience of online delivery, a trend that can only increase as the population ages)

#StickyChanges #Discounters #GlobalPortfolioManagement

Study Suggests Consumers Are Uneasy About H&B Brands Supporting Woke Causes

 According to new research, two-thirds (68%) of consumers are uneasy or unsure about health & beauty brands teaching and promoting ‘woke’ causes.

The survey was commissioned by The Pull Agency, a creative agency specialising in healthcare and beauty brands. It also found that when it comes to Corporate Social Responsibility (CSR), what most people (58%) want is for health & beauty brands to ‘pay their taxes, treat people fairly, respect the environment and not use it as a PR opportunity’.

Nearly half of the UK consumers (41%) agreed that the amount of ‘green-washing’ and ‘woke-washing’ in the health & beauty sector (brands faking their sustainability credentials or their interest in social issues) is becoming noticeable.

A quarter (26%) think those brands come across as inauthentic as a result, while one in seven (14%) deliberately avoid the brands they see as behaving this way.

The survey suggested that being an ethical corporate citizen is what consumers want most from health & beauty brands, rather than the in-vogue focus on brand purpose, such as showing support for a social justice purpose like climate change, LGBTQ+ rights or diversity and inclusion. In fact, the study highlighted that only 22% of UK consumers are familiar with the term ‘brand purpose’, while 37% think they’ve heard of it, but admit they don’t really know what it involves.

Kathrin Rodriguez-Bruessau, head of brand strategy at The Pull Agency, commented: “While the marketing world would have us believe that a grandiose brand social purpose is paramount, consumers don’t seem to care as much or really understand the concept. According to most people, the first step is to just get the basics right and be a decent corporate citizen.

“Trying to be more than an ethical business actually carries risks. Several healthcare and beauty brands have got in trouble for perceived woke-washing and superficial attempts at brand activism. People are getting much smarter at identifying what’s real and what’s not and clearly irritated by inauthentic looking claims.”

NamNews Implications:

• Key to remember that most consumers emerging sane from two years of unprecedented Lockdown…
• …are super-savvy i.e. thinking and speaking for themselves.
• Part of this is being able to see thru blunt PR…
• They also want nothing less than demonstrable value for money.
• More importantly they are more than capable of operating a social-media driven, Tell-a-Friend campaign…
• Handle with care!

#SavvyConsumer #ValueForMoney #Genuine #Sincere

Asda Set To Introduce New Budget Range And Continue Simplification Drive

Asda is launching a major price repositioning that will involve the rollout of a new budget range and further SKU simplification.

According to trade magazine The Grocer, the new own-label offering will be called ‘Just Essentials by Asda’. It will cover around 300 products including items such as beans, bread, crisps, and biscuits as well as non-food lines such as washing-up liquid and laundry powder.

Asda said the move was aimed at appealing to price-sensitive customers facing a cost-of-living crisis as inflation soars, although it stressed that it would also emphasise the quality of the new range.

Analysts have suggested that Asda has lost some of its price competitiveness under the ownership of the Issa brothers and TDR Capital. The business recently faced criticism from anti-poverty campaigner Jack Monroe for raising the price of essentials and the lack of coverage of its existing Smart Price and Farm Stores value ranges.

However, The Grocer noted that the speed of the planned roll-out has caused concern among own-label suppliers, some of whom have questioned whether it is possible to launch such a major proposition in a short space of time.

The new range is expected to replace Asda’s Smart Price offering, with the supermarket saying ‘Just Essentials’ will be a “bold, upbeat and positive brand”.

Asda had planned to start rolling it out from May but said: “We want to do it faster because it’s really important for our customers that we are with them all the way.”

The Grocer report also said that a recent presentation to suppliers by the supermarket revealed plans for a wider range reset which will see further SKU cuts on top of those carried out during the pandemic. The retailer said the simplification process would ensure there were no more than three iterations of the same product.

Asda also wants to simplify its promotions strategy, with no product promoted more than three times in any 12-month period.

The report added that the Issa brothers were also planning an overhaul of Asda’s stores and the rollout of its Rewards loyalty scheme that has been undergoing trials in 16 supermarkets.

NamNews Implications:

• Aimed at those facing an inevitable cost-of-living crisis as inflation soars, without compromising quality.
•  i.e. If this “bold, upbeat and positive brand” hits these notes…
• …it has to find a market.
• Rolling it out faster than the planned May launch could cause logistical problems…
• …therein an opportunity for rivals?

#AsdaPace #CostOfLiving

Head Of JLP Says UK Is Facing Double-Digit Inflation

The Chairman of the John Lewis Partnership (JLP) has joined the growing number of business executives and politicians warning that the UK is heading towards double-digit inflation as the war in Ukraine adds to cost pressures already being felt across numerous industries.

UK inflation is already at a 30-year high of 5.5% and is expected to rise to almost 8% next month as energy bills soar.

Speaking on the BBC’s Radio 4 Today programme, Sharon White said: “Everything you can see in terms of energy prices from the impact of the Ukraine war suggests that we might well end up with double-digit inflation. My big worry is that it ends out being more enduring than anyone expects. So I think inflation is the big macroeconomic washout.”

NamNews Implications:

• ‘UK is heading towards double-digit inflation…’
• And this from an ex-government economist (Sharon White).
• NB. Keep in mind that ‘double-digit’ starts at 10%…
• Meanwhile, bankers are suggesting that, as high inflation will be temporary, workers will be tolerant on the impact on their living standards…
• In your dreams…
• And BTW, for those that feel that weakened Unions are in no position to negotiate…
• …we could find that inflation already in the pipeline could breed effective resistance on the shop floor.
• ...especially if inflation hits 10%!!

#'HyperInflation' #pipeline #bankers #energy

Fertiliser Crisis Could Lead To Food Shortages And More Price Rises

Farmers in the UK are facing the prospect of fertiliser rationing because of the war in Ukraine, which could lead to shortages of some foods in supermarkets and further inflationary pressure.

Russia is the world’s biggest exporter of fertiliser that is essential for growing crops and grass for cattle. Last week the EU imposed sanctions on three large producers, Eurochem, PhosAgro and Uralchem.

According to The Times newspaper, some fertiliser merchants have temporarily closed their order books because of a lack of supply while others are rationing the amount that farmers can buy. The UK imports around 60% of its fertiliser.

NamNews Implications:

• Understatement of 2022?
• The cost of fertiliser has also quadrupled in the past year from about £250 a tonne to nearer to £1,000 due to rising gas prices.
• (and that before the Ukraine crisis…)
• Moreover, the squeeze on fertiliser supplies is expected to limit the scope for substitution of lost Ukraine wheat production by other countries.
• Time to try some what-ifs based on 10% and 15% inflation…

#HyperInflation #ShortSupply

JLP 'never knowingly underinflated' Raises Inflation Concerns

After hailing the success of its recovery programme yesterday, the head of the John Lewis Partnership added to warnings from across the retail and manufacturing sectors that Russia’s invasion of Ukraine will lead to a further jump in inflation.

Chairman Sharon White said that the conflict meant inflation would be “more persistent” and at a higher rate than previously expected.

She highlighted that the group was facing “significant persistent pressures” on costs, adding: “As far as we can, we’re trying to absorb the cost pressures … not all of these pressures are absorbable.”

Both the group’s Waitrose and John Lewis chains have been forced to increase prices on certain items in recent weeks, with prices at the supermarket chain rising by between 3% to 4% compared with 2% last year.

White said: “We’re expecting inflation to be more permanent, more persistent, and certainly at a higher level than when we were all gathered for half-year results [in September].

NamNews Implications:

• '…invasion of Ukraine will lead to a FURTHER jump in inflation’
• The key word is ‘further’ …
• …in that most of the current inflation predictions (everywhere) are based on pre-Ukraine trends.
• i.e. ‘prices at the supermarket chain rising by between 3% to 4%’ are ‘historical, pre-Ukraine.
• We are now in uncharted territory, again (following Covid Lockdowns…)
• Given the risk that JLP will be 'never-knowingly-underinflated' suppliers need to take the initiative.
• Waitrose suppliers need more precision re inflation…
• …and should explore ‘what-ifs ‘ starting at 10%…
• …before opening discussions with the customer.
• In other words, the supplier has to take the lead this time…

#UkraineInflation #NormalInflation #NAM-Initiative