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Will Tesco price cuts give shoppers a better deal?

By Chris Elliott

Tesco’s sales fell by 2.9 percent in the 19 weeks to 3 January and by 0.3 percent over the six week Christmas period.

Following this poor performance and profit warnings, on 8 January the retailer announced it would close 43 stores, cancel opening 49 new sites, close its staff pension scheme, make cuts of £250 million and reduce its overheads by 30 percent.

Tesco also announced a round of price cuts, dropping the price of more than 30 staples including bacon, eggs, sugar and bread, arguably as a response to the threat by fast-growing discount chains Aldi and Lidl, and also following Asda and Sainsbury’s announcements earlier in the same week.

Commenting on the changes, Tesco’s Chief Customer Officer, Jill Eastbrook said: ‘We know that customers want to see changes in the way we serve them. One of the biggest things they’ve been saying is that they want prices which are simple, consistent and low. The changes we’re making today are a first step in that direction – and we’ve focused on many of the favourite brands customers choose every day.’

‘We know that brands are important to our customers: they’re the products families don’t want to do without. So from today, customers will be able to buy many of their favourite products cheaper at Tesco – from Tetley Tea to Colgate Triple Action Toothpaste, Hovis White Bread to Kellogg’s Cornflakes.’

Brand View has reviewed the Bakery, Cereals, Cold and Hot Drinks, Dairy, Frozen Fish, Frozen Meat, Frozen Pizza, Frozen Vegetables, Snacking, Spreads, Table Sauce, and Tins and Jars categories in Tesco.

Between 1 December 2014 and 8 January 2015, the average base price increased 0.3 percent. The price cuts announced on 8 January, which took effect on the following day, reduced the average base price by 0.4 percent.

The price cuts offset an increase of 0.35 percent on 2 January 2015 when Tesco increased the base price of 155 products, predominantly across the Snacking and Soft Drinks categories.

Tesco's average base price

In a press release, Tesco claimed its average price reduction to be 25 percent. Reviewing the categories already identified, Brand VIew have seen that Tesco’s average base price reduction on 9 January was 25.3 percent.

Looking at the categories with the greatest number of reductions, we see that Cooking Sauces has the greatest overall percentage reduction at 41.1 percent – over 60 percent of the reductions in this category are on Dolmio cooking sauces.

Coffee had an average overall reduction of 27.9 percent and all 28 price reductions in this category were on Nescafé products. Carbonates had the lowest average reduction at 13.2 percent – reductions were focused on Coca-Cola products, specifically multipacks of cans.

Percentage change in average base price

The number of promotions decreased 20.7 percent since 1 December; dropping from 4,423 to 3,507 on 9 January. There is a noticeable spike on 8 January 2015 when Tesco announced its strategy, however the following day 112 products, predominantly in Snacking, Confectionery and Cooking Sauces, came off promotion bringing the total down to the levels seen on 7 January.

Contrary to the trend of the total number of promotions, the average depth of cut has risen since 1 December, increasing from 26.9 percent to 28.6 percent on 8 January. This then droped 0.6 percent on 9 January; attributable to the fact that 85 of the promotions removed had an average depth of cut in excess of 50 percent.

Number and average depth of cut promotions in Tesco

The average promoted price – the price the shopper would pay, including multi buy deals – has increased 1.4 percent since 1 December. The average promoted price was at its lowest level in the three weeks before Christmas, it then began to increase on Christmas Eve, rising 2 percent by 9 January. On 8 January, the day of Tesco’s price cut announcement, the average promoted price dipped slightly before rising again the next day.

The well-publicised fall in milk prices has had little effect on Tesco’s pricing. The average promoted price of milk, cream and cheddar cheese have all risen since 1 December, with cheddar cheese increasing the most at 10.6 percent.

The average promoted price of yogurt drinks and yoghurts decreased since 1 December by 5.9 and 2.9 percent respectively. They did, however, both increase in price on 10 December before falling on 2 January, due to the introduction of 25 promotions on brands such as Weight Watchers and Munch Bunch.

Tesco's average promoted price

In its press release Tesco said it would ‘listen to what customers want, many well-loved products from Hovis, Coca-Cola, Marmite and Tetley will now be cheaper at Tesco.’

Reviewing the average base price of these brands shows that all four reduced in price since 9 January, with the price of Tetley products falling by 7.1 percent.

The average base price of Coca-Cola products has decreased the least, reducing by 1.6 percent since 1 December. The base price fell by 1.1 percent on Christmas Eve as 1.5 litre bottles of Coke, Diet Coke and Coke Zero moved from £1.75 down to £1.00. This lasted for nine days before Tesco increased the base price back to £1.75 on 2 January.

There was also a 17.5 percent price increase on Coca-Cola’s range of 375ml bottles on 5 December – resulting to an overall 0.2 percent increase in the average base price.

The base price of Hovis, Marmite and Tetley products all remained unchanged from 1 December until 9 January.

Average base price of key brands in Tesco

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