Supermarkets defy P&G as price war breaks out

Supermarkets retaliate against P&G cost-cutting as Sainsbury’s pushes brands

Supermarket giants Sainsbury’s and Tesco have slashed the price of their own-label washing up liquids in an attempt to deliver a blow to Procter & Gamble’s low-pricing strategy.

Procter & Gamble cut the price of Fairy Liquid from 79p to 72p two weeks ago, reducing the price difference between it and own-label to just 3p. However, this week, Sainsbury’s and Tesco’s extended the price difference on Fairy to 7p – they have dropped the price of concentrated detergents to 65p.

The own-label products previously discounted by about 13 percent on Fairy. When P&G slashed its price, the difference was reduced to just over four per cent. Sainsbury’s and Tesco’s retaliation restores the difference to ten per cent.

A spokeswoman for Sainsbury’s says: “We have to ensure that our competitive edge is maintained, and to make sure that customers are in no way inconvenienced by moves made by our rivals.”

One analyst says that P&G will be under increased pressure as a result of the move. “The money will have to come from somewhere,” he says, ” P&G will have to cut its advertising spend if it is to retaliate.”

However, last week P&G head of corporate communications Dick Johnson, denied that P&G would cut overall advertising budgets, “This is not part of a strategic shift away from advertising,” he said, “advertising is not going to be a victim,” (MW February 23).

Sainsbury’s and Tesco are in a stronger position than P&G, says the analyst, because their advertising costs are much lower.

When P&G cut its price, Lever Brothers reacted with a 10p price cut for Persil Liquid to 69p, matching own-label prices. Asda dropped the price of its own-label brand from 63p to 59p in response.

Safeway and Somerfield have yet to respond to the cuts. Their own-label concentrated washing up liquids remain at 69p. However, it is understood that they will have to follow Sainsbury’s and Tesco’s lead.

P&G is understood to have been caught off-guard by the move. Last week a spokeswoman said that P&G did not expect retaliation.

However, one former P&G insider says that Sainsbury’s and Tesco’s move plays into the hands of P&G. “Though the Every Day Low Pricing move was made to reduce the price difference between Fairy and own-label, it was also intended to stop supermarkets spending so much money on promotions,” he says.

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