Rewind a year and things looked very dire for the big four. Tesco had just succumbed to a record £6.4bn loss, while Sainsbury’s suffered its first sales decline in over a decade. Morrisons, which posted a loss of £800m, also suffered its worst results in eight years.
Squeezed by Aldi and Lidl, the major supermarkets were hemorrhaging customers to the German discounters and were subsequently forced to invest millions in lowering everyday prices. But while the price cuts continue, the decline of the big four is reversing.
Last month, Tesco saw UK like for like sales rise by a better than expected 0.9% in the fourth quarter compared to a 1.5% decline in the previous three months.
Last week, meanwhile, Morrisons chalked up a second straight quarter of sales growth and Sainsbury’s, although suffering a decline in sales, returned to the black, booking a profit of £548m after a £72m loss last year.
Mixing quality with price
Two of the big four are especially keen to credit a balance between price and quality-based messaging with their ongoing turnarounds.
Speaking to Marketing Week, Morrisons’ chief executive David explains: “We are a value-led proposition and therefore clarity of price, consistency of price and trust in price are all very important. Thanks to this focus our consumer satisfaction levels are way up on last year.”
Potts, however, talked up the retailer’s equal commitment to fresh food. Its latest advertising campaign ‘Morrisons Make It’ is dedicated to promoting its premium quality and in-store expertise in areas such as butchery. He claimed a recent ad featuring a fishmonger helped it grow fish pie sales from 1,000 a week to 18,000.
He added: “What is truly important, above price in many ways, is that we’re seen as both a foodmaker and a shopkeeper. If you only focus on price, you’ll become a one club golfer and we’re fortunate to have both strands going for us. That combination is very important for the future health of the company and the brand.”
Consumer perception appear to back up Potts’ enthusiasm. Over the last 30 days, the period in which Morrisons launched its Morrisons Makes It ads, its quality perception score among consumers rose 1.2 points to a score of 20.1, according to YouGov BrandIndex.
Can price cuts be damaging?
But not everybody appears to be achieving this balance. Rival Sainsbury’s saw its YouGov BrandIndex quality score fall 3.7 points to 42 over the same period.
Sainsbury’s also revealed a 14% drop in annual profits after it was forced to slash prices to compete with the rise of the discounters: sales fell 1.1% to £25.8bn in the year to 12 March and underlying profits slid to £587m, higher than the £571m predicted by analysts.
“If you only focus on price, you’ll become a one club golfer.”
Morrisons’ CEO David Potts
But when Marketing Week asked Sainsbury’s Mike Coupe if a focus on price cuts had lowered its historic reputation for quality food, he bit back: “No, it definitely is not [ruining our reputation for quality]. We are confident in not only the quality of our products but our shops too and I’d argue that the numbers show our quality for service and availability has improved significantly.”
While Coupe will continue to cut prices in stores, he said Sainsbury’s marketing will reflect both quality and price; a key balance. He explained: “There is an ongoing opportunity to talk more about quality through advertising. Certainly, the ‘Little Twists’ campaign is where we invest a lot of our marketing expenditure. Our goal is to talk overtly about quality and how we offer it in a day-to-day way.
“We invested in improving the quality of 750 products last year and will improve 3,000 more in the year ahead. But you have to do both as it is a challenging market so our prices will continue to be competitive too and we will make targeted price cuts when appropriate.”
How Asda plans to catch up
The heritage of Asda, which has seen sales fall for seven quarters in a row, as the UK’s leading value retailer has come under significant threat from the discounters and continued price investment among the other big four. Kantar Worldpanel data covering the 12 weeks ending 24 April 2016 shows that Asda sales declined 5.1% on year-on-year, with Asda’s market share tumbling from 16.9% to 16%.
However, to combat the slump it recently appointed celebrity chef James Martin to feature in all its advertising around key seasonal trading periods throughout 2016 and into 2017.
Asda currently has a quality score of 8.3 on YouGov BrandIndex – putting it considerably behind Lidl, Tesco, Aldi, Sainsbury’s, Morrisons Waitrose, M&S, Ocado and the Co-Op .And Bryan Roberts, global insights director at TCC Global, says the Martin sponsorship is a “very sensible” move.
He explains: “Asda has always been fond of pointing out that value is a mixture of price, quality and service. Where Asda has lagged – in perception terms – is in the latter two, so elevating their message beyond Everyday Low Price, which has become less resonant in recent months and years, to focus on more aspirational aspects is a very sensible move.”
The message is clear: price cuts will not work unless there is a steady investment in quality as well.