Sainsbury’s strategy goes back to basics

The launch of Sainsbury’s Economy range marks a new stage in the grocery wars. It may also be seen as a watershed in the basic strategy followed by most leading supermarket chains since the Eighties.

Sainsbury’s was the first and leading exponent of this strategy, which centred round the proposition that the retailer’s name could itself be made into a quality brand. Its own-label products were sold not as cheap alternatives to premium brands, but rather as quality goods in their own right, which just happened to cost less than their competitors.

This policy was in vivid contrast to Jack Cohen’s Tesco in the Seventies, whose catchphrase was “pile it high and sell it cheap”. But in the following decade, Tesco and most of the other groups swung over to Sainsbury’s quality line with general success, as was shown by the increase in own-label sales from about 20 per cent of the total to over 30 per cent.

The first challenge to this came in the early Nineties from Kwik Save and other discounters. Their emphasis on low-priced budget brands fitted in with the depressed economy and their share of trade increased rapidly. But this upward trend proved short lived. Within a couple of years it had stabilised and started to fall back, with the major supermarket chains resuming their upward progress.

It might be assumed that this was an indication of economic resurgence and the return of the feelgood factor, but this would be wrong. The leading supermarket chains did not so much counter the strategy of the discounters, as join it. Grocery prices fell generally, but the key element in the supermarket fightback was the introduction of “budget own-label” – products sold under the store’s name but at prices competitive with those of budget brands.

Tesco led the way by launching its Value range in 1993 and most other chains followed with more or less enthusiasm. Among the least enthusiastic was Sainsbury’s, which, being understandably anxious not to dilute the quality image of its own-label brand, only cut prices in a relatively few basic commodity areas under its Essentials programme.

At first sight, the success of budget own-label might appear questionable. Even for Tesco it only accounts for about five per cent of total sales, and elsewhere for much less.

But appearances are deceptive. Supermarkets concentrate budget own-label products in those areas where the discounters made the greatest impacts, and they have had a major impact here.

The fact that budget own-label achieved considerable success in some product fields would probably not, in itself, have converted Sainsbury’s to this strategy. It might appear to be too close to the old Jack Cohen philosophy which Sainsbury’s has always opposed. But Tesco’s success with is Value range had another effect which Sainsbury’s felt it could not ignore.

For many years Sainsbury’s has had the largest share of sales of any supermarket chain as measured by Taylor Nelson AGB’s Superpanel. For equally long, Tesco has been comfortably number two, and while both groups have tended to gain share over time, the gap between them remained fairly constant.

But at the beginning of this year the situation changed dramatically. Tesco overtook Sainsbury’s at the top of the league, and in subsequent months the gap has been consolidated.

One may question exactly what these figures represent. There are a number of definitions of supermarket sales and it could be argued that what matters is profitability rather than turnover.

From a business point of view, however, perception is at least as important as reality, and losing the lead in Taylor Nelson AGB’s benchmark league table may have hurt Sainsbury’s image. This makes Sainsbury’s conversion to budget own-label easier to understand.

It is true it has had an Economy label for some time, but up to now this has been used on a very small number of items such as sausages and toilet tissues. The new campaign represents a move to a much more comprehensive use of the Economy label within Sainsbury’s, replacing the Essentials lines.

The Value range may not have been the only factor influencing Tesco’s advance, but it obviously played a significant role and to that extent gave Tesco an advantage. It remains to be seen how effective Sainsbury’s riposte will be.

The position should clarify when we see what happens in the crucial fourth quarter of this year. But whatever happens, I suspect that somewhere in the supermarket in the sky, Jack Cohen will be smiling.