Tesco looks to end ‘frivolous’ promotions with £200m price investment

Tesco is aiming to tackle the ‘industry-wide problem’ of ‘frivolous’ promotions with a £200m incremental investment in pricing that will see the price of key product lines lowered, as the retailer looks to compete with discounters such as Aldi and Lidl.

Tesco is launching a pricing campaign to back up its £200m investment.

At an investor event in London today (25 February), Tesco managing director Chris Bush says the retailer is shifting investment in promotions to “lower more stable pricing”. He adds that while Tesco will not be stopping promotions altogether, it will look to offer more focused, relevant deals underpinned by its Price Promise price-matching service.

“Pricing in the UK market has been volatile for too long. We are committing to lower, more stable prices on products that matter most to customers. Customers value promotions but many don’t work for customers in the right way, they are too complicated. This is an industry-wide problem that needs to be solved,” he says.

The investment comes as the retailer launches a new in-store marketing campaign with the strapline “down and staying down”, showing products such as cucumbers dropping in price to 49p, from 65p. The strategy mimics that of rival Asda, which had already pledged to invest £200m in reducing prices this year and is now planning a further £100m investment.

Asda has also launched a “Price Lock” marketing message to communicate the permanency of its pricing policy, which saw the cost of cucumbers drop to 50p in January last year. Morrisons has similarly launched a “Prices Nailed Down” campaign as a price war emerges among the big four retailers in the face of growing competition from Aldi and Lidl.

Tesco last launched a big price initiative in 2011 with the £500m “Big Price Drop”. Then, the supermarket was criticised for having a one-dimensional approach to marketing and was forced to rethink its approach.

Tesco CEO Philip Clarke admits that “was not executed well” but says it will focus this time on service, quality and range as well.

“We are focused on sharper prices, improved quality, stronger ranges, better service,” he adds.

The price investment forms part of Tesco’s plans to turn around its UK performance after the supermarket issued a profit warning in 2011. Sales over Christmas were down 2.4 per cent, a figure that Clarke admits is “not where we want it to be”.

He says Tesco will now “accelerate” its strategy, rolling out a faster refresh of its large stores and multichannel plans. He says all of its superstores will be revamped by 2017, while the retailer is also looking to implement 1-hour delivery, invest in click and collect and drop the price of its delivery subscription service.

In loyalty, Tesco plans to launch a digital wallet later this year that will make the Clubcard programme “completely” digital and mobile.

It will also launch Clubcard Fuel Save nationwide following a trial in Norwich and Wales. The scheme offers customers up to 20p off a litre of fuel, depending on how much they spend in store.

Bush says the programme is not a “one-time promotion” but a new initiative that will see Tesco invest another £200m. He claims that during the trial the scheme helped drive loyalty and sales, as well as increased fuel volume and participation in Clubcard.

For the first time, Tesco revealed a profit figure for its online grocery business, saying that it made a trading profit of £127m last year on sales of £2.5bn, which were up 10 per cent. Across its other online departments, general merchandise sales were up 25 per cent, online clothing rose 70 per cent and its Blinkbox TV service saw revenues rise by 245 per cent.