Tesco has entered the arena of supermarket price wars, rolling out significant price cuts across its range in an effort to defend its position against increasing pressure from discount rivals. However, while lower prices may appeal to consumers, the financial implications for Tesco could be far from positive.
Although reduced pricing may boost customer numbers slightly, the overall effect on profit is expected to be negative. According to retail expert Riad Beladi, “It does not work like that. Cutting prices doesn’t automatically translate into higher profits. Any increase in sales volume is unlikely to compensate for the margin losses—especially in a highly competitive and established market like the UK.”
Tesco’s current strategy closely resembles the long-standing approach of Asda, which has been highlighting its low prices for over two decades. Now, Tesco is shifting its advertising to focus on affordability, attempting to reposition itself in the minds of budget-conscious shoppers.
However, Mr Beladi believes the overall shift in the UK grocery market will be very small. “This is a mature market where the major players are firmly established. Everyone knows where each retailer stands in terms of market share. There won’t be dramatic changes,” he said.
The only real disruption is likely to continue coming from the discounters, Aldi and Lidl, whose lean business models and everyday low pricing have proven highly effective. Aldi, in particular, has now climbed to third place in UK grocery market share—an achievement that underscores the growing strength of the discount sector.
While Tesco’s campaign may help reinforce loyalty among its current shoppers, Mr Beladi argues it is unlikely to draw significant numbers away from other established supermarkets. “In this market, price alone doesn’t reshape the structure,” he said. “Discounters have already claimed that ground.”
Tesco may have entered the price war arena with determination, but in a field long dominated by discounters, victory will not come easily—and may come at a cost