The Wicked Which? of the West strikes retailers – and brands – together


Supermarket Pricing and Brand Promotions – Playing Dirty or Legitimate Business Practice

This week Which? announced it would lodge a super-complaint with the Competition and Markets Authority (CMA) over ‘Misleading’ Supermarket Pricing Practices. .

Which? point out that over the years they have highlighted a range of what it describes as misleading and confusing pricing tactics in supermarkets – like “dodgy multi-buys, shrinking products and baffling sales offers” – that exaggerate diPhoto: Amy Shepherdscounts.

It said many retailers are creating the illusion of savings that don’t exist and are manipulating consumer spending by misleading people into choosing products they may not have chosen if they knew the full facts.

We have been here before

Get your Head round it

Hard to get your head round

The pricing practices of concern that Which? has identified are confusing and misleading special offers; a lack of easily comparable prices because of the way unit pricing is being done; and shrinking pack sizes without any corresponding price reduction. In addition, it says that supermarket price match schemes for a basket of goods may also make price comparisons more difficult, as the range and types of products on offer can make accurate price matching impossible to achieve.

Which said that the cumulative impact of all these different pricing tactics means it is virtually impossible for people to know if they are getting a fair deal, particularly when prices vary frequently, consumers are in a hurry or are buying numerous low value items. 

Using legal powers under the Enterprise Act 2002, Which? has made the first ever super-complaint against the grocery sector to the CMA, urging it to take action. Once Which? has submitted its evidence to the CMA, the regulator has 90 days to respond. As a first step the CMA may request a market study, in which it could demand further information from the supermarkets, before escalating to a full-blown investigation.

This is, in fact, by no means a new issue raised by Which?. In fact it goes right back to the last full OFT enquiry that I was involved with as Head of Insight for the (then) Institute of Promotion Marketing. At that time the OFT issued guidelines, and the major UK supermarkets agreed in 2012 (reported by the BBC) to adopt a set of principles drawn up by the OFT. They were Tesco, Sainsbury’s, Morrisons, Waitrose, Marks and Spencer, Aldi, the Co-op and Lidl. Asda, which had not yet signed up, said it was considering the revised code. Simple things such as not having the offer period longer than the comparison period bothered them.

Other things bothered me at the time of greater concern to brands and promoters

The first was the fact that the major retailers still only saw each other as competition – so their price comparisons were not against market pricing, but against a wholly artificial construct – the Tesco price in the main. This remains the case, so Sainsbury, who now use Asda  as their benchmark, offer coupons for a gap that is impossible for the average shopper to know about. Given that the fastest movers are from Sainsbury to the discounters, and that Asda is not a natural home for the Sainsbury customer (geo)demographically this all seems very puzzling. For brands, however, this issue lead to a plethora of sizes, and the additional costs the this leads to, just to get around the straight price comparisons, that were used to force prices inexorably, and unaffordably down. 

For the shopper, who sees the competitive set as much wider, Sainsbury must start to look increasingly out of touch.

Heads they win – Tails you lose

Secondly was the way that Tesco, in particular played fast and loose with coupons, as the major distributor, and recipient in the UK. With their market size they said – we will redeem your coupons, we will take the money straight from your trading account, and we will charge you for handling. Meanwhile most of the competitors were quite happy to see a coupon as money that they could put through the till against anything in the basket. Possibly the worst examples of this were the Tesco self scan checkouts. Here all you needed to do was scan an original and put any old piece of paper into the slot. I know, I did it myself (but advised the client accordingly).

The key retailer has a position that goes; You should always use our promotion techniques no matter how poor the result simply because we make a great deal of money from it. Frankly, if it did make money for the brand it would bu up-priced so it didn’t OR you would be prevented from using it (as in dunnhumby preventing you from couponing users of competitive products)

Quis custodiet ipsos custodes?

When you can set your own comparisons and manage and report on the way you have handled other peoples money confusion and the potential for serious misuse is built in up and down the line. Not just in the areas that Which? will focus on. 

Brands, of course, lose every time.With GSCOP, saving the presence of the ombudsman, being the last resort of the desperate man. We have a client issue where a major retailer said “You will only use our in-house techniques as part of the listing process”. The in store sampling (very expensive, poorly managed), the coupon process (impossible to easily track, and given that in the case of Tesco you don’t know where they went, and where they came back) quite impossible to assess. Then when these failed to work, the challenge, fix or you are out. The fix went in, a non-price promotion technique, and was really successful  It met the criteria laid down comfortably, but the product was de-listed anyway. A clear case of an appeal to GSCOP since more time should have been given. Will this happen dear reader – I invite you to draw your own conclusion. 

Retailers need competition to temper their excesses

It is very hard to legislate for appropriate price promotions, since most could be defended strongly where they are properly used. In fact most retailers do actively set out to confuse the shopper. This they do in a wide variety of ways, changing store layouts, confusing offer statements, offer ticket forests on the shelf, own brand ranging at key shelf places etc. There are sound business reasons for this. Most shoppers do not vary from their walk, and breaking their habit pattern can deliver more sales. It does, mainly though, develop hostility. 

Up to now key retailers have managed to get away with it. From now on it they need to consider service as well as their product offer. 

Which? needs to apply common sense, and target their complaints much better

Brands have little leeway. In an era where costs rise inexorably, the shopper has become used to price stability, even often presented as price reductions. Which? suggest that they want to address pack reductions without a corresponding price reduction.

You would like to ask Which? the planet they come from. Why on earth should a new smaller size pack not be priced wherever the manufacturer or the retailer want to price it. Currently pack changes are the only way that many manufacturers have of delivering what they perceive shoppers want, and retailers tell them they must achieve. The same margin (or better) at the same price as last year, when costs overall have increased.

Where to from here. The issue that brands have is that their promotion horizons tend to be limited to the one’s that the retailers offer. Moreover, Sales Departments accept that they do not measure the value of the investment they make through this. Asking dunnhumby to measure the impact of the coupons they have just sold you is not likely to give “you have been wasting your time”..

Brands need to seriously explore other, non retailer sponsored, ways of growing the brand. Discounters are growing fast, and geo-demographic promotions to your core will build brand sales across outlets. Add to this real efforts to maximise distribution in your core areas and you can begin to build growth to your shoppers, wherever they go.

Which Say

Executive Director, Richard Lloyd, said: “Despite Which? repeatedly exposing misleading and confusing pricing tactics, and calling for voluntary change by the retailers, these dodgy offers remain on numerous supermarket shelves. Shoppers think they’re getting a bargain but in reality it’s impossible for any consumer to know if they’re genuinely getting a fair deal. So shoppers are voting with their feet to places where they can get a fair deal – at least on a level they understand. 

I say

Brands may think they’re getting a bargain from retailer promotions but in reality it’s impossible for any of them to know if they’re genuinely getting a fair deal. Change your policy and invest behind the brand, not the retailer, for a change in your fortunes. Stick with your existing investment, and anticipate no change in your fortunes.

Will retailers at last start to care about what shoppers want?

If we wanted to be there, we would not have started from here!


Big, but empty

A recent article in the Telegraph commented that Supermarkets need to be smaller and smarter
Large retailers like Sainsbury’s, they said, have a capacity conundrum, but filling the excess space with toasters and hoovers isn’t the answer.  The Telegraph are, of course, absolutely right in suggesting that “old speak” – build it and they will come, no longer works. So ranging as if your goal is simply to sell more to a surplus of shoppers must be replaced by a ranging that will actively pull people in.

It is, of course, entirely true that smart money is building smaller, more local stores. A trend that was foreseen in a Coca Cola report in the 1990’s. So not exactly new. Tesco, then, are to be congratulated for seeing this trend earlier, and building their Express convenience chain.

In fact retailers tend to be very change averse even though they are typically very proud of their systems, and, to various extents, their insight into their customers. Normally the last thing they criticise is themselves. Typically it takes a seismic shift – such as we are seeing now – for retailers to see the writing on the wall. Often, of course, the writing turns out to be an epitaph in the case of KwikSave, Somerfield, Athena, Comet, Woolworth and many more.

Some recover. Sainsbury have already come back in the last century from rapidly losing their lead grocer status to Tesco. Amongst the issues they had to face was the fact that they were very upwardly reliant for their decisions. Board level policy handed down from the Sainsbury Family in tablets of stone proved to be as out of touch with the new reality as dunnhumby data has been in predicting the recent flight from Tesco.

Tesco grew to the premier position with the famous slogan “Pile it High and sell it Cheap”. This growth policy has now become “lets have little piles, make a good margin, and rely on being the biggest with the best range”. They all rely on their famous systems to allow them to thrust all of their stock costs onto their suppliers.

Sadly, both they, and Asda have suffered from a pretty simple issue. If you rely on your suppliers to manage a Just in Time delivery system you really do need to make sure that you get your promotion forecasting and ranging right. At the same time, you also need to be locally responsive to make sure that your store delivers what the locals need. Why is this important?


Availability the key issue

Grocer Article February 2015

An example here. In the City of London, financial companies report their bonuses at the end of January. Tesco stores all de-stock their champagnes just after Christmas. Stores with an astute eye can cream hundreds of thousands of pounds by having a local view. Store Groups are very variable in the extent to which they allow local demand to influence store supply. Many – despite real evidence to the contrary – persist with the feeling that their supply chain has all of the answers.

Asda, as an example, have local initiatives such as trade my store, and trade my promotion. This allows managers to flex their supply to meet local demand. Except that they have recently started to close down all of these avenues. Even, and perhaps this is worse, if managers express a preference to have additional stock, they can ask for it, plan for it, but find the depot does not deliver. This is simply because a store order goes back no further than the depot – certainly not far enough back to influence supply chain and buyer. Asda seem to have stopped all demand based allocations to stores.

So their recent decline in form, by retrenching to a centrally held belief in their all powerful systems is letting them down too.

Lastly in Tesco, clients have struggled to find a way of getting demand based additional allocations out to a select few stores. Discussions at conferences right at the top lead to conflicting views on the possible, and eventually giving up.

The benefits of giving stores more to work with is two fold;

  1. The promotion uplift is much greater as the initial demand can be met to a much greater extent than normal
  2. The tendency for stock computers to over-order in the last week of a promotion is reduced since if you satisfy demand earlier, it drops away faster.

    Just add a little stock

    Just add a little stock in the right place

Overall stock turn stays the same or actually improves, while sales goes up, often dramatically as with the chart – where the core (amber stores) had just a few outers more. In order to appreciate this you need to understand that these specific stores with more of the target market in them respond much more to a special offer. Not a surprise. Where would you expect to sell more Pot Noodles, the University of Westminster campus, or the Palace of Westminster. And how much more would they sell if you halved the price?

Local Flexing?

Yes, a great idea. The problems for these retailers lies in the fact that they don’t seem able to envisage a happy medium. That is to say, one where they allow flexing within a system that can deliver it, but also offer advice to managers on what to flex, and give them the space to do it. At the moment 60% of purchases are on promotion, but only around 30% of space is actually flexible. This space, gondola ends, mid shelf etc. is typically sold en bloc to a manufacturer for money. A manufacturer expects to find his product in all of these store-critical positions even though they may not be brand critical at all.

Where to from here?

All of the majors have noted that they are not great at managing their smaller stores. To their credit, Asda said so after their effort to turn their newly acquired Netto stores into mini Asda’s showed that the difference was much more than simple scale.

What retailers have always needed is a credible offering bought into by their shoppers. Not just those with a “loyalty card” but all. The discounters have hijacked value – even though it is actually simply price – that is drawing AB’s in, in droves. The large stores have to discover value again, but with a note that the old days of price competition between themselves has now gone. The Sainsbury advert comparing their prices with ASDA is not only laughable, but when they are mainly losing to the discounters (AB customers now make up 31% of Aldi/Lidl customers), demonstrates a level of out of touch they will regret when the discounters open up more stores next door.

The Challenge

Ehrenburg said that the first duty of marketing was ensuring real, and virtual, availability of your product to your core customers. He did not say, “Oh, and by the way, they are all the same everywhere in the country”. That’s what the retailers say, and of course, it is not true. “Oh”, if Tesco were here they would say, “that is simply not true. We have our Finest stores, and our price sensitive stores, and we adjust ranges accordingly”.

Yes, they do. However, our local Express worked out that we were an upmarket neighbourhood. So they gave us an entire store full of Tesco Finest products. If you want own brand there is a Lidl a mile away with quality own brands at half the price. Tesco range their own brands at eye level, despite the fact that people navigate by brand. Another example of “old speak”. We Tesco are confident you will continue to visit, so we make life difficult for you to shop the aisle deliberately so you will spend longer.

I am minded to recount here the millionaire at the turn of the century who left his entire fortune in non-negotiable buggy whip shares. As he said in his will. There will always be a need for efficient urban transportation…..

What you want – when you want it

The only credible positioning is relevance. Discounters keep costs down by having a really tight supply chain, and a restricted range. Large stores need to focus on local needs, and recognise that, if they do this, they need to flex more promotion space locally too. Shopper Value rests in being able to see more in one place of what they want, and actually working much harder to bring more people in to see the range.

This actually means paying attention to your local market. What do they want, and when do they want it. You can advise your local manager of what might be likely to happen, So he can decide whether to take your advice, or not.

Then you can fire the ones that don’t take a risk.

Can you offer advice on local ranging? Absolutely.

Will this happen? You tell me. Please.

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