Price wars turn screw on processors
Gathering at the annual convention of grocery think tank IGD in London last month, supermarket bosses were at pains to outdo each other with their cost- saving initiatives. It was all about relieving pressure on cash-strapped consumers, they stressed.
Research by the IGD, outlined by its chief executive Joanne Denney- Finch, showed that saving money was a top priority for today's shoppers, with over half (51%) of those surveyed making savings.
An important point for manufacturers is that 31% of those surveyed said they were seeking savings but wouldn't sacrifice quality a clear warning about not re-engineering products to the detriment of quality and taste. Denney said, as far as shoppers were concerned, reformulating products to keep to a price point was their "biggest no-no".
Speaking to Food Manufacture, Patrick Coveney, chief executive of own-label chilled convenience group Greencore, said the retailers were right to look for supply chain efficiencies from their suppliers.
"We work very hard to deliver supply chain efficiencies and we have always been open to sharing some of those with our customers," said Coveney. "Indeed, some of the biggest areas of supply chain efficiencies are in the combined supply chain between retailers and manufacturers." But he doubted that the retailers would push so hard as to undermine the viability of their main suppliers. "Retailers absolutely understand that in order to have a sustainable supply base going forward, their key suppliers have to earn a return over time."
The IGD reported that people were shopping around much more to get the best deals. The multiples are responding to this dynamic.
"Our backs are truly against the wall," said Denney-Finch. "A new pack size, an additional flavour, a bit of a quality upgrade, are no longer enough. We need big steps."
Asda chief executive Andy Clarke didn't miss the opportunity to point out his supermarket's record and credentials for low prices. And, following Tesco's £500M Big Price Drop initiative, Sainsbury has launched its Brand Match initiative.
Under Brand Match Sainsbury compares the price of brands it sells against what Asda or Tesco are charging that day, including deals. When its customers spend £20 or more with at least one comparable branded product in their basket, it will provide them with a coupon for the difference in price for the brands if they are not cheaper.
Comparing the current climate to previous recessions, Peter Marks, group chief executive of The Co-operative Group, remarked: "I don't think I've ever seen the consumer squeezed so much. For the first time I can recall we are seeing food volumes falling."
Marks said: "We need to get used to this as it will be pretty much the norm for the next few years."
Morrisons' boss Dalton Philips concurred, adding that Morrisons would be looking to its suppliers to further reduce supply chain costs.
