Yaxham Waters Farm Shop is playing Tesco at its own game when it comes to pricing - and so far the strategy seems to be working. Richard Ford and Nick Hughes report

Pablo Dimoglou doesn’t need a big green arrow to prove he’s cheaper than Tesco. The farm shop owner’s pricing approach is far simpler. He visits his local Tesco store every evening to price check 20 to 30 staple grocery items against his own – and then produces a nifty ‘Cheaper than Tesco’ leaflet that he delivers monthly to 5,000 locals.

It’s an audacious move on the part of the former property developer, who with business partner Tim Hay set up Yaxham Waters Farm Shop in Dereham, Norfolk, last August. And the tabloids have lapped it up, casting Dimoglou as David to Tesco’s Goliath. But far from reviling the multiples, Dimoglou insists he holds them in the highest regard. Supermarkets are “fantastic”, he says, and Tesco is “superb at what it does” – which is exactly why he is attempting to apply elements of the supermarket model to his own business.

Dimoglou has introduced pricing tiers based on the good, better, best principle, selling cheap jam for 59p a jar, but also offering Norfolk preserves for £3.57, for instance. He has also slashed margins from 50% to about 10% – a move that challenges pretty much every preconception of how a farm shop should operate.

His Eureka moment came soon after he opened the store. Despite its high-quality local produce, Yaxham was turning over just £70 a day as cash-strapped shoppers shunned the farm shop in favour of the nearby Tesco Extra in Dereham.

He empathised with their predicament. “Price has always put me off shopping locally,” he says. “People have a perception that corner shops are expensive.”

Dimoglou took the view they needn’t be. The decision to cut margins meant that on 10 January, broccoli, at £1.65 per kg, was a whopping £1.31 cheaper than Tesco. Lemons were half the price. Carrots, leeks, tomatoes and apples all cost less as well.

“We’re trying to make 10% 10 times a week, rather than 30% once,” he says. “A lot of independents and farm shops could bring their margins down drastically.”

So far, the strategy has paid off for Yaxham. The shop, which also sells basic household lines, is currently taking about £500 a day – a more than six-fold increase on its sales just after it opened.

Whether Dimoglou can sustain the price offensive in the long term remains to be seen. He has a gentleman’s agreement with suppliers covering four product lines, including potatoes, which means the price is fixed all year. He plans to extend the agreement to other suppliers once the business gains more traction, but as yet he is still subject to the whims of the market. Broccoli prices, for example, soared over Christmas, forcing him to raise prices to cover his costs.

But for now, the momentum is with Dimoglou and he intends to make the most of it. Following the success of the regular leaflet drop, he plans to erect a sign at the end of his road reading: ‘Cheaper Than Tesco. Fact.’

Britain’s Biggest Discounter? Perhaps the title should go to Yaxham.