Since Asda has once again emerged triumphant in The Grocer 33’s review of the year as Britain’s cheapest supermarket (June 22, p22), it is interesting to take a deeper look at the consumer impact of its Every Day Low Price policy.
In fact, since Asda is part of Wal-Mart - the world’s largest retailer - understanding how EDLP affects shopping behaviour assumes global significance.
The impact of the low price element of the policy should be obvious. Low prices (or a perception of low prices) will always be popular with shoppers. It is no accident that recently the most successful grocers have employed price as a major part of their consumer proposition.
However, it is the Every Day element of the policy that produces behaviour that, at first, seems completely illogical. Taking any market at random, the impact of its policy on market share gyrations is clearly evident. With almost any product, EDLP causes sales to level out. Holding prices steady over time means, of course, a lower level of price promotions and the TNS Superpanel data show this clearly, with Asda having a lower level of promotions than any other grocery retailer (chart 1).
Taking temporary price reductions, multibuys and extra free together, only 14% of Asda’s turnover is accounted for by promotions, whereas the equivalent figure for Iceland is 37%.
Shoppers make multiple purchases of an item for several reasons. The most obvious is that a multibuy promotion is running, or it may be that the promotional price is so attractive that shoppers take advantage of it and stock up - logical behaviour with long shelf-life products. Alternatively, the shopper may simply need to bulk buy for a big family.
Delve deeper into consumer behaviour at the individual shopper level and an unexpected picture emerges - Asda shoppers buy fewer packs of any given item in a shopping trip even though they tend to belong to larger families.
Asda nearly always comes bottom of the multiple purchasing share table - only 8% of Asda’s toothpaste sales, for example, are accounted for by multiple purchasing (chart 2); for tea the figure is 9% and for toilet tissue it is 6%. This finding is remarkably consistent across markets and all other retailers generally show multiple purchasing well in excess of Asda levels. And yet when retailers are ranked on size of family, Asda comes top (chart 3). So the largest families make the fewest multiple purchases, which seems to be completely counterintuitive.
Of course, Asda does not run many multibuy promotions. But the low level of other types of price promotion means the Asda shopper does not panic-buy before the offer ends and the price goes up again.
So much for the numbers. Assessing how this effect translates into consumer attitudes, shoppers rate Asda top for “prices always low” which is consistent with the LP part of EDLP. However, Asda gets the lowest score for “I shop around for special offers” and “I visit different shops for the best prices”. In a nutshell, this equates to loyalty - shoppers trust prices to be low and, perhaps more importantly, stable and consequently there is little need to shop around.
Of course, there are plenty of shoppers who enjoy promotions and the chance to grab a bargain - Tesco and Morrisons have higher levels of price promotion than Asda and don’t seem to suffer - quite the contrary.
A side-effect of full-blown EDLP is that suppliers may see a temporary drop in volumes because not only does EDLP require lower stocks instore to maintain good service levels but also the shopper can live with fewer stocks in the home. In effect, multibuys and stocking up on other special offers push inventory into the home - stop the offers and the household is able to reduce stocks to match consumption - its own version of “just-in-time”.
And we thought EDLP was just about low prices.
- Ed Garner is communications director of TNS Superpanel.