Supermarket Price Wars

Shoppers need to be weaned off discounting to avoid undermining brands and eroding consumer trust, a high-level panel of retail experts has warned.

The KPMG/Ipsos Retail Think Tank (RTT), which met last month to discuss whether discounting was now a current necessity or a race to the bottom, concluded that retailers should shift the battleground and compete on value rather than price.

James Knightly, a senior global economist at ING, said now was a good time to wean consumers off the diet of discounts.

“The UK consumer demand story is positive with confidence at a 12-year high and with tax changes coming through, real household disposable incomes look set to rise 3-4% this year,” he said.

This pointed to an environment where businesses could grow revenues without needing to hurt margins by taking share from competitors, he added.

The RTT noted that a whole shopping generation had become hooked on a diet of discounts.

Retailers needed to consider whether, by reducing prices, the value of their brand would diminish in shoppers’ minds. Overall, the RTT agreed that while discounting was a fact of the retail industry, it could not be a permanent strategy. Margins could only be squeezed so far, and there must come a point when consumers started to question whether they were truly getting value for money.

Maureen Hinton, a retail analyst at Conlumino, said discounting was an integral part of modern retailing and it was no more of a necessity today than previously.

“What is essential though is that a retailer has a differentiated proposition and a well-structured price architecture, where first price is the right price. And a planned discount strategy,” she said.

Nick Bubb, retail consultant, argued the increasing penetration of online shopping was helping to undermine the “full-price” shopping culture because this market seemed to be particularly promotional.

Retailers and suppliers needed more sophistication in their pricing strategies, whatever the model, the panel said.

Pricing should to be considered as a strategic, rather than tactical, capability. David McCorquodale, head of retail at KPMG, said: “We all like a bargain but price need not be the sole determinant of that bargain.”

The panel felt that value transparency rather than pricing transparency needed to be the point of differentiation going forward and ultimately, retailers needed to shift the battleground.

Mark Teale, head of retail research at CBRE, highlighted that the problem with discounting was that, like quantitative easing, it could be a permanent panacea. “It needs to be used sparingly. At some point, for retail markets to prosper, margins need to be built back,” he said.