Faced with increased threat from discounters, the major mults are turning away from temporary price cuts, multibuys and BOGOFs to everyday low price (EDLP) offerings and targeted promos informed by loyalty data
Brits have always loved a bargain. It’s one of the main reasons supermarkets have long made promotions a cornerstone of their ploys to get shoppers spending.
Or at least, that always used to be case. Now, however, nearly every retailer is cutting back.
According to Kantar, 26.6% of products sold were on promotion between the start of the year and August 2022, a figure that has been in decline since 2019, when deals accounted for 32% of sales in the same period.
That’s a product of supermarkets running fewer promotions, a trend that first emerged at the start of Covid as supermarkets sought to manage soaring demand. But the ongoing inflationary pressures are now a major factor behind further continued decline as suppliers reduce promotional monies available to hold off cost increases to the retailers.
Instead, most supermarkets have boosted the scope of ‘everyday low prices’, price matches and value ranges, with Tesco leading the way.
Tesco has undergone the most promotional cuts (down 35%) in the past three years, according to analysis of Assosia data by The Grocer (5,509 in July 2019 vs 3,607 in July 2022).
“Supermarkets are pointing shoppers towards their everyday low prices, and expanding their value ranges and price matches”
Fraser McKevitt, head of retail and consumer insight at Kantar
But as the table shows, that change of tack happened in 2020 as it adopted a more EDLP approach, and promo levels have remained stable for three years now.
Instead, the focus has been on increasing the number of lines in its Aldi Price Match, while targeting variety discounters via its Low Everyday Prices programme on household and personal care items. And the success it’s enjoyed via Clubcard promotions has ensured continued support from suppliers (and shoppers).
At Sainsbury’s promotions are down by almost a third since 2019, but it’s been more gradual, and it’s still running way more than any other major mult (including a pronounced step up in multibuys).
But it too is focusing more on its Aldi Price Match and EDLP. It’s a hard act to keep up, though: its Price Lock programme – which promises to keep certain prices ‘locked’ for two months – has shrunk by over 20% since January. Sainsbury’s points out it has pledged to invest £500m in keeping prices down until March 2023 and “at the same time as running these popular campaigns we offer everyday low prices on a broad range of fresh and grocery items and regularly review the special offers we run”.
With the discounters eating into the big four’s market shares – Aldi is set to overtake Morrisons to become the UK’s fourth biggest supermarket this autumn – it’s no surprise the mults are taking a leaf out of their book.
“[The discounters] are successful with their EDLP strategy and the big four are trying to replicate them,” says Paul Stainton, a former Aldi buyer and partner at International Private Label Consult.
Asda, for example, may have regularly slashed promotions but its new budget Just Essentials range – which replaced and expanded its previous Smart Prices offer this summer – is a popular addition to shoppers’ baskets. According to Kantar, it is now seen in a third of them.
Seen in this light, Stainton believes the cuts to promotions may be no bad thing for retailers. “Often they simply have to repeat a promotion many times per year just to keep the year-on-year sales performance like-for-like,” he says. And if they can showcase their value through initiatives such as Price Lock, Aldi Price Match and compare & save, “they still achieve the objective of great price perception”.
There may also be another dynamic at play behind the apparent fall in promotions, suggests Alastair Lockhart, insight director at retail and shopper marketing agency Savvy. He argues it is at least in part driven by a decline in “traditional” in-store promotions as supermarkets turn to personalised promotional strategies through their loyalty schemes.
“For the immediate future we can expect more of the same - fewer promotions and more EDLP initiatives as all retailers strive to offer the best low prices, day in day out”
Paul Stainton, former Aldi buyer and partner at International Private Label Consult
Nearly half of Brits now rely on loyalty schemes to save money at the till, research by loyalty e-wallet app Swapi has found, making them ever more attractive to supermarkets wanting to amplify their value credentials.
“There are many promotions that now exist, but can’t be seen in-store or measured easily,” Lockhart says.
David Sables, CEO of Sentinel, agrees. “The era of targeted promotions through loyalty card data has meant that promotions have become more precise, less deep and perhaps smarter,” he says.
“Often the loyalty mechanic which works best is a discount on the overall basket,” he adds, pointing out that these too would not count towards the promoted figures seen here.
All the mults have different strategies in one way or another. In fact Morrisons has upped promotions.
Differentiated strategies also extend to major categories. While promotions on some, like fresh, have stayed relatively consistent over recent years, others saw major cuts during Covid that have never returned.
“The reduction in promotions is in part down to the positioning of everyday low prices vs the discounters”
David Sables, CEO of Sentinel
Baby and petcare, for instance, have seen promotions cut by 56% and 53% respectively in July this year compared with the same month in 2019.
“In both baby and pet, these are not only essential and unavoidable purchases, they are also very SKU-loyal and least likely for consumer compromise,” says Sables. “So there is low risk of losing sales by not promoting.”
Frozen food, by contrast, has seen promos grow over the past few years, up 4% on pre-Covid levels and 15% on last year. This too is a reflection of the cost of living crisis, Sables argues. “Frozen is typically cheaper than the fresh equivalent and in times like these will gain from the more expensive option.
“Suppliers will look to promote in good times (seasonal or otherwise) as their percentage uplift from a promotion will be the same so their return will be better when sales are higher anyway.”
In one way or another, as the country lurches towards a recession, every supermarket will inevitably have value at the front of their minds.
The difference now is that, unlike in the previous financial crisis, when there was a reliance on promotions as people shopped around for the cheapest products, this time value has a different face.