There may be a paradox in the actions of the food retailers and their rhetoric.
We have heard several retail magnates talk of their discomfort at the level of promotional activity in the UK market, yet trade research organisations such as Nielsen talk of recent promotional participation operating at record levels (circa 35% to 40%).
By design or default, high levels of promotions help to make the consumer more promiscuous and, if they have the time and inclination, shoppers can now procure a substantial component of their weekly shop on deal. Fortunately for the retailers, most consumers remain "happy" to visit one outlet per week for their main shop.
Within these contexts it is perhaps interesting that loyalty is being especially sought by food retailers as the festive trading period approaches. So we have a dichotomy promotions dilute loyalty and trading strategies are being applied that further the process of promiscuity; yet all along the retailers crave the regular shopper. In the last week, Morrisons has recommitted to its Christmas voucher offer and Tesco has revealed further initiatives around Clubcard.
Perhaps the most interesting development was Asda's link of promotions, effectively, with loyalty. It has issued two booklets with up to £40 of money-off vouchers if a customer spends £40. While similar in many ways to the vouchers Clubcard and Catalina (at Sainsbury's) issue, it is perhaps the most overt linking of the two elements of trading strategy.
More broadly, though, where do we see promotions going? Well, we see promotions as the lesser evil for the supply trade (manufacturers) and retailers at a time of subdued volumes and fragile economic activity. Promotions arguably take consumers away from core price knowledge (something that may particularly weaken Asda's USP given its heritage for price value) while enabling case prices for manufacturers to rise. With careful management retail prices can increase, as BRC and ONS data is suggesting, but value can be shouted about as John Cleese did in a Sainsbury's ad.
So, the extent to which the promotional tail is wagging the retail dog is an uncertainty to us. With food price inflation apparent, oil prices firming, commodity prices rising and economic headwinds brewing for the consumer in 2011 (benefit cuts, tax rises and job losses), we see little to break the vice-like grip the promotional force currently has on the industry.
Dr Clive Black is head of research at Shore Capital Stockbrokers.