Processors to bear brunt of supermarket slashing - expert

By Neil Merrett

- Last updated on GMT

Related tags Retailing

Beverage and food manufacturers are likely to have to bear the brunt of a price war that is driving leading global retailers to increasingly turn to suppliers of discounted brands, according to one industry expert.

Professor Joshua Bamfield, director of independent group, the Centre for Retail Research, said that a universal shift towards price deflation in the retail sector was likely​well into the next decade. Such a move could see a change in direction by retailers from targeting more environmentally focused manufacturers to reduced cost food and drink groups.

Over the last month, retailers such as UK-based Tesco have stepped up their focus on discounted product ranges, a move it claims is the biggest shake up of its ranges in fifteen years, in order to offset consumer concerns over costs.

Bamfield told that a worldwide pattern has already developed for retailers to chase cost cuts, except for some premium retailers such as Waitrose.

“In the coming years, pressure will fall on processors to supply better quality products with lower retail prices to ensure middle range retailers can better compete with discounters,” ​he stated.

Bamfield suggested that known value products in particular, from juices to dairy and other staple products, could be particularly affected by the drive.

Cost wars

The Centre for Retail Research suggested that initial price cutting drives were likely to resemble the early stages of a war, with retailers throwing every cost drive available in their arsenal at rivals. The centre suggested that the focus should calm slightly by next year though, although the impacts were likely to be felt for some time.

Bamfiled took Germany as a market that could serve as a model throughout Europe of the likelihood of a retailer switch in a low profit environment.

“Over the last ten years there has been much price deflation in the German retail market that has been passed onto suppliers,”​ Bamfiled stated.

This market shift will be seen across Western Europe and the US, he claimed.

He added that certain retailers, which worked to play up both their commitment to quality and price cuts will be particularly focused on sourcing high-quality low-cost finished products, claimed Bamfield.

Tesco push

While Tesco earlier this month said it has posted an 11 per cent jump in sales in its latest third quarter results, figures from research group TNS have suggested that the company has lost ground to discount retailers.

In the 12 weeks leading to 30 November, the group’s market share had fallen by 0.6 percentage points to 30.9 per cent over the same period last year, stated TNS.

However, speaking to shareholders last week, Tesco chief executive Terry Leahy moved to actively play-up the retailer’s focus on more private label goods, by suggesting its new ‘Discounter’ range already represented five per cent of the group’s sales.

“We are adjusting the business to meet the new challenges - focusing on becoming even cheaper for customers, keeping our costs low to help us to do this and managing our balance sheet and cash carefully,”​ he stated.

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