In an effort to win back shoppers, Tesco is set to adopt a simple pricing strategy for its products. The "rationalisation" programme will see the UK grocer cut back on its promotions and offers.
The move comes as the company battles competition from discount retailers , with one of its rivals planning to cut prices on more than 1,000 products. Recently, Tesco also said 76 of its stores will no longer operate for 24 hours, besides announcing the closure of two experimental "food-to-go" stores in London.
The retailer, which has been in the news recently for allegedly mistreating suppliers, will use data from Dunnhumby, its customer research and information arm, to decide on offers and promotions. Tesco is expected to retain some ongoing promotions while eliminating several others.
Under the new strategy, the retailer hit recently by an accounting scandal, will focus on promotions that are the most effective. It plans to offer value to shoppers by offering simpler, stable and lower pricing, instead of various confusing promotions that sometimes change every week. Existing promotions range from £1 (€1.3,$1.4) off-deals to buy-one-get-one-free.
While producers have been informed of Tesco's new pricing strategy, some small suppliers fear it might lead to a loss of market share to bigger brands. One of the suppliers who was recently moved from a 60-day payment term to a to 14-day one, said, "When we agreed our deal with Tesco we were asked for the lowest possible price. They said, do not include any promotion funds as they would finance promotions. Until recently, they had kept to this agreement. We have just been told they will not be promoting our products as they have found some Dunnhumby research which shows them our products do not need promotion."
The supplier was also unhappy because he said he had sacrificed his margins to Tesco in the belief it would promote his product, according to The Times. While Tesco has already simplified pricing on beer, wine and spirits, chief commercial officer Jason Tarry will lead the pricing review of other products. It is understood that a supplier would have the right to challenge the removal of promotions.
While Tesco's new strategy mirrors Sainsbury's, whose mantra is "everyday low pricing", Wm Morrison is expected to slash prices of 1,072 products, primarily in its fresh foods division, by an average of about 20% as part of a three-month programme of lower prices.
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