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The great price war

Here's the surprising thing about Asda's much-hyped price guarantee: It has given the company free rein to talk about something other than the cost of groceries.
1/7/2013

Back in April 2010, U.K.-based grocery chain Asda launched what was supposed to be the price war to end all price wars. “From today, Asda cannot, and will not, be beaten on price,” Andy Bond, then CEO, declared as he announced the “Asda Price Guarantee.” The guarantee was simple: If shoppers could purchase eight items or more anywhere else for less, Asda would refund the difference, plus a penny. A website was set up to help customers do the math. Later, the company upped its claim further, promising to be at least 10 per cent cheaper than rivals.

The Asda guarantee made headlines around the supermarket world. Two and a half years later, what happened? Did Asda, a subsidiary of Walmart, lap up everyone else’s market share? And if so, who lost the most share? Let’s take a look.

As with most wars, the opposition did not immediately surrender. Instead, they fought back, and today, most of Great Britain’s big supermarket chains have pricing pledges that are similar to Asda’s. Britain’s biggest grocer, Tesco, has Price Promise, which offers shoppers a price-difference refund if they can find cheaper products at the country’s three other major supermarkets (Asda, Sainsbury’s or Morrisons). Meanwhile, upscale Waitrose vows to match Tesco on 7,000 everyday items. And Sainsbury’s Brand Match refunds the difference on branded goods that can be purchased for less at Asda or Tesco with a voucher as shoppers check out.

Though some of these programs are more sophisticated than Asda’s price guarantee, Asda currently leads the pack. “It’s very clear that their share has improved since the launch of the price guarantee,” says Ed Garner, director at market-research agency Kantar Worldpanel. “If you look at the 12 weeks to April 2010 they were running at 17.2 per cent market share. Now they’re running at 17.6 per cent.”

Asda is also growing at a faster rate than its competitors. Sales for the 12-week period to Sept. 2 were up 4.5 per cent, compared to 3.8 per cent for Sainsbury’s, 2.8 per cent for Tesco and 1.1 per cent for Morrisons.



How much of Asda’s growth can be attributed to the price guarantee is less clear, however. One reason Asda picked up steam in the last few years is due to its May 2010 acquisition of Netto, a budget supermarket chain.

There appears little evidence also that British consumers have paid much attention to Asda’s price guarantee (or anyone else’s, for that matter). Price promises have no influence on where 82 per cent of British consumers do their shopping, according to a survey for the U.K. trade magazine The Grocer. Another 76 per cent say the rigmarole of logging on to Asda’s price-guarantee site to compare bills is “too much hassle.” By Asda’s own admission, less than three per cent (600,000) of its 18 million reported weekly shoppers are using the website.

The real value of Asda’s price guarantee is perhaps not in the number of people who log on to the website but in the room it has given Asda to talk about something other than price. Asda’s chief marketing officer, Rick Bendel, said as much after launching the guarantee: “I want to say, OK, let’s talk about quality, eventing and service because the price war is dead now.” Shortly afterwards, he launched the company’s “Chosen By You” label in a bid to drive home Asda’s quality message. That was followed with an expansion of Asda’s premium Extra Special range. That line was the centre of a Christmas advertising push last year promoting a new partnership with up-market cooking school Leiths. The big idea: to make customers’ Christmases “extra special.”

Garner says Asda’s shift from a pricing message to one of quality is a savvy move. “If you are the country’s second biggest retailer, you can’t be seen as just a big, cheap shed. The goal of the price guarantee, he adds, isn’t to be the cheapest every time but rather to send a message to shoppers: ‘Be assured, your shopping is cheaper at Asda.’ ”

And it is. Asda was crowned Great Britain’s cheapest supermarket for the 15th year in a row, in June, by The Grocer, which conducts weekly mystery shopping surveys in all the major U.K. supermarkets to determine the strongest performers across a number of measures, including price, availability and service. That’s not to say the competition’s price pledges have fallen flat. Both Sainsbury’s and Waitrose’s initiatives have helped deliver market- and inflation-beating growth in recent years.

The main casualty in the price guarantee war? Probably Tesco, whose Big Price drop initiative is widely held to have backfired after it was revealed that the retailer had ramped up prices on several key lines the month before its September 2011 unveiling. Indeed, its market share now stands at 30.8 per cent, down a smidgen from 30.9 per cent a year ago.

It just goes to show that price is not the only weapon in the battle for grocery domination. Trust is the most powerful weapon of them all.

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