UK Supermarket Price Wars: The Longest Cold War?

Written By:

The Price War Between UK Supermarkets

Well not quite, but almost.

According to common historiography, the prolonged standoff between America and the Soviet Union ran from 1946 to 1989. Some 43 years. Commonly referred to as the ‘Cold War’. From US diplomat George F. Kennans ‘Long Telegram’ to the revolution that saw Poland gain its eventual independence from the Soviet Empire.

Here in the UK, our supermarkets have been engaged in a prolonged period of ‘pretend’ and often even phoney price wars. 42 years to be precise. Almost, but not quite as long, as the actual Cold War itself!

The Last ‘Hot’ Price War

When was the last major, a real outbreak of determining price hostilities? A full-on ‘hot war’ if you like? It was Tesco’s 1977 – ‘Operation Checkout’. Where over the course of the Queens Silver Jubilee bank holiday weekend all Tesco stores were closed, windows were brown papered over, Green Shield stamp giveaways dumped and all monies reinvested in an across the entire store price realignment.

It certainly paid off handsomely and marked the start of Tesco’s renaissance and breakneck race to the top of the UK supermarket pile, eclipsing Sainsbury’s and eventually growing to a point where it holds more than double the market share of its nearest rival.
However, since that seismic Silver Jubilee bank holiday weekend in June 1977, the fog of price war between the major UK supermarkets has been just that – a prolonged murky fog, with an added dash of smoke and mirrors thrown in for good measure.

The ‘Cold’ Price War Continues…

So why did none of Tesco’s rivals pull the biggest, worst, most powerful lever any retailer has: Price?
July 1999 was potentially Tesco’s ‘Bay of Pigs’. This was the moment they could have been potentially annihilated over a sustained price war had WalMart. The very big, very American and very, very deep-pocketed new owners of Asda decided to go for the corporate jugular. They hit the supermarket red button and move to Def Con 1 – but they didn’t.

So why not?

Well, its simple mathematics…
Tesco at its peak operated on a world-leading 5.2% net profit margin. In layman’s terms making just 5p on every £1 worth of the myriad and millions of products it sold.

Since that peak and a freefall tumble to 0.5% following the financial scandal of 2014, the businesses aspirations are to get back to above 4%.
So it really does come down to simple maths. A major, nuclear-sized price war across the store that has any resonance and impact with shoppers is going to create an Armageddon-sized crater in any food retailers profit and loss account.

Old blue car with luggage on roof, driving through deep snow
Cold Price Wars

Loyal Customers

Modern shoppers simply would not notice a 5% price cut across the store anymore. And they certainly wouldn’t switch their shopping loyalty from a competitor. Which is unfortunately precisely what you need, and what you want if you stand any chance of winning an all-out supermarket price war.

So for the past 42 years, we have faced a supermarket world of tactical, conventional price strikes. They have focussed on targeting price initiatives on a relative few lines. This is because they can afford deeper cuts to entice customers but rely on the overall weight of the weekly shop to ensure you still make money. Although that didn’t quite work for Safeway. They got hooked on and broken by the crack cocaine of wild ‘Gonzalez’ deals dreamt up by the then Chief Executive Carlos Criado-Perez in 1993.

The Future?

Well, that is speeding upon us and fast. Aldi and Lidl reset the food retailers cost base 15 years ago. Able to substantially undercut their bigger rivals on price yet still make 5% net returns (allegedly – as they are both privately owned it is hard to know for sure) by siting stores on brownfield marginal land, building stripped to the bare bones functional stores and operating them with a ruthless cost minimisation almost religious zeal.

Next and potentially seismically game-changing – true Armageddon if you like, or Judgement Day if you are an Arnie fan – could be Amazon’s much anticipated big scale move into grocery retailing here in the UK. A new tech-based, tech funded and in the eyes of the money markets. A tech rated disruptor player who will quite happily take a 10 or 15-year investment view. Plus, be (relatively) happy to pump gazillions into winning market share leadership before it turns a single penny (or cent) in profit.

If you currently own any UK supermarket shares – Be afraid, be very afraid.

Related Articles:

Category Management TipsSales - Selling Skills for Account ManagersSupermarkets Articles and Content

Share this Article:

Category Management

There’s More!

Improve your Personal Development with Resources Designed for You

Woman pointing down with purple down arrows
Pack of MBM Coaching card on yellow background

Get your Pack of Coaching Cards from Amazon

Sign up to receive regular articles on learning and development.

You may also like: