Price war scores where Retail Forum failed
Tesco Ireland has been making headlines since the end of last week, when they announced that they are going to be reducing prices by an average of 10% across 700 products sold in their stores.
This announcement comes after months and months of sustained grocery price inflation, with prices having skyrocketed since early last year in particular. It was reported in April that prices had increased by 16.8% during the first twelve weeks of 2023, and despite a fractional dip in May (for the first time in almost two years), grocery price inflation is still running in excess of 16%. These figures are undeniably an indictment of the state of the cost of living crisis, but also utterly redundant news for the everyday shopper, who by this point will certainly have noticed the difference for themselves at the till.
As such, Tesco’s recent announcement should be welcome news for struggling Irish shoppers. The cuts are also likely to spark a ‘price war’ by incentivising some of the rest of Ireland’s leading supermarkets to reduce their prices in response, and prompting a much-needed cost decrease across the board, a likelihood which has led many, such as Minister for Finance Michael McGrath, to deem the move a “significant turning point” for Irish grocery prices.
However, as sure as it is that Tesco’s string of price cuts represents a net positive for the consumer – both directly if you’re a Tesco shopper and indirectly (in a little bit, once other retailers catch up) if you’re not – it would be hard, and perhaps even naïve, to regard it as an entirely ‘good faith’ move on the part of the supermarket chain; that is, a move made with the sole intention of doing right by shoppers.
Tesco will benefit from this change even more than their customers do. Most obviously, though they will of course technically be making less per item on the included products, the news of their blanket reduction and the implication it carries of Tesco being a customer-focused retailer is sure to draw more than enough new consumers to the store to make up for (and indeed exceed) that loss in revenue.
While the cuts are welcome, this is not a case of Tesco valiantly taking a hit for the sake of customers’ wallets – it’s a case of marketing. The free advertising generated from the media circulating headlines about Tesco’s “massive price cuts” alone is invaluable, and especially so when juxtaposed with recent weeks’ headlines about Irish supermarkets being accused of, and condemned for, price-gouging and profiteering.
Previous to Tesco’s announcement, we were just beginning to see some real noise on the issue of supermarket price-gouging at government level. Last month, the Taoiseach confirmed there was evidence of profiteering on the part of food retailers, and over the past several weeks the topic has cropped up more and more in the Dáil, with elected officials calling on the Government to introduce fast-tracked measures to clamp down on price-gouging.
In the face of this backlash, Tesco slashing prices across hundreds of products is an incredibly good look for the store, and handily shields them a bit from the price-gouging accusations other supermarkets will have to continue defending themselves against. But the reality is that over the past couple of years, Tesco has been just as responsible as any other major retailers for the general trend of overpricing we’ve been seeing, and this new reduction, while of course welcome, doesn’t balance thing out; their prices rose 25% from 2022 to 2023, so the 10% cut doesn’t even put shoppers in the same position they were in this time last year.
Amid growing pressure to address the grocery price inflation we’ve been seeing, last month Junior Retail Minister Neale Richmond sat down with Ireland’s major retailers for the quarterly Retail Forum. Speaking to the media before the meeting, he highlighted that the possibility of introducing price caps would be “spelled out” to retailers, and a “frank discussion” needed to be had with supermarket representatives, who he said would be expected to explicitly prove they’re not profiteering. Reportedly however, when it came down to it, Richmond’s approach during the actual meeting was totally unconfrontational and far from the hard crackdown on grocery price inflation he had set it up to be when talking to the media beforehand. There was no talk of price transparency, evidence of price-gouging went unaddressed, and despite advising before the meeting that he would confront retailers with a dossier on price cuts, Minister Richmond simply never did so.
One could say that in many ways, last month’s Retail Forum served as much of a PR exercise as Tesco’s flurry of reductions, intended to give the impression that something significant is being done to lower prices, but really being more about the optics of making the move as opposed to achieving actual results. In fact, if anything, Tesco’s move has been the much more effective of the two.
Prices are expected to come down anyways in due course as we move through the year, following the fall in global commodity prices since mid-2022. The Government are aware that irrespective of what they do, the severity of this issue will ebb naturally in the coming months, so perhaps they have simply resigned themselves to remaining passive and unconfrontational on the issue until it resolves itself, or until major retailers like Tesco introduce enough PR-motivated reductions to compete with each other to the point where they ‘price war’ themselves back into affordability for the consumer.
Either way, it looks as though an end to ever-rising prices might finally be starting to come into view – and not a moment too soon. I was starting to worry Freddo bars would be bumped up to 50c.