Tesco – pricing `strategies’

Tesco hits a new low with arrival of the £1.99 chicken – The Independent

By Martin Hickman, Consumer Affairs Correspondent

Wednesday, 6 February 2008

Tesco slashed the price of a whole chicken to £1.99 yesterday, in a move that critics warned would heap financial pressure on the poultry industry and make it harder to the improve welfare of factory-farmed animals.

Britain’s biggest supermarket chain said the price of a “standard” bird would be cut by 60 per cent until Sunday to help families on tight budgets, adding that it had doubled its order for higher-welfare chicken.

The animal welfare group, Compassion in World Farming (CIWF), said the arrival of a £1.99 bird was “depressing”, as it followed weeks of publicity and debate about the welfare of broiler chickens, arising from a Channel 4 series and campaign by the chef High Fearnley-Whittingstall.

Dr Lesley Lambert, the CIWF’s director of research and education, said: “£1.99 doesn’t reflect the real price of producing a chicken. At the moment, farmers make only 2p per chicken, so this will push them to the limit.”

She said that Tesco should be cutting the price of its higher-welfare chicken rather than its bottom-of-the-range birds. However, Tesco, which said that a family of four would now be able to eat a roast dinner for 99p each, claimed that it wanted to improve animal welfare while helping shoppers squeezed by “mortgage worries, energy price rises and inflation”. Jonathan Church, a company spokesman, said: “We have been working hard for a while to increase the amount of higher-welfare chicken we sell and the recent debate in the media about chickens has helped raise awareness of the choice available.

“But our investment in premium chicken should not be seen as a move away from providing more affordable options. No one should feel guilty for buying a chicken just because it is good value. The only reduction we make is in the price, not the welfare.”

The promotion – which was surprising given Tesco’s refusal to respond to a £2 chicken offer from Asda last year – could prompt a supermarket price war. Last night, a spokeswoman for Asda said: “We always endeavour to be best on price. As far as I know we have no plans to cut prices, but it might all change tomorrow.”

Sales of free-range chickens increased over the past month after Channel 4’s week-long series Hugh’s Chicken Run showed how the country’s 800 million broiler chickens lead cramped, painful lives compared with their free-range counterparts.

In a study published today in the Public Library of Science One journal, researchers at Bristol University found that, by the age of 40 days, 27 per cent of fast-growing indoor broiler chickens have walking problems. Three in 100 were completely lame. The study, funded by Defra, warned that only the introduction of slower-growing birds would improve welfare standards.

In his television show, Fearnley-Whittingstall divided a chicken shed in two to show how the lives of free-range and standard birds differ; his mass-produced birds had higher rates of leg burn and had to be culled in greater numbers.

Fearnley-Whittingstall said yesterday: “I’m very surprised [at Tesco] because everybody is selling out of free-range chicken. To launch a £1.99 chicken is in direct contradiction to a statement [the chief executive] Sir Terry Leahy made last summer when he said he didn’t want to get into a food price war on chicken.”

This sort of pricing activity confirms the following article in Monday’s Telegraph:

Tesco ‘curbs’ its suppliers’ prices – The Telegraph

By James Hall

Suppliers to Tesco, the UK’s biggest supermarket, have complained that the retailer is not allowing them to increase their prices until the end of its financial year in a bid to keep prices in its stores down.

In an attempt to counter food price inflation, suppliers say Tesco has halted any price increases until at least the end of this month, when its financial year ends.

Some claim the retailer has launched an initiative called “Project Iceberg”, which has frozen the price Tesco pays suppliers for goods.

One senior food industry source told The Sunday Telegraph: “Tesco is worried about soaring raw material prices, but wants to have a period of stable retail prices.”

A Tesco spokesman said that the retailer’s priority is to offer shoppers the lowest prices possible. He added that all food retailers are under growing pressure from rising prices. However the spokesman said that Project Iceberg does not exist and denied that there is any formal strategy to freeze price increases.

“It is a no-brainer that there is cost inflation in the system for the first time in 10 years. Our priority is to do what we can to protect the interests of the customers. Suppliers have always had to argue for price rises, and that remains the case,” said the spokesman.

He added that there may well have been price freezes in areas where there is particular cost pressure.

“It is down to individual relationships [between Tesco buyers and suppliers],” he said.

The commercial director at a leading ambient food supplier told Food Manufacturer, the magazine, that Tesco is playing hardball: “I haven’t witnessed anything like this in 10 years.

“Basically, they won’t give us anything until after the year end, and after that we don’t know what the line will be. It’s impossible to get price increases. It’s an unsquareable circle with raw material price inflation so pronounced.”

One retail observer said it is no surprise that food retailers are being strict with their suppliers. “Supermarkets’ margins are so thin that there is no wriggle room. The dynamic at the moment is very squeezed,” he said.

Wholesale food prices are estimated to have risen by 7.4 per cent over the last year.