Supermarket price wars – winners and losers

 

Following the announcement by the supermarket group Morrison’s of a £1 billion pounds worth of price cuts over the next 3 years there has been much media speculation as to the reaction from both its customers and its competitors.

Tesco has commented that it will respond with a vigorous pricing strategy which will result in abandoning its operating profit margin of 5.2% it is expected that Sainsbury will follow suit on pricing although it had a lower margin of around 3.25%.

With the big four supermarket groups controlling around 75% of the UK consumers will be anticipating considerable savings in their weekly shop.

But these price reductions will not merely be achieved by the supermarkets trimming their margins. The savings will have to be made on all elements of the supply chain.

Food manufacturers are in an unenviable position; the buying pattern for many continues to be “just in time” reflecting the need to keep inventories as low as possible.

However without the safeguard of a “buffer stock” they are now more than ever exposed to any spike in demand which sees them forced to having to “pay up” in order to secure the raw materials to keep their facilities in production.

At the same time suppliers will continue to face the problems of operating in the current economic background with buyers seeking to delay payment, renegotiate contracts etc.