Morrison’s Promises To Compete Into Bankruptcy
This is something of a hostage to fortune: Morrison’s has promised to match prices with the other supermarkets in the UK. OK, they often do that against Waitrose (which is generally more expensive anyway), Sainsbury’s and the like but now, in a piece of majestic bravery, they’re going to try to go head to head with Aldi and Lil. And it’s really not certain that this is going to work out well either. For there’s a very large and very basic problem here:
Morrisons has announced a new price match system, which is set to exacerbate Britain’s brutal supermarket war.
The fourth biggest grocery chain said that in addition to price matching Tesco, Asda and Sainsbury’s, it would now do the same with discounters Aldi and Lidl.
The new price comparison and points system will see users automatically refunded card points, along with extra points for selected products and fuel.
Here’s what the problem is. The actual price a supermarket pays for something isn’t really what determines what it then tries to charge you for it. Sure, it has an influence and we’ll get to that in just a moment. But it’s all the other costs associated that do make up the total price. And when you think about it a supermarket is really just a logistics chain. That’s their real special sauce: being able to run the lorries and the warehouses that get everything into the stores so they can be sold but not too much so that the store overflows with things unsold. And that is also a very expensive part of their system.
And that’s the secret sauce at Aldi and Lidl. They typically carry only one brand of anything. One type of smoked Swiss cheese, say, instead of the offerings from several or many different manufacturers. And that makes all that logistics stuff a great deal cheaper.
There’s also that bit we’re just getting to. Byt stocking, in general, only one of anything this means that they’re buying in higher volume from that one producer. That means they get better prices.
The general consensus is that a full service (or full range) supermarket simply cannot compete directly on price with that Aldi/Lidl (and in Germany there’s several others as well, Penny Market, Billa and so on) strategy. But that’s exactly what Morrison’s has just committed itself to. It’s going to be, in a business sense, a bloody and bitter war. And not one that Morrison’s is necessarily going to win.
Posted: 2nd, October 2014 | In: Money Comment | TrackBack | Permalink
