Tesco sparks supermarket price war by slashing price of milk

By Sofia Munez 0

  • Price represents a cut of 39p and is part of a plan to win back customers
  • New lower price of milk undercuts rivals Sainsbury's and Morrisons
  • Tesco taking action to regain customers lost to budget chains Aldi and Lidl
  • Chief executive Philip Clarke has admitted that the chain failed to help customers during the economic downturn
  • Cuts on products including fruit and veg part of £200m savings package

By Sean Poulter, Consumer Affairs Editor and Lucy Crossley

PUBLISHED: 17:47 GMT, 3 March 2014 | UPDATED: 11:42 GMT, 4 March 2014

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Britain's biggest supermarket Tesco has sparked a price war over milk, by slashing prices to just £1 for a four pint carton

Britain's biggest supermarket Tesco has sparked a price war over milk, by slashing prices to just £1 for a four pint carton

Britain's biggest supermarket Tesco has sparked a price war over milk, by slashing prices to just £1 for a four pint carton.

The new lower price undercuts rivals Sainsbury's and Morrisons by 39p and makes it as cheap as Asda, with the chain using milk as a key weapon to win back customers who have deserted to rivals.

Tonight the chain's website was proudly proclaiming its cut-price milk, displaying the new price on its homepage along with the slogan 'Prices down and staying down'.

Reducing the price of milk is part of a wider set of cuts on food essentials by the supermarket, including some to the price of fruit and vegetables, which form a package claimed to deliver savings of £200million.

The reductions are being financed by a cut in Tesco's profit margin and are part of a shift from short term promotions to permanently lower prices.

Tesco is taking drastic action to win back shoppers and market share after many people switched away from the UK’s biggest grocer to budget chains like Aldi and Lidl.

Asda already sells milk at the low price of £1 for four pints, however the move by Tesco will put pressure on Sainsbury’s, Morrisons and the Co-op, to follow suit.

Just last week Tesco's chief executive Philip Clarke admitted the chain had failed to help customers during the economic downturn, and announced price cuts on food essentials, as well as a Fuel Save scheme enabling club card holders to save on the price of petrol.

He told investors: ‘The least affluent customers and middle income families are being forced to make choices.’ 

Mr Clarke added: ‘Businesses which don’t change with the times don’t succeed and we did not change enough, not enough for our customers. But now we have changed.’

Reducing the price of milk is part of a wider set of cuts on food essentials by the supermarket, including some to the price of fruit and vegetables, which form a package claimed to deliver savings of £200million

Reducing the price of milk is part of a wider set of cuts on food essentials by the supermarket, including some to the price of fruit and vegetables, which form a package claimed to deliver savings of £200million

Tesco is taking drastic action to win back shoppers and market share after many people switched away from the UK's biggest grocer to budget chains like Aldi and Lidl

Tesco is taking drastic action to win back shoppers and market share after many people switched away from the UK's biggest grocer to budget chains like Aldi and Lidl

JUST HOW MUCH IS FOUR PINTS OF MILK? (AND OTHER KITCHEN STAPLES)

Four-pints of semi-skimmed milk

Tesco £1 (was £1.39)

Asda £1

Waitrose £1.39

Sainsbury's £1.39

Morrisons £1.39

800g white sandwich loaf

Tesco £1.30

Asda £1

Waitrose £1.30

Sainsbury's £1.30

Morrisons £1.30 (for a white split tin loaf)

Bag of Cox's apples

Tesco £1 (minimum 5 per pack)

Asda £1 (600g)

Waitrose £2 (minimum 6 per pack)

Sainsbury's £1.50 (minimum 6 per pack)

Morrisons 99p (minimum 5 per pack)

Mr Clarke also said that the company will do away with ‘frivolous’ price promotions to a regime of permanent lower prices on food essentials bought every week.

He said: ‘Prices must get better and must be more stable. Frivolous promotions must end and trusted ones should be in place and that will start now.’ 

The UK managing director, Chris Bush, said price cuts on everyday essential foods have been brought forward specifically to match the low figures at firms like Aldi and Lidl.

Addressing the growth of Aldi and Lidl, Mr Clarke told The Telegraph: 'You can’t ignore them. No retailer can. You have got to have sharper prices and better quality. But you can’t just be them, because you are not them.'

Tesco claims its reduction on milk, plus others on carrots, tomatoes, onions, peppers and cucumbers, will save many customers £100 a year.

However, the National Farmers’ Union (NFU) fears Tesco's aggressive initiative to slash the price of milk will come at the expense of its struggling members.

Any resulting dairy price war could drive down the figure that the nation’s dairy farmers get for their milk, cheese, butter and cream.

Farmers fear the move sends out the wrong signal by portraying milk as a cheap commodity food, rather than a high quality and important food worthy of a strong price.

The supermarket ran into a similar furore with farmers in 2008 when it began selling standard fresh roasting chickens for just £1.99 each – a saving of £1.31.

The chain said the temporary deal would help shoppers on a budget, however farmers then, as now, warned it was devaluing an important food produced to high standards.

Tonight the chain's website was proudly proclaiming its cut-price milk, displaying the new price on its homepage along with the slogan 'Prices down and staying down'

Tonight the chain's website was proudly proclaiming its cut-price milk, displaying the new price on its homepage along with the slogan 'Prices down and staying down'

The store gets its milk from some 700 farmers who are members of the Tesco Sustainable Dairy Group (TSDG). The reduction on shelves will not affect them because they price they get is based on a formula that gives them enough to cover the cost of production plus a premium.

NFU dairy board chairman Mansel Raymond said Tesco was devaluing milk, and called on other retailers to resist a price war on milk and dairy foods

NFU dairy board chairman Mansel Raymond said Tesco was devaluing milk, and called on other retailers to resist a price war on milk and dairy foods

The NFU fears the reduction will fuel a general drive towards price cuts that will affect a wider group of dairy farmers.

Its dairy board chairman, Mansel Raymond, said: ‘What on earth are we doing devaluing milk? This sends the completely the wrong message.

‘I would have expected more leadership from Tesco.’

Mr Raymond called on other retailers to resist a price war on milk and dairy foods.

Dairy farmers get paid about 17p a pint for milk at the farm gate. For many this means they are producing milk at a loss, which has forced a number out of business.

Tesco insisted the milk price cut is both fair to shoppers and farmers. Its commercial director, John Scouler, said: ‘We care about our milk and where it comes from, which is why we set up the TSDG.

‘We promise that our farmers will always be paid a fair and independently agreed price for their milk, so they can invest in the future of their farms and provide higher welfare standards for their cows.

‘When our customers buy their milk at Tesco, they can be confident that it’s responsibly sourced and at a fair price for all.'

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