John Wood
Procter & Gamble's European head Paul Polman has warned Tesco and Asda/Wal-Mart that their obsession with forcing down prices was driving value out of UK grocery and could cause permanent damage.
Speaking at the IGD 2002 Convention this week Polman said: "Categories and brands which should offer merchants value are being commoditised."
He warned that the UK could become like Germany, where discounters control half the market in some categories.
"The UK is not there yet, but Asda/Wal-Mart and Tesco are aggressively driving down non-food prices."
He added: "Will anyone be left standing? Everyone is running hard to stand still and value is being destroyed. It is getting harder and harder to cut costs."
Polman pointed to the nappy market, which was worth £500m three years ago but has since fallen in value by 30%, as an example of this trend.
He said: "Retailers are using price as a weapon, one cuts and all the others follow, but not one extra nappy is sold."
Polman said that as prices kept falling, greater pressure was placed on the innovation needed to delight consumers whether through the launch of added value products or differentiated marketing programmes.
In a panel discussion following Polman's speech Tesco boss Sir Terry Leahy was challenged by the convention chairman Michael Buerk to defend his company against charges that it was destroying value all round.
Leahy said: "If you look at the development of modern economies over the past 200 years, the truth is that goods get cheaper."
As a result he accepted there was always this tension at the heart of business and said the real challenge was finding ways of creating new value.
He also said: "It's not just about price, it's about improving the marketplace for the shopper. We are not destroying value, we are destroying waste."
However he conceded that online auctions, the tool that most suppliers blame for driving down prices, could distort the market.
"Online auctions can be used or abused. We need to find a way to use them that can benefit everybody."
>>p12 IGD Convention
{{NEWS }}
Procter & Gamble's European head Paul Polman has warned Tesco and Asda/Wal-Mart that their obsession with forcing down prices was driving value out of UK grocery and could cause permanent damage.
Speaking at the IGD 2002 Convention this week Polman said: "Categories and brands which should offer merchants value are being commoditised."
He warned that the UK could become like Germany, where discounters control half the market in some categories.
"The UK is not there yet, but Asda/Wal-Mart and Tesco are aggressively driving down non-food prices."
He added: "Will anyone be left standing? Everyone is running hard to stand still and value is being destroyed. It is getting harder and harder to cut costs."
Polman pointed to the nappy market, which was worth £500m three years ago but has since fallen in value by 30%, as an example of this trend.
He said: "Retailers are using price as a weapon, one cuts and all the others follow, but not one extra nappy is sold."
Polman said that as prices kept falling, greater pressure was placed on the innovation needed to delight consumers whether through the launch of added value products or differentiated marketing programmes.
In a panel discussion following Polman's speech Tesco boss Sir Terry Leahy was challenged by the convention chairman Michael Buerk to defend his company against charges that it was destroying value all round.
Leahy said: "If you look at the development of modern economies over the past 200 years, the truth is that goods get cheaper."
As a result he accepted there was always this tension at the heart of business and said the real challenge was finding ways of creating new value.
He also said: "It's not just about price, it's about improving the marketplace for the shopper. We are not destroying value, we are destroying waste."
However he conceded that online auctions, the tool that most suppliers blame for driving down prices, could distort the market.
"Online auctions can be used or abused. We need to find a way to use them that can benefit everybody."
>>p12 IGD Convention
{{NEWS }}
No comments yet