Asda's Every Day Low Pricing is rewriting the promotional rule book for marketers trying to sell their brands, and is changing the competitive face of grocery retailing. But will it last? And is there a danger in being too dogmatic when it comes to pricing strategies? The Grocer has surveyed 100 suppliers, and found 82% resigned to EDLP surviving at least three years. But while 86% said consumers would, for the time being, see a benefit,one in three said price cutting was damaging their business and their brands, and would eventually undermine the product offer to the customer. There is no doubt that in-your-face, traditional money-off promotions in supermarkets are in decline and that the overriding message in store and on surrounding literature is one of permanent good value. Nevertheless, promotions are not disappearing across the board with many following Tesco in adopting a combination of lower prices across KVIs and promotions. It is a middle ground Morrisons has long occupied to its benefit. Safeway, on the other hand, has rejected the EDLP route altogether. While some have written off its strategy as desperation tactics, Safeway's extreme high/low strategy is generating a lot of interest and providing good value without going down the route of ultimate boredom some fear for Asda. Safeway has reduced the number of promoted lines by 50% in favour of much deeper discounts. Director of communications Kevin Hawkins said: "Our experience of high/low has been dramatically positive. Our customers are voting with their feet." The upward sales trend is said to be large, and exactly how it has done will be revealed when it reports in May. Waitrose, too, is standing by its policy of offering multi-value promotions ­ though not of the depth seen at Safeway ­ and expects to benefit as shoppers migrate from EDLP boredom into its stores. Buying director Steven Esom said: "All customers are attracted to promotions. If we're offering them and others aren't, they'll be attracted to us. If any ingredient is missing in the retail offer, it won't be as interesting." It is in part the boredom factor that is leading some to question the longevity of EDLP. One supplier told The Grocer that Asda's Rollback might excite shoppers for the time being but noted: "How long consumers will remember savings of often less than 5p remains to be seen." Martin Hayward of the Henley Centre echoes this view. "Many people are now saving money not out of necessity but because it has become a bit of a game. Consumers are continually being educated that they can always buy things cheaper, and now it's fashionable not to pay the full price for anything." Does EDLP really satisfy that hunger for a challenge? David Bonney, group client director at Glendinning Management Consultants, thinks not. "Stores look boring with featureless walls of products. US-style, in the long-term, is not the right way for the UK. "The US supermarket sector is declining as people eat out more. Here stores have been appealing enough for that dynamic not to have taken off to such a level. But if stores in the UK were to become less and less appealing to visit, some conventional packaged grocery lines would go into decline." Asda, certainly, is aware of the pitfalls of removing theatre in store. Crowd pullers such as cut price microwaves and televisions are already used in high profile positions and Bonney believes it needs to sustain non food promotions to retain shopper interest. But Waitrose's Esom doubts a dual strategy will pay off. "Customers want a stimulating and interesting place to shop. Food promotions are a part of that. It is unrealistic in the grocery sector to expect customers to think differently in two parts of the shop. The primary drive for that trip is to buy food." So consumers over the long term could be confused by the message's lack of clarity. Instore theatre aside, some suggest EDLP is not sustainable under different economic conditions. And Bonney questions whether Asda can continue to roll out Rollback indefinitely. "We're in a time of low inflation in which it is always difficult to put prices up, which in turn exaggerates deflationary pricing trends." But what happens when inflation returns to the economy and the pound, slipping off its long established perch, makes imports more expensive once more? Bonney says shoppers will expect prices to remain constant under EDLP so even raising them to meet inflationary demands will be harder ­ not to mention raising them enough to maintain margins. Should there be the slightest whiff of economic circumstances changing, Asda could be forced into a rethink on its feet. And there could be trouble if Asda decides it wants a promotion and the suppliers have already invested their promotional budget in EDLP. Asda, in the meantime, is adamant it can stick to EDLP and that this isn't just another promotional gimmick. This week it announced a £7m investment in Rollback across Easter lines from fresh meat to greetings cards. A spokesman said: "This isn't about taking £1 off for two weeks ­ but 10p off week in and week out." But the chain has already been admonished for confusing shoppers when it promised to roll back prices which later rose. Asda claims this was simply an oversight when a 12 week promotion was labelled Rollback'. "We've now renamed those types of promotions, but significantly many of the products included in that original 12 week run have not returned to the previously higher price. "Out of the 4,000 prices we rolled back last year, 3,600 have stayed at the lower price. We intend to step that up up 50% this year to 6,000 items." Products operating from a lower price point should do so for at least a year and those which reverted to a higher price would only do so if hit by inflationary pressure within their own markets or because of other external factors, the multiple says. But then there are the exceptions. Heinz salad cream has seen its cost price double, meaning an increase in the price shoppers will pay. Out of Asda's control, but nonetheless confusing for the customer. Kit Kat, on the other hand, has been rolled back twice. Asda says it is funding its cuts through the one million extra customers wooed last year. Sceptics have suggested that in the long term it will be forced to fund it in part through price hikes on non Rollback items. It is not just Asda that is convinced EDLP is here to stay. And some have welcomed the end of promotion mania. A recent IGD report highlighted what it termed "concern" about escalating promotional costs during the past five years. It puts the figure spent on promotions at £3bn a year and points to how industry conferences have revealed that volume and profit benefits can be doubtful and consumer reaction indifferent. Promotions are not viable in the long term, this suggests. One supplier also supported Asda's move to cut promotional clutter. He said the chain's policy doesn't have the same overheads as the others' and Asda is prepared to accept lower gross margins to keep prices low. "Multiples with bigger margins and higher costs, such as Tesco, simply can't afford to adopt EDLP across the board and instead are simply painting a picture of it using key KVI lines," he said. And despite the groans from some quarters, many EDLP savings are being made from improved supplier/retailer efficiencies and slicker trading arrangements. Scott Annan is a director at retail marketing consultancy SRCG. He says the best retailers ­ particularly Asda and Tesco ­ are creating seamless supply chains' that help bring end prices down. "Retailers who say to their suppliers give us a better price' are rapidly becoming dinosaurs. The bigger manufacturers will simply not deal with them and instead begin to channel resources to others such as Tesco, Asda and Morrisons that want to form real partnerships." For Jonathan Smith of Axis Management Consultants, it is the potential to strip further costs out of the supply chain that will ensure EDLP has life beyond the medium term. "Manufacturers are being forced to look at cost structures in a new way. There is a radical restructuring of the supply chain taking chunks out of it. The way EDLP is linked into this cost slicing makes it sustainable. It's not just a profit drain on whoever's bearing the brunt of the cuts. We're talking about taking wodges of cost out of the business rather than just shaving it at the edges." But even at Asda, EDLP does not mean the end of the promotion for good. Annan says: "If there is an opportunity to promote, it will, but not on KVI lines and they will not follow the high-low strategies of old. They are more likely to bring in special products to run promotions." And Annan insists Asda and its suppliers will not strip prices to such a degree that there is no money left in the pot for innovation and marketing. "It will be stripping out any costs it can legitimately take out to run EDLP but which will still ensure it can carry on innovating. "Asda clearly recognises that prices have to be maintained at a level where there is room for development ­ and there will still be some room for promotions. "We are only just beginning to scratch the surface of category management. We will soon see retailers and brand owners really starting to appraise who their customers are and who the profits really come from. They can then start to target individuals. In the future this might be in the form of advertising on individuals' web sites, but for now is more likely to mean direct mail or personal messages at the checkout that will target shoppers lifestyles and needs." The promotion is certainly not dead, just evolving. We will increasingly see brand building and promotions taking place outside the traditional retail environment. So EDLP will continue for the time being as retailers have to deliver the hype as well as keep a low profile while the competition investigation continues. But some categories will still return to the high/low tactics of the past. There are already reports of retailers that have been pursuing EDLP type scenarios now asking for major promotions on some products. While insiders say even Asda top dogs are taken aback by the success of Rollback, how well it continues in the long term will also depend on how well it is communicated to the customer. Rollback has had a blitz of free publicity from price war stories. But what next? How do you keep the shopper intrigued by blanket bargain boxes? Major suppliers are forecasting that EDLP is here to stay. But will that mean deeper price cuts on existing EDLP lines, or across more categories? Both, says Asda. And as the main combatants play a game of tit-for-tat price slashing, opportunities to support launches will remain limited and slots for products without a proven performance will be in short supply. Hold on ­ it's going to be one helluva ride! n {{COVER FEATURE }}

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