New research from market research group Taylor Nelson Sofres Superpanel, revealed here for the first time, shows just how big a role these Temporary Price Reductions (as TNS dubs them) now play in Safeway's sales profile. The data relates to total packaged groceries and show that, at Safeway, promotions accounted for 30.5% of total sales in the 52 weeks to January 5, 2003. Dig deeper into the figures and you see that high:low price cuts by themselves generated 22.9% of total sales at the chain.
The data reprinted opposite gives a fascinating insight into how much each chain generates from promotions, and highlights which promotions are used most by which chain.
We have deliberately highlighted the promotional programmes of those now involved at whatever level in the Safeway auction. The reason is simple: with Safeway's future ownership unclear, many are wondering what will happen to high:low in the UK. The answer, obviously, depends on who wins the current auction for the country's fourth largest grocer.
As one retailer puts it: "If Morrisons wins, the stores will switch to offering a value proposition based on EDLP on KVIs and a strong promotional programme of 1,000 offers a month. If it's Asda then they will switch to EDLP. But if the venture capitalists win, then the high:low strategy would have to continue in some form as Safeway would still not have the scale needed to run EDLP or a value-based offer."
Safeway is already running more of a hybrid high:low offer, introducing the Price Cuts All Year Round' mechanic as part of its efforts to raise customer loyalty and capture more of their spend. As Jack Sinclair, Safeway's marketing and trading director, told The Grocer at the end of last year: "EDLP versus high:low does not exist. There are now hybrid versions of both in the market."
But some pundits are quick to point out that by diluting the original proposition Safeway may have put off some shoppers.
"Consumers have noticed that it has become more expensive," says Richard Perks, an analyst with Mintel Retail Intelligence.
Steve Gotham of Verdict Research says: "Price has become more important in the consumer buying psyche.
"Safeway said its pricing competitiveness was as good with a high:low proposition as the Asda and Tesco [model]. But the fact that it was making the change meant that consumers were not entirely buying into that approach."
The problem for Safeway, as with all the smaller multiples, is that the pricing gap between them and the likes of Asda and Tesco keeps on getting bigger. As the table opposite shows, the difference between Asda and Safeway is something like £2 on The Grocer 33 basket of core groceries.
And as the top chains continue to use their scale to drive down prices, the pressure on the smaller players will intensify. The dilemma facing such operators was starkly illustrated throughout the Competition Commission's report into supermarkets.
Its consumer survey, for instance, found that while two out of three shoppers looked for promotions, four out of five said they would prefer permanently low prices and fewer special offers and deals.
But if shoppers want lower prices rather than promotions, who is best placed to deliver them? Again, the Competition Commission seemed to have the answer. It showed how companies such as Safeway could not hope to enjoy the sort of terms that Tesco could win from suppliers. For every £100 spent by Tesco on126 core grocery lines, it found Safeway had to spend more £103.10 to be precise to buy fewer of those lines (121 of them).
The TNS research throws up another startling nugget: Safeway had a 16.5% share of all promotional spending on packaged groceries in the country in the 52 weeks to January 5, 2003 way ahead of its overall market share of 9.1%.
That would seem to support the many critics of high:low who claim its biggest drawback is that shoppers simply cherrypick the best deals and then leave the store.
Compare these figures with those of Tesco, which relied on promotions for just 15.2% of sales and yet still managed to capture 21.1% of all promotional spending (in line with its overall market share).
And yet high:low does provide the likes of Safeway and Somerfield with an important point of difference in a market where EDLP is increasingly winning the day.
The challenge facing those who plan to buy Safeway and run it as an independent chain is clear: what would they do differently to the current management to overcome the chain's lack of scale? After all, Criado-Perez & Co have hardly been slacking. Entrepreneur Philip Green, one of those in the frame to bid for Safeway, may find that buying groceries from pressured suppliers is far different to buying frocks from precious designers.
So should Green or investment house KKR win control of Safeway, we may yet see some form of high:low strategy remain in place. Should one of Safeway's rivals win the day, that strategy will be ditched leaving Somerfield as the last high:low retailer. But, somehow, the market just won't be the same without Safeway's Gonzalez programme.
{{ANALYSIS }}
The data reprinted opposite gives a fascinating insight into how much each chain generates from promotions, and highlights which promotions are used most by which chain.
We have deliberately highlighted the promotional programmes of those now involved at whatever level in the Safeway auction. The reason is simple: with Safeway's future ownership unclear, many are wondering what will happen to high:low in the UK. The answer, obviously, depends on who wins the current auction for the country's fourth largest grocer.
As one retailer puts it: "If Morrisons wins, the stores will switch to offering a value proposition based on EDLP on KVIs and a strong promotional programme of 1,000 offers a month. If it's Asda then they will switch to EDLP. But if the venture capitalists win, then the high:low strategy would have to continue in some form as Safeway would still not have the scale needed to run EDLP or a value-based offer."
Safeway is already running more of a hybrid high:low offer, introducing the Price Cuts All Year Round' mechanic as part of its efforts to raise customer loyalty and capture more of their spend. As Jack Sinclair, Safeway's marketing and trading director, told The Grocer at the end of last year: "EDLP versus high:low does not exist. There are now hybrid versions of both in the market."
But some pundits are quick to point out that by diluting the original proposition Safeway may have put off some shoppers.
"Consumers have noticed that it has become more expensive," says Richard Perks, an analyst with Mintel Retail Intelligence.
Steve Gotham of Verdict Research says: "Price has become more important in the consumer buying psyche.
"Safeway said its pricing competitiveness was as good with a high:low proposition as the Asda and Tesco [model]. But the fact that it was making the change meant that consumers were not entirely buying into that approach."
The problem for Safeway, as with all the smaller multiples, is that the pricing gap between them and the likes of Asda and Tesco keeps on getting bigger. As the table opposite shows, the difference between Asda and Safeway is something like £2 on The Grocer 33 basket of core groceries.
And as the top chains continue to use their scale to drive down prices, the pressure on the smaller players will intensify. The dilemma facing such operators was starkly illustrated throughout the Competition Commission's report into supermarkets.
Its consumer survey, for instance, found that while two out of three shoppers looked for promotions, four out of five said they would prefer permanently low prices and fewer special offers and deals.
But if shoppers want lower prices rather than promotions, who is best placed to deliver them? Again, the Competition Commission seemed to have the answer. It showed how companies such as Safeway could not hope to enjoy the sort of terms that Tesco could win from suppliers. For every £100 spent by Tesco on126 core grocery lines, it found Safeway had to spend more £103.10 to be precise to buy fewer of those lines (121 of them).
The TNS research throws up another startling nugget: Safeway had a 16.5% share of all promotional spending on packaged groceries in the country in the 52 weeks to January 5, 2003 way ahead of its overall market share of 9.1%.
That would seem to support the many critics of high:low who claim its biggest drawback is that shoppers simply cherrypick the best deals and then leave the store.
Compare these figures with those of Tesco, which relied on promotions for just 15.2% of sales and yet still managed to capture 21.1% of all promotional spending (in line with its overall market share).
And yet high:low does provide the likes of Safeway and Somerfield with an important point of difference in a market where EDLP is increasingly winning the day.
The challenge facing those who plan to buy Safeway and run it as an independent chain is clear: what would they do differently to the current management to overcome the chain's lack of scale? After all, Criado-Perez & Co have hardly been slacking. Entrepreneur Philip Green, one of those in the frame to bid for Safeway, may find that buying groceries from pressured suppliers is far different to buying frocks from precious designers.
So should Green or investment house KKR win control of Safeway, we may yet see some form of high:low strategy remain in place. Should one of Safeway's rivals win the day, that strategy will be ditched leaving Somerfield as the last high:low retailer. But, somehow, the market just won't be the same without Safeway's Gonzalez programme.
{{ANALYSIS }}
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