Analysis: How shoppers weigh up retail value and values after Sainsbury’s and Tesco row

If the spat between Tesco and Sainsbury’s over last week’s Advertising Standards Authority (ASA) ruling appeared to have more spice than the average supermarket baattle, it is perhaps because it touched raw nerves on both sides.

The ASA ruled that comparisons between Tesco own-brand products and those of Sainsbury’s made as part of the Tesco Price Promise promotion were acceptable.

At the crux of the subsequent row between the two retailers was a question posed by Sainsbury’s in adverts following the ASA decision. To what extent was it fair to compare products such as Tesco’s loose bananas with Sainsbury’s Fairtrade ones, or EU versus UK-sourced ham?

“Same price, different values”, Sainsbury’s ads maintained. They concluded: “They cost exactly the same. But it’s what you can’t see that makes the difference.”

Sainsbury’s was making a point about the importance of product provenance, but how do shoppers view it and how much appeal does it give retailers?

Since Sainsbury’s chief executive Justin King’s appointment in 2004, the grocer has used ethical food sourcing to lure shoppers. It joined The Co-op, Waitrose, Marks & Spencer and Booths in making responsible sourcing a focal point. King’s often-used phrase “value for values” became a mantra as the downturn ate into consumers’ budgets - as Sainsbury’s emphasised its provision of ethically sourced products at affordable prices.

Sainsbury’s group commercial director Mike Coupe says the latest dispute is much bigger than the usual supermarket kick-about. “The danger is that this debate could easily be dismissed as another example of an unseemly row between two big companies in a competitive marketplace,” he warns. “But it runs far deeper than that.

Values are fundamental to the way we do business and drive everything we do.”

Sainsbury’s has not been afraid to invest in its ideals. Its far-reaching 20 by 20 Sustainability Plan, revealed in 2011, includes ambitious goals such as doubling the amount of British food sold, only selling sustainable fish and hitting £1bn of Fairtrade sales by 2020.

Tesco, meanwhile, has committed to be a zero-carbon business by 2050, invested £25m in sustainable farming groups and vowed to source products that are “to the highest standards and are honestly labelled”.

For Tesco, the ASA ruling provided vindication for a promotion it has dubbed an innovation - it was the first grocer to include own-brand products in its price-matching scheme.

However, uncomfortably for Tesco, Sainsbury’s high-profile campaign to advertise the quality of its own-brand offer came in the wake of the horse meat furore earlier this year. Several Tesco products were discovered to contain horse meat, while Sainsbury’s avoided being tainted by the scandal. Attempting to rid itself of suspicion among consumers that its sourcing is not on par with rivals, Tesco’s Love Every Mouthful campaign is designed to highlight its links to fresh food and its producers.

Price versus ethics

A key argument put forward by Tesco and disputed by Sainsbury’s has been that, at the value end of the market,
ethical considerations are not key to purchasing decisions.

But Coupe argues that grocers should not be able to act as “a custodian of ethical decision-making”. He says: “We can’t accept the idea that the less you have to spend, the less right you have to care.”

So how does price impact ethical shopping? Significantly, on the evidence of consumer trends.

“Demand for ethically sourced goods was growing strongly up until the recession hit in 2008,” says Chris Webster, UK vice-president for consumer products and retail at consultancy Capgemini.

“Until this time, customers were feeling confident and they had a little extra cash to spend. However, the harsh reality is that when customers’ disposable income shrank - and is still shrinking -they sought the most economic way of feeding their families and demand for ethical and proven provenance reduced. This demonstrated that customers were not prepared to pay more for these products,” Webster says.

Research conducted for Retail Week last year by consultancy ICM showed that 53% of shoppers were not willing to pay more for ethically sourced products and 72% of shoppers considered ethics only a little or not very much when deciding which product to buy.

Managing director of insight consultancy Shoppercentric, Danielle Pinnington, observes: “There are still the hardcore ethical shoppers who will pay for their principles, but your average shopper will only be willing to pay more if there is a definable quality difference.”

While the implication may be that lower income households don’t care about responsible sourcing, the more likely reality is that price is simply higher on their agenda.

So how can retailers absorb the extra cost of sourcing sustainably - such as higher premiums to producers - to deliver value and values?

The easiest wins frequently occur when there is a business case for them. For example, an industry-wide drive to reduce carbon emissions in the supply chain has helped reduce energy bills, while Waitrose has diverted 100% of its food waste to anaerobic digestion, reducing Landfill Tax costs. However, such projects require long-term collaboration between retailers and suppliers, which can be challenging to maintain.

Moreover, perhaps it is telling that the retailers with an unrelenting focus on driving out cost to provide low prices are the retailers that highlight responsible sourcing in their marketing the least.

Marketing out the difference

The growth of ethical label schemes and their use on packaging has been remarkable. Retailers have used them to reassure shoppers about their impact on the planet and the population in an increasingly globalised grocery industry.

The Fairtrade mark is the most recognised label of its sort in the UK, recognised by 78% of shoppers, and trusted by nine out of 10 consumers. In 2012, Fairtrade sales topped £1.5bn - growth of 19% from the previous year.

But while Fairtrade has boomed, other ethical categories have floundered.

Organic sales hit £2.1bn at the market’s height in 2008 as shoppers sought products free from pesticides and were prepared to pay the premiums. However, figures released by the Department for Environment, Food and Rural Affairs in June showed that organic farming hit its lowest level since records began in 2002 - just 605,329 hectares of land were farmed organically last year.

Pinnington argues that clear communication is vital: “The marks shoppers understand are those that have a clear story behind them. Red Tractor is a familiar image but isn’t really understood yet - most shoppers recognise it as being about British, but is that locally sourced and are there any quality credentials with it? Those are the additional elements of the mark that aren’t understood,” she says.

However, it appears likely that ethical marks are here to stay and the next level of sustainable sourcing is around the corner. Ensuring sustainable water use in the supply chain is already rising up the agenda, driven by suppliers including Unilever.

Moreover, the next level of Fairtrade is emerging via the Fair for Life certification. The mark, created by the Institute for Marketecology, aims to drive responsibility and fair prices throughout the supply chain, from producers and manufacturers to handlers and brand holders.

The comeback trail

If campaigners for responsible sourcing needed a boost, then 2013 has been their year. The collapse of the Rana Plaza factory in Bangladesh, killing 1,127 people, on top of the earlier horse meat controversy, highlighted the potential not only for contamination in Western retailers’ supply chains but for tragedy too.

“The horse meat scandal showed just how far the pressure for low-cost products had pushed the industry’s supply chain into a criminal world,” Webster says. “Supermarkets and suppliers have significant blame - so do we, the customers, for pushing for ever-cheaper sources of food.”

Major grocers responded swiftly to the horse meat crisis. Morrisons and Aldi went on a marketing offensive to highlight their British meat credentials, and the former appeared vindicated in its strategy of acquiring British manufacturers and processors to give its supply chain transparency.

In February, Morrisons launched a high-profile advertising campaign featuring TV presenters Ant and Dec that
highlighted the provenance of its food, sourced from its own farms.

The quantity of British meat available to supply supermarkets’ increasing demand has since been called into question by farmers.

Tesco chief executive Philip Clarke vowed to lead industry change at the National Farmers’ Union AGM in February and has since appointed respected NFU corporate affairs director Tom Hind as group agriculture director.

Pinnington says horse meat is among a number of factors driving shoppers back to ethical products. “While initially the downturn forced shoppers to focus on value, there have been some big factors causing them to realise they can and should make choices beyond value. Milk pricing, corporate tax, horse meat, the Bangladesh factory collapse and supporting local businesses have led shoppers to appreciate that their spending can have an impact on business
decisions,” she says.

Authenticity and transparency are likely to be two key factors consumers will demand as the grocery industry seeks to shrug off horse meat’s damage. While sales of affected products are recovering to pre-scandal levels, trust in supermarkets has been eroded.

Sainsbury’s has made consumer trust its point of difference, and the grocer will be eager to maintain that as it aims to gain ground over its archrival.