The food fight shifts from price to quality

A little more than two months into his new role as Asda’s chief executive, Andy Clarke’s first meaningful declaration on the state of his empire was as brutal and honest as you’re likely to hear from an incoming business leader. “Food quality is something Asda hasn’t been as focused on in the past as it should have been,” he said. “Last year at Christmas we talked about our premium range but hadn’t done enough work on the product to allow us the credibility to shout about it.”

At the time, it seemed like a case of Clarke attempting to ‘kitchen sink’ the failings of the old regime at an early stage of his tenure, in the same way the new coalition Government has blamed the state of the economy on Labour’s legacy. But the news last month that Asda was to relaunch its entire standard own-label range with a new quality mark Chosen By You suggests that Clarke’s was a clever gambit aimed at preparing the ground for a change in direction at the UK’s second largest supermarket.

While Clarke was bemoaning the standard of Asda’s food, the retailer had been busy investing £100m in benchmarking, testing and reformulating 3,500 products to improve quality in what it claims is the largest ever single own-label relaunch in UK retailing history. Just one day after Asda’s announcement, Sainsbury’s followed suit with the relaunch of its top-tier Taste The Difference range complete with a host of new and improved products.

The timing may be coincidental but the relaunches themselves hint strongly that, following several years of banging the price drum, a flight towards communicating on quality is taking place within the grocery retail sector.

Quality test

Nowhere is this more apparent than at Asda, which has made no secret of its desire to improve its quality perception. “One of the challenges we have is that some customers have this ‘you get what you pay for’ mentality,” says marketing director Jon Owen. “Some of the task we face in marketing at Asda is explaining to people the strength of some of the products we have.”

Much of Asda’s focus in the run-up to Christmas will be on supporting its rhetoric by delivering better quality products at market leading prices. Owen says it was “very competitive on base price” last Christmas but concedes that “the balance of price and promotion wasn’t the big factor” in shoppers’ purchasing decisions. When consumers decided they wanted to treat themselves by trading up to a higher quality product Asda was found wanting.

Shore Capital retail analyst Clive Black says price has been “the only tool in the kit” for Asda for too long and claims it needs to achieve broader appeal if it is to continue to grow market share. “Asda still suffers some reputational limitations in terms of higher category foods,” says Black. “It needs therefore to attract customers with different views of what Asda actually offers but it needs to do that in reality rather than just talk about it.”

If the reasons for Asda’s pursuit of a quality stamp of approval are obvious they are less immediately apparent for Sainsbury’s, whose Taste The Difference range has always enjoyed a strong quality perception since it was introduced a decade ago.

Part of the rationale behind the relaunch, according to product brand marketing manager Stuart Wright, is to keep the Sainsbury’s offer in tune with a constantly evolving grocery market. “It’s about us recognising that customer trends change over the years and since we last relaunched Taste The Difference a lot has changed,” says Wright who headed up the project. “We took the decision last August to listen to the feedback from customers and we realised we needed to be a bit bolder, a bit more innovative with the range. This is one of the biggest activities we have done this year in terms of representing our quality credentials to customers.”

The recipes of roughly 400 products have been improved and 300 new products have been added to the 1,000-strong range. To support the launch, a new ad campaign went live on September 22 encompassing in-store events, sampling across 400 stores and a new Jamie Oliver TV campaign designed to talk about the breadth and high calibre of the range.

The branding unquestionably looks classier and the products - Pork Belly with Cider Sauce and Oak Smoked Salmon to name just two - scream of indulgence, but Wright insists this isn’t a case of Sainsbury’s reverting to selling elitist food now the worst of the financial crisis is over. The improvements to the range “are not necessarily reflected in higher prices” he says, nor is this a move that heralds the end of the recession. It is more an attempt to align Sainsbury’s own-label offer with changing consumer trends. As part of the relaunch, Sainsbury’s is introducing a new Bistro range - a selection of high-quality starters, mains and desserts - which Wright says will capitalise on the “ongoing trend for eating in rather than eating out”.

Sainsbury’s is also advertising 25% savings on hundreds of Taste The Difference lines, suggesting that communicating a compelling value message is still on its agenda. Sainsbury’s has undoubtedly been price competitive during the recession, despite in the main steering clear of the tit-for-tat price comparison-based advertising purveyed by Tesco and Asda that has often required adjudication from the Advertising Standards Authority.

“Sainsbury’s over the past five years has broadened its appeal,” says Black. “It’s brought in more everyday shoppers and more people to shop its grocery aisles through price investment and by making its own-label more attractive to more households.”

Wright says extending Taste The Difference continues Sainsbury’s work of democratising its grocery offer. “More than half of our customers buy both our Taste The Difference and our Basics range. To me that says customers have the opportunity to trade up if they want to and treat themselves to a tasty product. So yes, it has broadened our appeal.”

Traditional shopper stereotypes no longer apply, Wright believes. Consumers are comfortable straddling several product tiers, which means grocers that fail to satisfy demand at the quality end of the market, as well as at the value end, will inevitably suffer, as proven by Asda’s mediocre recent performance.

It’s not just about Asda and Sainsbury’s. Tesco has been running a campaign focused on the provenance of its products, from British apples to birthday cakes. In its six-month results statement, Morrisons noted that: “The pre-recessionary trend towards healthier eating and concern for the provenance and quality of food will strengthen again as the economic recovery takes hold.” The signs are that Morrisons chief executive Dalton Phillips has already identified effective communication of a quality message as a key pillar of Morrisons’ strategy under his command. Morrisons latest TV ad campaign puts a strong emphasis on the provenance, quality and freshness of its food and Phillips has also talked of his desire to “transform own-label into a distinctive Morrisons brand”.

Morrisons own-label participation is still “reasonably behind Tesco and Sainsbury’s”, according to Black.

“I know it has got The Best, but it doesn’t really compete in terms of authority or participation with something like Taste The Difference or Tesco Finest so we expect to see some activity there in the next 12 to 18 months.”

Battle of tills

Black believes own-label will be “a key battleground” for retailers as the UK emerges from recession, but he questions the assertion that messages around price competitiveness will cease to be relevant. He disputes whether price has been a battleground at all during this recession. “I’m not sure [the supermarkets] have banged the price drum particularly heavily,” he says. “Although there’s a bit of tub thumping now and again, in the main most of the retailers’ gross margins are firm if not rising.”

Communications, he points out, have been on value rather than price and have been “generic statements and bland reassurances as opposed to anything that amounted to serious gross margin investment”. Supermarkets have communicated a low-price message through deep cut, sustained promotional activity, but in reality a lot of retail prices on key commodity items such as tea and bread have risen sharply in recent years.

Following a period of relative calm since the turn of the year, food price inflation is set to rise again in the coming months. Cynics might argue that the sudden focus on quality is merely a mechanism through which a new round of price increases can be pushed through. With prices of key commodities set to rise steeply following poor harvests, communicating a strong price message will become increasingly difficult. Switching the focus to the quality of their offer could provide a convenient means for supermarkets to take the focus off unavoidable price hikes.

Yet, all the evidence suggests that price, and value for money, is not moving off the consumer agenda any time soon. Indeed, latest research suggests that a consumer recession is still in full swing. Asda’s Income Tracker showed a reduction in disposable income of 2.9% in August. This equates to a £5 per week decrease in family spending power compared with the same month in 2009 - the eighth consecutive month that family spending power has fallen.

“Family spending power continued to be eroded in August,” says Charles Davis, economist at CEBR, which compiles the Income Tracker for Asda. “The cost of an average household shopping basket keeps rising, while earnings growth fails to keep pace.”

In this context, price, or more importantly, value will continue to be key for grocery retailers. Despite the launch of Chosen By You, Asda’s current TV campaign continues to flag up the savings that can be made using its new Price Guarantee tool. Price transparency is, and will continue to be, “a major part of our marketing”, says Owen.

The difference this time is it won’t be at the expense of quality. “We’re sending a clear message that Asda will now drive as hard on quality as it does on price,” trumpeted Clarke at the launch of Chosen By You.

In that commitment, you can be certain Asda is not alone among its supermarket peers.