Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

Savings and algorithms: UK supermarkets battle cost of living crisis

Savings and algorithms: UK supermarkets battle cost of living crisis

Facing the toughest economic conditions in decades, Britain's supermarkets are cutting product ranges, searching for cost savings and patrolling each other's stores to check prices and products as they try to stay one step ahead.

Like retailers across the world, UK grocers including market leader Tesco (TSCO.L) and No. 2 Sainsbury's (SBRY.L) are struggling with the soaring cost of supplies, a shortage of key products and workers, and cash-strapped consumers.

But they enter the downturn on the back of an already lengthy period of cost cutting due to fierce competition, forcing them to look for new ways to make savings while increasingly using data to predict customer reactions to change.

"I spend a lot of time in our competitors' (stores), all of the team do too, we're constantly looking at what they're doing," Sainsbury's CEO Simon Roberts told Reuters.

While passing on some price rises to customers and taking a hit to profit margins themselves, supermarkets are fighting to limit the pain for consumers on their most important lines, like fresh fruit and vegetables, meat, fish and poultry.

"They'll all be looking at their relative performance and their relative price position like never before, because that's in the end what counts, their relative position to everybody else on price," said one grocery industry veteran, speaking on condition of anonymity.

Tesco and Sainsbury's are both matching prices on key items with German-owned discounter Aldi, seen as the low-price benchmark.

Prices are rising after the war in Ukraine restricted supplies of sunflower oil and boosted wheat and animal feed prices - pushing up the cost of meat, dairy and bakery products. Soaring energy and fuel prices, as well as increased labour and transport costs, have added to the mix.

UK grocery inflation hit 8.3% in June, a 13-year high, according to market researcher Kantar, forcing shoppers to cut back and buy cheaper ranges. U.S. bank Citi said UK food price inflation could hit 20% early next year.

RANGES


One focus for supermarkets is reducing the range of products they offer, with their ability to sell multiple types of, for example, olive oil, beans or toilet roll no longer seen as a priority for customers.

While supermarkets sought simplification before, the quest for new savings means they are attacking it with renewed vigour, as focusing their buying power allows them to get better terms.

In the last year, Tesco reduced the number of lines it sold of dairy alternatives, such as oat and almond milk, by 47%, leading to a 4% improvement in availability in retained lines.

Similarly, a 19% reduction in the amount of yoghurt lines led to an 11% improvement in availability.

Privately-owned Asda said it reduced its food range by 12.5% last year, primarily by removing duplicate products. However, the introduction of more budget products meant its range has increased by 2.5% this year.

The approach fits with steps taken by French food giant Danone (DANO.PA), the world's biggest yoghurt maker, which is cutting the variety of products it sells, including the number of flavours and packaging size options.

"If you halve your range in an area then the half that you've got left instantly becomes twice as fast selling on average, assuming you haven't lost a customer on what you've discontinued," said the grocery industry veteran.

"And if you're moving from two suppliers to one supplier then your terms with that supplier can improve dramatically."

ALGORITHMS


Supermarkets can reduce ranges more effectively than in the past by using customer data and analytics to predict whether shoppers will accept an alternative brand or not.

"The role that algorithms play now in understanding the commercial model is super important," said Sainsbury's Roberts.

"We've got some more innovation but also we've trimmed certain categories as well," he said.

With Britain's supermarkets operating on margins of only around 3%, they also need to make savings across the business.

"If we're going to invest 500 million pounds on bringing prices down, or 100 million pounds this year, 200 million pounds over two years, investing in colleagues, then we have to find efficiencies," said Roberts.

Market-leader Tesco has leveraged highly publicised price matching offers and a popular "Clubcard Prices" loyalty scheme to agree good terms with suppliers, enabling it to ensure that where it has to raise prices it tries "to ensure it is a little bit less and a little bit later than the rest of the market," it says.

But tensions with some suppliers are rising. On Wednesday, U.S. food giant Kraft Heinz (KHC.O) stopped supplying some products to Tesco after the grocer resisted higher prices.

While, like Sainsbury's, Tesco has warned of a hit to profits this year, industry data shows it is consistently outperforming rivals on a sales value basis, along with discounters Aldi and Lidl.

"Our ambition is to outperform the market, we can't control the environment, which of course remains incredibly challenged and frankly looks like it's getting more challenging," CEO Ken Murphy said.

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Putin Celebrates ‘Unprecedentedly High’ Ties with China as Gazprom Seals Power of Siberia-2 Deal
China Unveils New Weapons in Grand Military Parade as Xi Hosts Putin and Kim
Rapper Cardi B Cleared of Liability in Los Angeles Civil Assault Trial
Google Avoids Break-Up in U.S. Antitrust Case as Stocks Rise
Couple celebrates 80th wedding anniversary at assisted living facility in Lancaster
Information Warfare in the Age of AI: How Language Models Become Targets and Tools
The White House on LinkedIn Has Changed Their Profile Picture to Donald Trump
"Insulted the Prophet Muhammad": Woman Burned Alive by Angry Mob in Niger State, Nigeria
Trump Responds to Death Rumors – Announces 'Missile City'
Druzhba Pipeline Incident Sparks Geopolitical Tensions
Cost of Opposition Leader Péter Magyar's Economic Plan Revealed
Germany in Turmoil: Ukrainian Teenage Girl Pushed to Death by Illegal Iraqi Migrant
United Krack down on human rights: Graham Linehan Arrested at Heathrow Over Three X Posts, Hospitalised, Released on Bail with Posting Ban
Asian and Middle Eastern Investors Avoid US Markets
Ray Dalio Warns of US Shift to Autocracy
Eurozone Inflation Rises to 2.1% in August
Russia and China Sign New Gas Pipeline Deal
Von der Leyen's Plane Hit by Suspected Russian GPS Interference in an Incident Believed to Be Caused by Russia or by Pro-Peace or by Anti-Corruption European Activists
China's Robotics Industry Fuels Export Surge
Suntory Chairman Resigns After Police Probe
Gold Price Hits New All-Time Record
UK Fintechs Explore Buying US Banks
Greece Suspends 5% of Schools as Birth Rate Drops
Apollo to Launch $5 Billion Sports Investment Vehicle
Bolsonaro Trial Nears Close Amid US-Brazil Tension
European Banks Push for Lower Cross-Border Barriers
Poland's Offshore Wind Sector Attracts Investors
Budapest Central European Fashion Week Kicks Off
U.S. Celebrates Labor Day
Hungarian National Team Captain Scores Epic Goal
EU is getting aggressive: Four AfD Candidates Die Unexpectedly Ahead of North Rhine-Westphalia Local Elections
Japanese Customer Sways from VW to BYD after “Unbelievable” Test Drive amid Dealership Expansion
Nestlé Removes CEO Laurent Freixe Following Undisclosed Relationship with Subordinate
Pickles are the latest craze among Generation Z in the United States.
Giuliani Seriously Injured in Accident – Trump to Award Him the Presidential Medal of Freedom
Deadline Day Delivers Record £125m Isak Move and Donnarumma to City
Nvidia Reveals: Two Mystery Customers Account for About 40% of Revenue
Woody Allen: "I Would Be Happy to Direct Trump Again in a Film"
Lula and Putin Hold Strategic BRICS Discussions Ahead of Trump–Putin Summit
White House Eyes Budapest for Peace Talks
Cave Diving Beneath the Streets of Budapest
Another American Restaurant Chain Opens in Budapest
Hungarian Opposition Politician Supports Ukrainian Commander
Opposition Leader Threatens Media Outlets
American Airlines Adds New Flights to Budapest
F1 Hungarian Grand Prix Wraps Up
WhatsApp is rolling out a feature that looks a lot like Telegram.
U.S. Trade Representative says Washington still negotiating trade deals after court rules tariffs illegal
Von der Leyen says Europe drawing up 'precise' plans to send troops to Ukraine
Kremlin accuses Europe of hindering Trump’s peace efforts in Ukraine
×