How supermarkets can cut 'thousands of prices' but your bills may go up - The Guardian

How supermarkets can cut 'thousands of prices' but your bills may go up - The Guardian

Christmas would not be Christmas without a supermarket price war, and last November two of the leading UK retailers duly kicked off the battle for the nation's festive spend by announcing that they were cutting millions of pounds off prices in their stores.

Tesco said it was cutting its prices by £250m and Asda said it would roll back prices to the tune of £150m.

Persuading customers that they represent better value for money than their rivals, at a time of year when people traditionally increase their grocery spending significantly, is vital to supermarkets meeting their end-of-year profit targets. But it has become almost impossible for shoppers to know what, if anything, the discounts actually mean for them.

The Guardian looked at data provided by third party analysts on thousands of prices in Tesco and Asda between 9 and 22 December, when most people will have done their big Christmas shop. As well as the thousands of price cuts promoted by the supermarkets, we identified thousands of price rises – some of them more than doubling the price of key purchases. The list of increases, taken from information on the supermarkets' online stores which they say is reflected nationally in their shops, is published on our website.

We asked Professor John Bridgeman, who as director of the Office of Fair Trading led official inquiries into the big UK supermarkets, to analyse and interpret the figures for us. The data shows that between 9 and 22 December Asda increased prices on more than 2,000 lines while Tesco upped the price of over 1,500 lines. Bridgeman's view was that the rises we found represented "a systematic, cynical and aggressive attempt to exploit demand over Christmas and force prices up".

The net effect of these rises and cuts on consumer bills is hard for anyone outside the industry to say. Whether you benefited or lost out depends on what you put in your basket over that period. Of the goods that increased, the average price rise in Tesco was 29p on 16 December and 35p on 22 December. In Asda, the average rise on those products going up was 48p over the period. Tesco pointed out that it cut the prices of 2,638 food and non-food products with an average decrease of 54p over the same period and that 180 of these products had their price halved.

Averages for price increases and cuts are difficult to read, as they can be skewed by dramatic changes on high value items. If a supermarket cuts the price of a crate of beer in half as a loss leader, for example, offering a saving of several pounds, and cuts thousands of other products by just 1p, the number of cuts and the average saving may look attractive but give virtually nothing to those not buying the beer. Average price rises may look more or less dramatic for the same reason.

Asda said the majority of price increases we had identified were on products that had been on a four-week promotion that finished before Christmas when they reverted to "their original low price". It said shoppers could now check all its prices against those of its rivals by using online comparison sites such as mysupermarket.com "which proves that Asda has more low prices every single week in 2009" than any other supermarket.

Tesco also rejected Bridgeman's interpretation of the data, saying it was totally wrong to suggest that it had a policy of forcing prices up for consumers in the runup to Christmas. It said the price rises were explained by a variety of factors: in the majority of cases by products that had been discounted coming off promotion in the weeks we checked, or by suppliers increasing wholesale prices to the retailer, or by Tesco changing prices to bring them in line with the market. As some promotions ended, others began.

"The Guardian has used a skewed and unrepresentative sample of products to makes a series of partial and misleading accusations which misrepresent Tesco and the highly competitive market in which we operate. It is wrong to seek to draw broad conclusions from a small number of products," it said in a statement.

Bridgeman accepts that price rises are sometimes a reflection of increased costs from suppliers, but believes the number and size of the rises we have found shows Tesco and Asda using the Christmas period to "extract maximum profit" from shoppers who are too busy to go elsewhere. The rises are targeted, he points out, at heavy store cupboard goods and essentials for the holiday period. He said the Guardian investigation stood out in a field where there was very little independent tracking of supermarkets pricing strategies.

A clearer picture of the impact of supermarket pricing policies should emerge soon from Loughborough University where Paul Dobson, professor of retailing, has been conducting a five-year study of prices at Tesco, Sainsbury's, Asda and Morrisons. His research has found that the most common price cut among the big four is just 1p. Such low cuts that have little impact on the price of a full basket might seem pointless, but introducing small changes on large numbers of goods enables the supermarkets to claim that they are cutting thousands of lines. Over the five years, according to Dobson, these small cuts have been used to mask serious price hikes on a smaller number of lines with a big net effect on bills. "In the big inflationary period of 2008, there were two and a half times the numbers of price cuts in the big four as price rises, but in fact prices overall were rising very rapidly," he told us.

Dobson has also tracked supermarket behaviour in the Christmas period over the five years. He has observed heavy discounting on headline, loss-leading products such as turkey and alcohol, but significant price rises on other goods being imposed at the same time.

"Retailers are happy to tell us about their price cuts but they forget to tell us about the price rises. We keep hearing about a price war but it's the most curious price war I've ever heard of, where you can't detect an overall drop in price levels or a fall in profits."