Battle with discounters affects buying

Scottish food and drink alert as Tesco looks to cut product range

TescoTesco is expected to cut the range of products it sells by a third in order to tackle the discounters who have eaten into its market share.

Some 90,000 products are likely to be cut to around 65,000 to 70,000, enabling the company to cut costs and improve margins.

The likely decision follows warnings – highlighted in Daily Business – that the supermarkets are now looking to focus on those big brand products that they can buy in bulk and which sell in bigger quantities.

The policy will spell potential disaster for speciality food producers which have worked hard to get their ranges stocked by the big four supermarkets.

Dave Lewis, who was brought in from Unilever to take over as chief executive of Tesco last year, has called in consultants to determine what products to sell and which it should ditch.

Tesco, for instance, currently sells 28 tomato ketchup sauces while in Aldi there is just one ketchup in one size. By stocking fewer products Tesco will be able to cut prices and compete with the discounters.

Tesco has hired Boston Consulting Group to decide which products will have to go and they are expected to reduce the number of lines to reduce the number from 90,000 to between 65,000 and 70,000.

Morrisons, Asda and Sainsbury’s, which have not expanded in the same way, stock 20,000 to 30,000 lines.

Figures from retail analysts Kantar World Panel for the 12 weeks up to 4 January, show all the big supermarkets losing sales on the previous year. Sales at Sainsbury’s fell by 0.7%, but in a tough market this was the best performance among the big four supermarkets. Tesco’s sales declined 1.2% while both Asda and Morrisons were down by 1.6%.

The discounters moved in the opposite direction. Aldi and Lidl have grown by 22.6% and 15.1% to finish the year with market shares of 4.8% and 3.5% respectively.

The first warning that the supermarkets would go down this route came from Mr Kipling owner Premier Foods. It is one of the big suppliers and chief executive Gavin Darby said last week that companies like his are likely to get more shelf space as the supermarkets trim their product ranges to focus on the best sellers.

Mr Darby suggested some of the supermarket companies may remove 20% to 40% of their product lines and this will appeal to firms such as Premier Foods which saw quarterly sales drop 4.6% year-on-year as shoppers increasingly switched to the discounters.

Premier Foods itself has ditched slow selling products in favour of its seven top brands: Ambrosia custard, Batchelors, Bisto, Loyd Grossman, Mr Kipling, Oxo and Sharwoods.


See Daily Business comment: 23 January here

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