Best bits: Sainsbury's strikes back in UK grocery battle

Last Wednesday (5 October), Sainsbury's chief executive Justin King faced questions about the new promotional strategy being pursued by rival UK retailer Tesco.

It was a day when both companies issued an update on their performance in the first half of their financial years. King was relaxed. Sainsbury's, he said, had proved it could compete with Tesco. Sainsbury's, he said, had outperformed Tesco over the last six months. And, much of Tesco's Big Price Drop, he argued, had been seen before and was part of the "cut and thrust of the marketplace".

"There's nothing new in what they've announced that would cause us to do something different," King said. Yesterday, however, Sainsbury's stepped up its own campaign to convince cash-strapped UK consumers that it could offer them value. It wasn't, in truth, something different but it did position Sainsbury's firmly in what is becoming a fierce battle for the attention of the country's deal-chasing shoppers.

This Wednesday, Sainsbury's will roll out Brand Match, its scheme that compares the prices of branded grocery products in its stores and at Tesco and Asda. If a basket of branded items can be found cheaper at its two larger rivals, Sainsbury's gives the consumer a coupon equal to the difference. The programme was launched in August in Northern Ireland (and was "overwhelmingly well received", Sainsbury's says) and will this week be rolled across Sainsbury's supermarkets. It is, according to commercial director Mike Coupe, a "revolution in retail".

Talking to reporters last week, King had indicated Brand Match would not be immediately rolled out, describing it as "another tool we might use" to compete with the likes of Tesco and Asda "but not for now". Sainsbury's has, however, decided to expand the scheme across the country, a move that intensifies the battle in the UK grocery industry.

Tesco's and Sainsbury's results were watched with interest last week. They were announced on the day that UK government GDP figures for the second quarter of 2011 were revised down. The economy grew by 0.1% between April and June. Consumer spending fell 0.8%. While the economy is technically not in recession, for some consumers, it sure feels like one.

And food, long held up as that most resilient of sectors, is feeling the effect. Volumes are down and, while retailers are seeing customer numbers rise, shoppers are putting less in their baskets. 

Tesco's first-half results were reported as its worst in 20 years, with a lot of the focus on the fall in its like-for-like sales in the UK. Overall sales and profits were up, boosted by growth from its international operations. However, analysts were broadly positive about Tesco's strategy in the UK; Shore Capital analyst Darren Shirley said the retailer's domestic business was "moving in the right direction". Tesco CEO Philip Clarke, while well aware of the work the retailer still has to do in the UK, said the retailer was "back on the front foot" in its home market.

A key plank of Tesco's new UK strategy is the Big Price Drop and suppliers have expressed concern about the impact the retailer's new strategy could have on their business. Speaking to just-food, Clarke was keen to point to the support Tesco gives to its suppliers, citing the recent increase in the price it pays its milk farmers. However, he did indicate that some suppliers could be asked to help fund the new promotional campaign.

In recent weeks, one supplier that has apparently enjoyed less than cordial relations with Tesco is the UK's largest, Premier Foods. The company issued a profit warning in June after a delisting of its products by a major customer, believed to be Tesco, hit its half-year profits. On Friday, Premier issued another profit warning, which sent its shares tumbling and prompted the City to ponder the company's future.

But let's end on a brighter note. Last week, data issued by the Food and Drink Federation showed that revenues from UK food and (non-alcoholic drink) exports were up over 13% in the first half of 2011.

This week, UK food manufacturers will be at Anuga, the bi-annual international trade show in Cologne, to try to build their export business. The FDF's figures showed UK food remains in demand by international customers and just-food will be at the exhibition to hear just how the country's exporters - and non-UK food manufacturers - plan to grow in their export markets. Keep your eyes peeled on pages.