Tesco has grabbed a number of headlines with the launch of its Price Promise at the tills, raising the prospect of an intensifying price war in UK retail. However, a focus on price is just one part of the group’s strategy to improve its UK performance. As today’s (13 March) acquisition of restaurant group Giraffe shows, the retailer also has its eyes firmly on the goal of boosting its in-store appeal. 

Tesco yesterday (12 March) revealed details of its newest price comparison coupon scheme, which will see it transfer its Price Promise promotion across both branded and own-label products from an online to a till-based system.

The move is an extension of its trial of a point-of-purchase voucher system in Northern Ireland that compares the overall cost of a basket of groceries against the same or equivalent products from Asda, Morrisons and Sainsbury’s.

The launch predictably forced a reaction from Asda and Sainsbury yesterday, the latter of which said the promotion was just Tesco “playing catch up”. The UK’s third-largest retailer introduced its own Brand Match comparison scheme in October 2011.

Industry observers, however, have offered a more favourable analysis of the scheme.

Shore Capital analyst Clive Black says he sees the initiative as “another notch of evidence that Tesco UK is as least setting its own agenda, batting from the front foot and so stabilising, which is important and welcome”.

Conlumino analyst Joseph Robinson offered a similar view. He told just-food the scheme comes in response to a market that he says has been characterised by a focus on price.

“It’s interesting that Tesco is focusing on the own brand and fresh assets. If you look at Asda’s scheme, shoppers actually have to log on to the website and enter the receipt number. The beauty of this is that is convenient and it doesn’t take much more effort.”

Price promises, however, are not a new feature of the supermarket landscape. It has almost become a necessary evil for retailers to offer such a scheme and the growth of digital has meant retailers have had to up their game when it comes to offering more convenience in money-back guarantees. A slump in economic confidence among consumers in the UK has resulted in retailers increasingly finding ways of using vouchers and couponing as a way of capturing a greater share in the competitive retail market.

In June last year, Tesco CEO Philip Clarke said vouchering was not a solution to the retailers’ competitive issues and not something they wanted to do in the long term, but at the moment was a necessary requirement. Cue its latest Price Promise.

For Robinson, the launch of this salvo in the supermarket price war by Tesco is about the retailer trying to regain some of the initiative when it comes to pricing.

“We’ve had shoppers trading down to the discounters and Aldi has gained a lot of market share. At the same time we’ve seen similar schemes from Sainsbury’s and Waitrose, which have proved very successful. It is definitely, very much a reactive move and it is directly in response to the success of similar schemes from Sainsbury and Waitrose,” he told just-food.

Tesco is no doubt attempting to trump its rivals with this guarantee. Most rival schemes only offer the vouchers on branded goods which are directly comparable, while Tesco newest scheme offers it on own-label products as well as including discounted and promotional products such as buy-one-get-one-free deals.

Black says the initiative may lead to “all sorts of questions” about the comparability of private label products in particular.

“An Asda own label lasagne equivalent to a Tesco one or a Sainsbury’s Taste the Difference salami to a Tesco Finest* product? What of weight differences, if one prepared product is say 400g at Morrison’s and another 500g at Tesco. Quite how sophisticated the system can be remains to be seen as does whether a wide range of questions and challenges will emerge,” he said in a note.

Tesco’s major problem, however, is not one of price perception, Black suggests.

“We see price comparison and so matching as a measured approach by Tesco UK in trying to extol its value credentials over say another step up in promotions or cuts to prices. The extension of the initiative reflects, to our minds, the greater need reassure customers, given the success of Brand Match for Sainsbury. We believe that work on price comparison also includes Tesco’s learning from The Big Price Drop, the latter of which to us seemed to lead many shoppers to believe that Tesco UK was going more down market rather than offering better value.

“As such, the outcome of the Price Promise is expected to be quite measured to our minds but it may help Tesco UK to retain its customers over attracting new ones.”

If that is the case then the retailer may be less concerned if its rivals were to follow suit by improving their own price offering. Many, of course, already have some form of price guarantee in place, but a step up is always possible.

“Rivals will look to respond,” Robinson tells just-food. “This is essentially a more competitive environment. It’s not just about the competition between the big four, retailers like Waitrose are in this too and the discounters are gaining market share.”

But this renewed focus on emphasising its price credentials is only one prong of the group’s strategy to “build a better Tesco” in the UK.

The firm is also investing significantly in improving its proposition and carving out a more distinct UK offering. 

To this end, the group announced today that it has entered into an agreement to acquire UK restaurant group Giraffe. 

The news follows on the heels of other recent acquisitions, including a 49% stake in coffee shop chain Harris+Hoole and bakery chain Euphorium, and forms part of Tesco’s strategy to develop the space in some of its larger stores and create “even more compelling retail destinations” where customers can meet, eat and drink, as well as shop.

Through these small bolt-on acqusitions, Tesco is looking to leverage the specialist skills of high-growth small-scale niche companies in order to improve its bricks-and-mortar offering.

While the price promice can be viewed as a short-term response to increased competition from other retailers, the strategy to redefine the in-store experience offered is as much a response to increased competition from emerging formats such as convenience and online. Put simply, Tesco intends give consumers a reason to shop at its core store base. 

Whether Tesco’s new Price Promise or its latest acquisition prove winners with customers, will of course be told in time. Industry observers and rivals, however, will undoubtedly be watching with interest to see if there are chinks in the Price Promise armour.