Sainsbury’s has announced that it will introduce a GBP100 million wave of price cuts this autumn.  Following on from a nine-month hiatus, the price war in UK grocery retail seems to be back on. Tesco announced price cuts last week and Sainsbury’s has followed suit by announcing its own cuts on 5,000 product lines. But with a potential price war looming, non-price competition may be equally as important for Sainsbury’s.

Company Profile:

J Sainsbury

Last week’s price cuts from Tesco and the pressure placed on Asda by its parent Wal-Mart to double profits by 2003 seem to have forced Sainsbury’s hand. It would appear inevitable that Sainsbury’s will be forced to go down the long, and potentially unprofitable, route of a price war with the other major retailers.

Timing could hardly be worse either. The announcement by Sainsbury’s comes hot on the heels of “encouraging summer sales”, according to CEO Sir Peter Davis. The prospects for “encouraging future sales” now seem to have slimmed.

Things may not all be bad though. Its recent success has not been built on price competition alone. Although the firm has made GBP150 million worth of cuts already this year, the focus has been as much on quality as on price.

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It is true that Sainsbury’s will need to keep prices competitive with the likes of Tesco and Asda, but with both these chains likely to be highly aggressive in price-cutting, entering into a price war may well erode Sainsbury’s margins without the benefit of gaining market share.

Offering high quality produce at reasonable prices would therefore seem to be the best option for Sainsbury’s. It needs to ensure that prices compare favorably with other supermarkets focusing on quality, and that consumers see a benefit to shopping at Sainsbury’s as opposed to supermarkets that are competing more on price.

Therefore the focus will need to be on the Sainsbury’s brand. The next wave of TV adverts highlighting the price cuts will start this Wednesday. The key will be as much about featuring celebrity chef Jamie Oliver and brand messages as the promotions themselves.

For Sainsbury’s to continue its recent upturn, consumers must associate the chain with quality and an up-to-date product offering. If consumers judge the chain solely on price in future, a costly price war may ensue.

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