In what they are referring to as an ‘investment,’ Tesco announced that beginning next week they will begin cutting prices that will equal £500 million over the long term. This is Tesco’s biggest move in a quarter of a century, according to the company’s head of UK operations, Richard Brasher.
Although Tesco will be cutting prices on their own-label by 15% to 20%, they will also be eliminating many of their by-one-get-on-free deals at the same time. It is their intention to reduce waste whilst cutting inflation on foods that are considered to be necessities such as dairy, bread, ham and vegetables.
In addition, there is some amount of controversy over the fact that they will be revamping their Clubcard scheme which earns customers points for pounds spent. Rivals claim that any ‘investment’ Tesco makes by cutting prices will be compensated for in the fact that the company will be paying out less on their rewards programme from late October forward. In 2010 the average reward was approximately £80 per £1,000 spent in Tesco stores. After next month the annual amount will only total between £30 and £40, it is estimated.
Rivals contend that eliminating their double points incentive will in fact save the company as much as £350 million but Tesco maintains that customers will be the net winners in their new scheme for cutting prices. Mr. Brasher stated that the company had been working on this new money-saving scheme for the past half year and that it is not a quick marketing ploy.
Brasher also stated that even with the ‘investment’ of £500 million, the company will still be on track for profits and that shareholders should understand that price cuts would be strictly funded from what he refers to as efficiencies. Analysts tend to concur with Brasher’s assessment that these cuts will not affect their bottom line.
