This week in pricing: Managing alcohol pricing and the battle of the supermarket brands

Publisher
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Simon-Kucher

Sainsbury’s + Asda = 10% lower prices

Sainsbury’s £14bn tie up with Asda is, according to Mike Coupe Sainsbury’s CEO, all about lower consumer prices. The drive behind the deal is the newly combined buying power that he will pass on to consumers as 10% lower prices on key staples.

Great news for consumers, but the stuff of nightmares for suppliers. Because, to be clear, the only people financing the discount will be the suppliers. There are no big synergies planned by the two supermarkets to deliver cost savings as both businesses will still be run as separate brands.

The really big nightmare for suppliers: when they look more closely at their prices and terms with both Sainsbury’s and Asda and see substantial price differences between the two. The cost of any pricing inconsistency will be instant as the combined group cherry picks the lower of the two. If ever there was a lesson for maintaining pricing consistency in consolidated markets it was this - don’t assume that even your two biggest customers won’t merge.

Consumer gains at the supermarket register wiped out by recent inflation


 

Bordeaux berates makers of plonk

The Bordeaux Wine Council has announced a plan to end claret priced at €3 or less by 2025. The fear is that low priced wines impact Bordeaux’s ‘brand’, both in terms of price image but also in quality standards which cannot be met at those price levels.

This highlights one of the most important but also most difficult tasks for any luxury brand - maintaining price image (and to a degree, perceived scarcity). Whilst not the most obvious comparison, Bordeaux may well have looked at Burberry’s long and difficult journey to take their distinctive check back from the football terraces. That ill-fated journey to allow some product at lower prices set the brand back years and required massive repositioning work (although it is harder to imagine your average football hooligan throwing cut price bottles of St Emillion….)


 

Minimum alcohol pricing goes live in Scotland

From the 31st April, Scottish drinkers will have to pay a minimum of 50p per unit for alcohol, meaning that the price of some strong ciders and lagers will increase by up to 200%. This follows hot on the heels of the UK government’s introduction of a tax on high sugar drinks.

Both policies have an obvious common aim – to tackle problem levels of consumption of products that lead to long term societal issues. However the two policies differ in their execution: one a minimum price and one a tax. From what we know about the price elasticity of these kind of categories, volumes will doubtlessly fall, but revenues will go up (that is to say that both soft drinks and alcohol are price inelastic – not a surprise given that we like them so much their sales need restricting). The big difference between the two policies is where the extra revenue will go. The soft drink producers don’t see any upside, just the downside of lower volumes. The alcohol producers however will see higher revenues on lower volumes. Same aim, different winners.