Sunday, 25 January 2015

The bizarre maths of supermarket price wars.

We know that if supermarkets were simply to agree to charge the same prices, this would be an anti-competitive practice or collusion and against UK law (whether it's a civil or a criminal matter or an administrative one, like fines for not submitting your tax return on time is unclear to me).

But it appears that there is no bar to one supermarket agreeing to match its competitors' prices.

What Tesco do is give you a voucher saying "£X off your next shop. Today your comparable grocery shopping would have been cheaper elsewhere, so here's the difference back." Sainsbury's do much the same IIRC (it's a few weeks since I went to Saiusbury's).

I got one from Tesco for £2.88 today. By force of habit I checked the long receipt to make sure all my multi buy discounts were there and after I'd loaded it into the car, I cross checked my shopping list to make sure I'd bought everything.

I noticed I'd forgotten to buy Dentyl, so I popped back in. Dentyl normally costs £3 a bottle, but they had it on special offer for £1.65, so I bought four.

It strikes me that I actually did myself a favour here; had I remembered to buy Dentyl the first time round, the notional of £1.35 saving per bottle would have been deducted from the notional £2.88 overpayment and I would have got less or nothing on the money off voucher.

So the correct strategy must be, first go in an buy all the stuff at regular prices, maximising the value of your money off voucher, and then do a second round where you buy all the stuff which is on sale, or 3-for-2 or 2-for-1 or whatever.

If there are two of you, you would just put the normal price stuff in one trolley and the special offers in the other trolley and pay separately.

Yes, this adds to the cost and hassle of shopping, but assuming you waste five or ten minutes going round and queuing up again, that still justifies getting an extra couple of quid on your money off voucher, I think.


The Stigler said...

fascinating, yes. It only works for them because on balance, it doesn't work out much different. Dentyl's cheap in Sainsbury's that week, maybe Pepsi is cheaper in Tesco. Buy both and you offset the saving of one with t'other.

If everyone exploited it like you say, Tesco and Sainsbury's would both have to stop it as it would cost too much.

But most people won't do that. They'll think it not worth their time. And then queue up for 15 minutes to save 40p on their petrol instead of going to the station down the road.

Mark Wadsworth said...

TS, there is a time cost to this, saving 40p at a cost of 15 minutes queueing is pathetic.

Saving £5.40 for five minutes extra queuing is clearly worth it, even by my lazy standards.

Dinero said...

I suspect that "Today your comparable grocery shopping would have been cheaper elsewhere, so here's the difference back" is just impresise wording and what they actually do is compare the prices of individual items.

Asda have a simmillar scheme and it is individual items that Asda compare.

Mark Wadsworth said...

Din, I assume that they compare cost of individual items (or at least pretend to) as comparing anything else would be impossible.

So the question is, what happens if Items A and B cost £1 each at lowest price competitor, and Tesco charges 80p and £1,30 respectively?

Do you get 30p off in respect of item B or just 10p off in respect of items A and B together?

I don't know, and there is only one way to find out.

Bayard said...

"there is a time cost to this, saving 40p at a cost of 15 minutes queueing is pathetic."

A penny saved is a penny earned, but if you spend more than 10 mins saving a quid, you are working for less than the minimum wage.

Dinero said...

I just checked the Asda website and its not item by item it is the sum of the tally on "comparable items."

Dinero said...

Actually ita a bit opaque

"If an ASDA Price Guarantee check (a Check) shows that we're not 10% cheaper than our Competitors on your comparable grocery shopping we'll give you a voucher for the difference. Guaranteed!

For a shop to be eligible for the Asda Price Guarantee, you must have bought at least 8 different items which are included in the Asda Price Guarantee, of which at least 1 item must be comparable to an equivalent item sold by our Competitors. If the total cost of the comparable item(s) in your shop isn’t at least 10% cheaper than any of our Competitors, we'll give you the difference by way of a voucher which you can redeem at any of our stores, or online at our home shopping website...."

Make something of that

Bayard said...

"but they had it on special offer for £1.65, so I bought four."

So did you pay £6.60 or £3.72?

Mark Wadsworth said...

Din, of course it's on "the sum"

The only question is, do they net off unders and overs?

In other words, in my example, had I bought the Dentyl with the rest of my shopping, would my money of voucher have been reduced to £zero.

B, that's clearly a trick question, the answer is £6.60.

Four times £1.65 = £6.60.

A K Haart said...

We've noticed that Dentyl often seems to be on offer at the same time in both Tesco and Sainsbury's. Can't tell if it's competition or collusion.

Demetrius said...

You might be interested in checking out detailed information on Triclosan, which seems to be the anti-bacterial. There is a lot of it.

proglodyte said...

If shopping alone, you could compartmentalise your trolley - one bit for offers and the other to claim discount (one lot in a cardboard box salvaged in store). Pay for one and then pay again for what's left.

proglodyte said...

Or, shop at Aldi or Lidl.

Mark Wadsworth said...

AKH, that sounds like collusion. No doubt Shiney can confirm or deny this assumption.

Dem, I'd rather not know, frankly.

P, taken to its logical conclusion, that must be the strategy. I did notice that the young woman in front of me put through half her shopping, then paid, then put through the other half. Maybe she's beaten us all to it.

The nearest Aldi or Lidl is over half an hour's drive from my house, so not a realistic option.

Dinero said...

Well looks like overs and unders would net off in arriving at the sum that is compared with the other stores

Bayard said...

"B, that's clearly a trick question"

It wasn't, honest. I wanted to know if you cashed in your £2.88 voucher that you got on your "previous visit".

Shiney said...

Re promos - its a brand, so they will fund promos NOT the supermarket.

They may be funding both at the same time... perhaps they have some excess stock to clear or a budget for volume sales to hit. Or they may want to use up the promo budget before the end of the year.

Unless its a 'flash sale' the programme would've been agreed months ago.

In which case the supermarkets aren't colluding as the brand owner offers the promo.

Mark Wadsworth said...

B, aha, I tried that but even Tesco isn't that daft. The money off voucher can't be redeemed until the next day. Fair play, I'll redeem it next week.

Sh, thanks as ever for the inside knowledge.

DBC Reed said...

So supermarkets never force suppliers to discount their goods in promotions?"I've seen short-notice order cancellations to try to force suppliers to put goods on promotion" Duncan Swift of Moore Stephens Food advisory group.
Bring back Resale Price Maintenance, the UK's traditional trading arrangement, and redistribute all the supermarket shelves back to the separate high street shops they all came from and which customers are now returning to (where they still exist).We only got lumbered with anti RPM legislation when we joined the fantastically right wing EU.BTW Aren't all these young male immigrants a potential source of profitable production? Just asking.

Graeme said...

DBC, the Resale Prices Act was passed in 1964,well before we joined the European. And given the prevalence of social democrat governments in the EU at that time, you must have a unique definition of "fantastically right wing".

DBC Reed said...

Edward Heath abolished RPM as part of his dubious manoeuvring to get into the EU at all costs. As to the right wing nature of EU; the EU growth and stability pact outlaws Keynesian reflation ; state aid to strategic industries is outlawed by EU competition policy; the EU services directive compels privatisation; the European court of justice rules against collective bargaining.

Shiney said...

@DBCR - I didn't say they didn't force, I just said that effectively, when its a branded product, the chances are the supplier paid. Which would explain why a branded product is on sale at two different supermarkets at the same time - rather than it being overt collusion.

Have you EVER worked for a supermarket supplier? No I thought not.

Its a case of power politics - you really think even Tesco could 'force' Unilever into a promotion.... really?

And for my company's part, we never, ever agree to anything that doesn't work force us at some level. And we're small.

Shiney said...

Correction to last post ...... work FOR us.

DBC Reed said...

Doesn't work for the dairy farmers and they're small suppliers.The consensus on here is that they're too small to matter.

The Stigler said...


The dairy farmers are one of a tiny number of suppliers where the supermarkets take a hit when discounting.

Their problem is oversupply. They worked out how to increase yields, and that gave us lots of milk, but then it gave us too much. so prices fell.

Shiney said...


So what? Irrespective of size, if they aren't competitive they should exit the industry.

And dairy products are what percentage of supermarket sales anyway?

Finally, I was talking branded/packaged grocery products - dairy products are a commodity. Different economics and power-play.... obviously. Arguing for RPM on the basis of a few marginal suppliers from the dairy industry is dumb.

DBC Reed said...

Nobody is proposing that the RPM argument should be based on UK dairy farming.The most significant test case was the 2007 American Supreme Court case Leegin vs PSKS where Leegin supplied quality leather goods then stopped supplying Kay's Kloset because ,contrary to agreement, they were selling the goods at a discount ,making them look dead cheap negating their quality price-premium and messing up the Leegin brand marketing.This court found in favour of Leegin and abolished the old per se prohibition of RPM in the US, cases in future to take into account the rule of reason i.e. is the RPM anti-competitive? China went from the old British situation where RPM was prevalent to a big tightening up of late; it now seems that the rule of reason reigns here too.If your brand commands less than 20% of the market you appear to be able to get away with RPM because the underlying anti-cartel impetus of the new legislation is not compromised by any brand dominanation.Obviously a small brand struggling to establish itself in a market dominated by a limited number of big players could, absent RPM, be squeezed out if the retailers started to sell it for lower and lower prices.It looks like Europe is the bastion of uncompromising opposition to RPM.
If the RPM situation is tricky ,the European dairy industry is nigh-on unfathomable. I went on alarmingly early on about the disaster of competitive free markets in dairy production and the need for old style European intervention.It would appear that there is any amount of European intervention in existence: butter is still cold-stored in intervention and sold when price levels increase. Milk is produced on a quota system and the present low prices have been caused by a European decision to jack up the quotas and to lower prices deliberately.
The answer would appear to be to lower quotas and re-introduce some price stability which was the original object of the exercise.

Graeme said...

DBC, are you sure that having a definition of "right-wing" that would include Jim Callaghan, Dennis Healey, Barbara Castle, Enoch Powell and exclude Edward Heath is a useful definition? You should look at the political compass which includes axes for authoritarianism as well as left/right-wing. You might find it interesting.

Mark Wadsworth said...

G, don't worry, he's just having a bit of a giggle at our expense.

UKIP = anti-EU hence right wing.

Syriza = anti-EU hence left wing.

As to the issue in hand, the EU is a ghastly mix of good and bad, corporatist and free market, socialist and capitalist, whatever and whatever.

Graeme said...

I agree Mark, the EU wants authority without having to set quotas. And they don't want to upset the local markets in France, Spain and Italy. It is like DBC's dream of a return to 50s Britain, but you do it in an outdoors market in sunshine rather than going to join queues in one shop to another under rain.