For at least as long as Asda has been owned by Wal-Mart, there has been an on-going competition between that chain and Tesco over which would be seen by U.K. consumers as having the lowest prices. While there is no real reason to suspect the competitors are calling an end to the price battles, Tesco, in one instance, has chosen not to follow Asda in its cost-cutting ways.
According to a report by The Observer, Tesco chose not to match Asda's price on chicken when that chain lowered the price by 22 percent to "less than a tin of cat food." In fact, when Asda lowered its price, Tesco actually increased what it charges by four percent.
Tesco is hoping that by taking its stand it can establish itself as a seller of healthy chickens that have been humanely treated. According to The Observer, farmers in the U.K. have cautioned that the pressure to sell lower-priced birds make it increasingly difficult to assure the quality of the animals delivered to market.
According to The Observer, Sir Terry Leahy, Tesco's chief executive officer, said he believes that changing priorities mean consumers are going to make purchasing decisions on factors other than the lowest price.
"I believe we're seeing a fundamental shift in the priority that consumers place on food," Sir Terry said at a recent company meeting. "The link between diet and health, interest in cooking, provenance - including local and fair trade - is also not only about affluent customers. The growth in the proportion of our customers buying organics is fastest among less affluent customers. This could be a big long-term positive for the industry."
Count Charles Bourns, chairman of the National Farmers' Union poultry board, among the supporters of Tesco's price increase.
Mr. Bourns told The Observer, "This price hike is the first sign that we're finally coming to an end of cheap food. Tesco has been the first to move and that needs singing from the rooftop. It has resisted the move towards the £2 chicken and is now going the other way. Other retailers will have to follow suit. There are people out there who will always buy £2 chickens, but we can't go on selling chicken for less than the cost of cat and dog food."
While it is routine for retailers in the U.S. to lower prices in response to competitors, the question in the U.K. is whether grocers will reverse themselves and follow Tesco as it raises its chicken price. The other question is if Tesco will begin edging up prices in other categories.
Alex Waugh, director of the National Association of British and Irish Millers, told The Observer, "This is a sign that supermarkets are finally beginning to understand that persistent below-cost selling is not a sustainable practice. It is not even what customers want any more: the market for the cheapest lines has declined for bread by about half in recent years. There is a growing market for quality and fairness where price is not predominant."
Discussion Questions: Is there "a fundamental shift" taking place in how consumers determine which food products to buy? Is price becoming less of a factor while others are rising in importance? What factors other than price do you think are moving up on consumers' purchasing hierarchy list?