Why on earth has Waitrose, the UK Supermarket, started to compete on Price?

We’ve been following the performance of Waitrose, an upmarket UK food retailer (http://www.waitrose.com/), with interest at Wavelength. Over the past few years they’ve done rather well given the economic downturn (see Financial Times, Guardian, Kantar Worldpanel, TNS Worldpanel). The launch of their Essentials range (own brand lines priced just below branded counterparts), ethical sourcing, customer service and store acquisition have been cited as cornerstones of their success. They’re now the fastest growing supermarket in the UK.

This trend is encouraging for brand marketers. Why? In the depths of a recession customers do not appear to make decisions based purely on price. Value based factors also influence the decision-making process.  Waitrose have understood and consistently executed a value based brand position.  Customers get it. In a competitive market customers know what Waitrose stands for – quality.  There’s a clear pecking order. Waitrose rubs shoulders with ‘middle class’ Marks and Spencer (who it has now surpassed in terms of sales based share). It’s positioned slightly above mainstream players like Sainsbury’s and Tesco who position themselves just above Asda and Morrisons who in their turn position above the Aldi and Netto’s of this world.    The clarity and consistency of their value and not price strategy appears to have paid off.  This is why we feel Waitrose performed so well during the recession.

Waitrose recently ramped up their “Price Match” campaign where it promises to match Tesco (a more mainstream / volume player) for price on one thousand everyday products. (Waitrose Price Match)  Now we’re lost. In the depths of a recession some fine tuning of positioning is expected. Why compete on price when a value based strategy has worked so handsomely and market conditions appear to be improving?   Once brands compete on price a downward spiral tends to ensue.  Witness the UK mobile phone industry with the entry of ‘3’. Pursing a price based strategy leaves one main option. Scale the business to spread fixed costs and so drive contribution margin.  Asda (owned by Wal Mart) and Tesco are masters of this art. As part of the John Lewis Partnership Waitrose has some scale. This doesn’t come close to Tesco, Asda etc., though.

We feel this approach will take the Waitrose brand slightly down market. It could confuse its positioning and so its customers. Bad news. It could also force it to lock horns with retail giants such as Tesco. An unenviable task given their scale. We wonder why Waitrose wants to move into the price space when they have competed so effectively on value during tough trading times.  If it isn’t broke why try to fix it….?

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3 responses to “Why on earth has Waitrose, the UK Supermarket, started to compete on Price?

  1. People who shop at Waitrose, and I am one example of it, do so because of the values it presents to its costumers (good service, ethicaly sourced foods, fair trade, organic etc). For that I am willing to pay a premium and refuse to buy at Tescos despite the loyalty points card even if it means my shopping will have less itens in my basket.

    The fact that Waitrose is now comparing itself with Tescos seems to be a bit odd to me as I would not see it as competitors given they appeal to different types of consumers. Waitrose should be worring about M&S, given it shares the same values.

    This “weird” price comparison worries me because it shows that perhaps Waitrose is missing the point by not knowing who their consumers are and what they are asking for. I think soon I will start buying more form M&S

  2. Thank you for writting this article!! This is an argument i had with a coursemate of mine when we saw a price-based advert on TV. My argument was that it was branding suicide and put them in direct competition with Tesco and Asda. Waitrose has always competed successfully based of differentiation and it is this that affords it the luxury to charge the prices they do, trying to bring price leadership into this is a confusion of strategy and in my opinion a huge error.

    On the flip side, my friend’s argument was that for standard branded items they can’t differentiate their offering from that of the other supermarkets so why not compete on price in the hope to snatch a bit of the discount market while retaining their premium offering on their own brand goods. However i think once you start down this road its a slippery slope and a total confusion of brand identity.

    Interestingly, i havn’t seen a price-based advert from them in a while. Perhaps they realised their error?

    • Hi Chris, Thanks for your comments. Yes, we really couldn’t understand why Waitrose moved to price. They had competed so well on value (primarily through quality goods that were ‘reasonably’ prices and excellent service) during the recession. It’s been widely noted in the business press that Waitrose was one of the only supermarkets whose market share grew during the recession (with the exception of Aldi / Lidl at the start until customers churned back to their original supermarkets). This shows a very simple fact. Consumers don’t always look for the cheapest offer. They look for value.

      In terms of your friends argument, if I read your first sentence correctly he’s contradicted himself i.e. “standard brand items”. Differentiation is one of the key reasons organisations’ develop brands. The bottled water market is a good example. Even if Waitrose did want to compete on price I don’t think they have the scale to drive down unit costs in the way Asda etc., can. As you say, they seem to have cooled on the price-based advertising. Maybe it wasn’t required afterall…..

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