Changing discounts

Key Findings

There were 17% fewer promotions at the Big 4 supermarkets across a basket of 108 goods in the first three months of 2022 compared to the same period in 2020.
The biggest reduction in promotions came from Tesco, which had 31% fewer promotions per week.
All of Tesco’s offers within our sampled basket are now only available to Tesco Clubcard members. Shoppers with a Clubcard would pay £14.43 less on average for our basket of goods, equivalent to a 8.2% discount.

Introduction

The current rate of inflation is the highest it has been in 40 years, reaching 10.1% in July 2022. Food inflation has rapidly increased over the past year from -0.6% in July 2021 to 12.6% in July 2022. In this context, shoppers are increasingly looking for value for money and one way to do this is to buy items on promotion.

The nature of supermarket promotions has changed markedly during the past two years for a number of factors. For example, during the pandemic it was harder to offer promotions as demand surged for some goods and updating shelf labels can be labour intensive, while Tesco has focused on offering promotions to Tesco Clubcard members.

In this article we explore how price promotions have changed over the last two years.

Promotions in 2020 and 2022

Using web-scraped data collected by an independent price comparison website, we’ve compared offers and prices across the Big 4 supermarkets in the UK: Tesco, Sainsbury’s, Asda and Morrisons.

To reduce the effect of the pandemic we compared price promotions for products in Which?’s cheapest supermarket basket comparing promotions in the first 12 weeks of 2020 (i.e. quarter 1) with the same period in 2022. The analysis is for non-personalised price offers only, and so does not include any additional personalised discounts available to individual consumers through loyalty programmes.

Across all four supermarkets, the average number of non-personalised promotions per week has collectively fallen by 26% over the last two years, 144 in Q1 2020 compared to 107 in Q1 2022.

There were fewer promotions at each of the supermarkets, although the greatest reduction was made by Tesco which had 31% fewer promotions.

The nature of promotions has also changed. For example, a greater share of recent offers by Asda have been multi-buy discounts.

However, the starkest finding is the change in promotion strategy used by Tesco. By Q1 2022, on average all 26 non-personalised discounts per week in the basket at Tesco were exclusive to Tesco Clubcard members.

Basket Prices

To examine the impact on actual prices, we calculate the daily price of the basket of goods at each supermarket. The price of the basket varies substantially from day to day, in part because of temporary promotions. For example, across the twelve weeks in 2020, the lowest price at which the basket could have been bought at Asda was £150.89, the median price was £155.10 and the highest price was £161.71.

Asda was the cheapest supermarket for our basket in 2020. Its median price was more than £10 less than that of each of Morrisons, Sainsbury’s and Tesco. The prices of these supermarkets were very similar in Q1 2020.

However, a very different pattern emerged in Q1 2022, with three notable findings. First, there is a little less variation in the daily price of the basket. This is consistent with there being fewer offers, although in fact the greatest reduction in variation is at Sainsbury’s which had only slightly fewer promotions in Q1 2022 than Q1 2020.

The consistency of Sainsbury’s pricing is likely related to the second finding, which is that Sainsbury’s has become relatively cheaper for our basket of goods. Asda continues to be the cheapest of the four supermarkets, but the gap to Sainsbury’s has narrowed and Sainsbury’s is now cheaper than Morrisons and Tesco. The median price of the basket at Sainsbury’s is £7.30 lower than the median price at Morrisons and £6.92 lower than Tesco’s median price.

However, there is a big caveat to that, which is our third finding — the lowest prices available are for Tesco Clubcard members. Tesco appears to have a clear price discrimination strategy. For members, it is competing on price with Asda. But the premium is considerable for those who can’t or don’t want to join. The median price of our basket is £14.43 lower for Tesco shoppers with a Clubcard, equivalent to a 8.2% discount.

Conclusion

Supermarket promotions have changed over the past two years. There are fewer offers and the nature of the offers has changed. Most notably, all of Tesco’s offers in our sampled basket are now only available to Clubcard members.

Tesco’s strategy seems to mark a departure from the pricing strategies usually seen in the groceries market. Loyalty schemes have been widely used to offer personalised discounts to reward loyal customers, for example Sainsburys with Nectar, Morrisons with MyMorrisons and Asda with Asda Rewards. By making the majority of promotions only available to Clubcard members Tesco might be perceived to be excluding non-members rather than rewarding loyalty.

The benefit to Tesco is that it gains more valuable personal data about its Clubcard customers. Responses to a recent Which? Conversation suggest that while some consumers are uncomfortable with this, others have no concerns or are prepared to set them aside to enjoy the substantial discounts. As food prices continue to rise, more people may come to the same conclusion.

Methodology

The analysis has been conducted using daily price observations for the UK’s four largest supermarkets: Asda, Morrisons, Sainsbury’s and Tesco. The data was web-scraped by an independent price comparison website.

Our basket of goods contains 108 items, based on items in the Which’s cheapest supermarket that are available at all four supermarkets and in both Q1 2020 and Q1 2022. Of these, there are five items for which prices are missing for a total of less than a week and we have imputed the price based on the price before the missing observation.

Promotions are those which have been webscraped as having promotional text and the price has been reduced. Only non-personalised offers are included and promotions where the price remained the same or part of a meal deal/bundle were removed from the analysis.

For the price analysis, the prices used are the shelf prices, which includes price discounts but excludes prices from multi-buys.