Arnold on ethical marketing

CHRIS ARNOLD

Tesco, Asda, Sainsbury and Morrison’s are facing a major crisis, shoppers are cutting back and it seems that the only way they can hold on to customers is to cut prices. In the war between the big four there is a surprise winner – Aldi. But the real losers could be workers in the Third World. Tesco currently (I use that word because we could see a massive change) dominates the supermarket scene. 1/7th of high street spending goes into their pockets and they made £2.8 billion profit last year. The problem with being leader, rather than a challenger brand, is you have to both grow and defend your business. And the last thing Tesco, or any of the others want, is a recession and the resulting price war needed to lure customers back. Food inflation is running at approx 9% and some analysts believe the average family could see their annual shopping bill rise by almost £1000. Combined with rising energy costs, it’s no wonder consumers are tightening their belts. Not surprisingly, the big four are nervous about customers moving over to the ‘pile them high, sell them cheap’ no frill stores like Aldi, Iceland and Lidi – all have seen increases in sales at the expense of the big boys. Aldi has seen a 20% rise and Iceland 15%. Meanwhile M&S has seen a 3.2% decline. In a recession premium products get cut out first and both M&S and Waitrose have seen profits grow due to wealthy times. Tesco and Asda (owned by Walmart) may hate a price war but out of all the supermarkets these two can afford to go the distance. A similar thing happened in the travel market in the 90s. The big boys pushed out everyone else, giving the consumer less choice and a worse deal long term. Tesco have already announced an aggressive series of cuts – 50% off 3000 items, while Asda’s strategy is to sell a wide range of basics, like bread and milk, at just 50p and have even started selling a 2p sausage (I dread to think what’s in it). Sainsbury have their ‘feed the family for a fiver’ campaign and Morrison’s have slashed the price of over 2000 items. Even M&S are pushing a price message. It’s panic all round. These cuts, combined with soaring energy costs (both electricity and fuel) means margins and profits will come under threat. Traditionally that means the supermarkets will pass this down the line to farmers and suppliers. But most are now working on such low margins there’s no way they can cut back. NGOs like ActionAid and War on Want will be watching closely to make sure Third World workers are not the victims. In a recession the triple bottom line – people, planet, profits – becomes rebalanced to just profits. Big companies need to feed the shareholders before the mouths of the hungry. Action Aid’s WHO PAYS? campaign has been very successful in challenging supermarkets to reveal where the discounts on many products were coming from. It asked consumers to ask their supermarket “who is paying the price of the discount?” Within weeks of the campaign launching Sainsbury ran an ad for bananas and stated that they were covering the savings. The campaign has already signed up 42,000 shoppers to a Who Pays loyalty card and has not been popular with supermarkets. Sadly, in a recession low prices rule and ethics becomes an accessory rather than a necessity. The middle class shopper who likes the idea of ethical shopping becomes more pragmatic. The trouble is that many ethical products are more expensive, so out goes the organic vegetables alongside the Fairtrade biscuits and in comes budget packs. By contrast to Third World workers, we westerners are still wealthy, but we’ve come to enjoy such a luxury lifestyle that a small recession makes us feel poor. One positive outcome of growing fuel prices and shopping will be a cognitive change in behaviour. People will drive less, waste less electricity, think more about what they buy and consumerism will reduce (along with landfill). By default, the consumer may finally start to live a more ethical lifestyle. There’s no doubt it’s tough on the high street – there’s a number of retailers like Ilva and Dolcis who have gone broke – and many more predicted to come. Another victim are staff. DSG, owner of Currys/Dixon and PC World are planning to make 1000 staff redundant having also announced that due to bad customer service they are sending almost 20,000 staff on training programmes. After my last experience in Curry’s I’m sure their staff haven’t any training at all. ‘Hopeless’ was the word that came to mind trying to buy anything there. Bad service combined with a recession and a growing trend towards online purchasing, you have to question if they are not already a dinosaur awaiting extinction. The BBC’s Panorama damming documentary on Primark (claiming suppliers were using child labour), followed by an Evening Standard cover about Tesco – TESCO ‘SLAVE LABOUR’ ROW - using sweat shops that pay as little as £7 a week, has not been good PR for either retailer. But in a recession the middle class public can be very fickle – news today, gone tomorrow - and ethics can quickly be parked, giving the retailers a get out. Just leaving deep greens and NGOs to protest. There’s little doubt that times are going to be hard for everyone, especially for small ethical businesses who often struggle as it is and have been dependant on large retailers. As we claw back, many ethical goods will either need to promote their value message stronger – especially those at the premium price end - or face cuts too.