Thousands of prices cut - but your shopping still costs more?

Last November, Asda and Tesco started a price war in the lead up to Christmas by announcing they were cutting millions of pounds off prices. Tesco would cut prices by £250m and Asda by £150m. In order to meet their end-of-year profit targets, supermarkets need to entice customers who are likely to spend more in the lead up to the festive period to shop in their store.

However, data provided by third party analysts and published in Saturdays Guardian newspaper has shown that as well as the thousands of cut prices the supermarkets promoted, they also showed thousands of price rises, some of them doubling the price of key purchases. Between 9 and 22 December (the period when most people would do their big festive shop), Asda increased prices on more than 2,000 lines and Tesco on over 1,500.

Whether a shopper was affected positively or negatively is difficult to quantify - it would be dependent on what the shopper bought. The averages of price increases and cuts can also be affected by changes on high value items e.g. if a supermarket cuts the price of a crate of beer in half as a loss leader offering a saving of several pounds, and cuts thousands of other products by just 1p, the number of cuts and the average saving may look attractive but give virtually nothing to those not buying beer.

Both supermarkets denied the claim that they were deliberately forcing up prices in the run up to Christmas, claiming that in the majority of cases it was due to products that had been discounted coming off promotion or by suppliers increasing wholesale prices to the retailer. However, a professor at the Office of Fair Trading suggested that the number and size of the rises showed both Tesco and Asda were using the Christmas period to get as much profit as possible out of people who were too busy to shop elsewhere. He pointed out that rises were targeted at heavy store cupboard goods and holiday essentials - Pepsi (up 56% in Asda), Duracell batteries (up 102.7% in Asda), Nurofen tablets (up 33.3% in Tesco) and Beefeater Gin (up 37.6% in Tesco).

A 5 year study of prices at Tesco, Sainsbury's, Asda and Morrisons conducted by Loughborough University has found the most common price cut among the top 4 supermarkets is just 1p. Although these low cuts might seem pointless and have little impact on the price of someone's shopping, it enables the supermarkets to claim they are cutting the cost of thousands of lines. In actual fact, over the 5 years, these cuts have helped mask large increases in a smaller number of lines which have had a much greater impact on shopping bills. Supermarket behaviour at Christmas in those 5 years has also shown that although they have heavily discounted headline, loss-leading products like alcohol and turkey, they have significantly raised the prices of other goods at the same time.