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Retailer responds to organic slowdown with price slash

By Jess Halliday , 08-Aug-2008

UK supermarket Tesco has announced that it is drastically reducing the price of organic produce by up to 25 per cent, in response to feedback from consumers who are feeling the effects of the credit crunch.

Organic food typically comes at a premium, but in recent months consumers have shown less willing to pay the extra in the face of higher prices on basic commodities and general economic downturn. According to retail analyst TNS, demand for organic fresh produce has fallen by 8.1 per cent across all retailers.

The announcement by Tesco that it is slashing its organic prices is a firm signal that the organic market is needing to adjust in order to maintain momentum in the current environment. Tesco has said that it is able to bring about the price reductions since last year’s prices were inflated as a result of flooding in the UK. This meant that there was a shortage of home-grown organic produce; to make up the shortfall more was sourced from Europe and the US, at a higher costs.

“But now with British organic produce available in quantity again the price has come down and Tesco is passing on the saving to shoppers,” it has said.

The new prices are said to be in line with those last seen ten years ago – not two years ago, however. No information has been given about the rates Tesco will be paying its suppliers, and no spokesperson was immediately available for comment.

The move has been cautiously welcomed by the Soil Association, the UK’s organic certifier.

A spokesperson told FoodNavigator.com: "The Soil Association is pleased that Tesco is recognising the ever-growing demand for organic produce, but we hope the supermarket is not passing on the cost-cuts to its suppliers."

Malcolm Pinkerton, an analyst from Verdict, told FoodNavigator.com that he “imagines the savings will be absorbed by Tesco and not by suppliers”; it will always seek the best possible source and demand competitive rates – but not too low.

Tesco’s “aggressive stance” on organic pricing is probably in response to growing demand and competition, he added. For example, the arrival of organic retailer Whole Foods Market in the UK.

On the high street, the big four UK supermarket have embarked on “yet another price war” as they want to be seen as doing all they can to help consumers in the face of high food costs.

“I expect there will be a ripple effect and other supermarkets could adjust their prices too,” said Pinkerton. It remains to be seen, however, whether they will target organic fresh produce like Tesco, or go for differentiation by reducing prices of other organic foods like meat and ready meals.

But he noted that the production costs of organic prepared meals are much higher than for fresh produce; it is easier to take direct advantage of a good harvest and pass on lower costs of produce through to consumers.

It is also not yet evident whether the price reduction will carry through to other organic produce beyond fresh produce, such as chocolate, meat and prepared meals.

Amongst the Tesco organic produce coming down in price are: new potatoes (1.5kg) reduced from ₤1.49 to ₤1.24; asparagus (200g) reduced from ₤2.49 to ₤1.99; broccoli (1kg) reduced from ₤3.49 to ₤2.79; and carrots (1.25kg) reduced from ₤1.79 to ₤1.48.

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