What lessons can be learned from France's price war?

It is no small matter for a manufacturer to overcome  a price war on all its brands, products and stores – but the worst case scenario is to remain passive, said Jacques Dupré, insights director at IRI and author of the report.

France has been experiencing a price war for several years with major retailers pushing aggressive promotions in a bid to retain consumer loyalty.

“There’s no escaping a price war – but there are opportunities for growth... Retailers and manufacturers should work together to make the most of the opportunities this presents, with a shared approach to reviewing ranges, price positioning of products and innovation,” ​he said.

Manufacturers should try to anticipate the effects on sales performances and profitability and making use of promotions, advertising or new size launches.

Lessons to be learned?​

In the UK the price war​​ has focused on driving down the price of private label goods in a bid to counter the rise of hard discounters.

Dupré warned of the dangers of making national brands less attractive, as they remained supermarkets’ main point of differentiation from hard discounters, but he did say that French retailers had managed to stop the advances of hard discounters twice by lowering prices to maintain consumer loyalty.

In a country like Spain that was emerging from economic crisis, a moderate drop in prices could trigger a quicker return to pre-crisis consumption levels.

Meanwhile in Italy current price reductions were encouraging consumers to ‘upgrade’ their purchasing habits, just like in France – that is, re-investing the money saved not by buying more goods but more expensive goods.

“For this phenomenon to have its full effect, deflation must be accompanied by a thorough overhaul of the in-store offering, in particular with the development of an assortment structure which meets this desire to consume again,” ​Dupré wrote.

“A shared ‘manufacturer/retailer’ approach should be employed for this review of ranges, as well as for price positioning of products and innovation.”​

Short-term winners, long-term losers​

The report said that the biggest short-term winner had been consumers, as the war had given then room to manoeuvre and have fun, despite economic difficulties.

But Dupré warned they could end up losing out in the long-run as manufacturers responded to squeezed margins by reducing choice, lowering quality and cutting back on innovation – as was the case in the Netherlands ten years ago.

In an open letter addressed to the French government in April, the president of the National Association of Food Industries (ANIA) and food business leaders warned that this had already happened in France.

“The balance of power has collapsed to the point that the future of the French food chain, including agricultural production and the entire industry… is in real danger.”​

"Budgets for research and development are dwindling, innovations are becoming rarer, investments are reduced and CSR commitments more difficult to finance,"​ wrote the 30 signatories in French.

How much was it worth?​

The actual savings that the price war has generated for French consumers is disputed.

The Federation of commercial and distribution businesses (Fédération des entreprises du commerce et de la distribution or FCD), which represents major French supermarket chains estimates a total saving of one billion euros – or 50€ per household per month.

But ANIA claims that the savings amount to less than €4 per month, a figure in line with IRI’s calculations.

According to British independent price comparison website, mysupermarket.co.uk, the supermarket price war has saved UK shoppers £5 (€7) a week.

Germany's retail landscape is dominated by hard discounters such as Aldi, Lidl and Rewe. Prices there are already so low that the price war is no longer news in itself, the report said.