Tesco banks on simpler prices to woo shoppers and suppliers
* Supermarket to keep many prices steady for longer
* Move should help to secure lower prices from suppliers
* Tesco and others under heavy pressure from discounters (Adds comments, details, byline)
By Martinne Geller and Paul Sandle
LONDON, Jan 8 (Reuters) - Tesco is betting that a more consistent approach to pricing on hundreds of branded products will enable it to compete better with discount supermarkets, improve relationships with suppliers and direct more shoppers to higher-margin items.
As Britain's No. 1 grocer fights to overcome the biggest crisis in its 95-year-history, it is testing a strategy closer to the everyday low prices offered by discounters such as Aldi who are stealing shoppers from the "big four" supermarket chains.
As part of a larger turnaround plan announced on Thursday, Tesco said it would reduce prices on about 380 branded products by an average of 25 percent.
The lower prices will be consistent, instead of fluctuating with the temporary promotions that have become the hallmark of modern grocery retailing.
"Customers told us they wanted prices which are simple, lower and more stable," said Tesco Chief Customer Officer Jill Easterbrook.
The change may also add transparency to complex relationships with manufacturers, which have come under scrutiny after an accounting scandal last year involving supplier payments.
Smaller makers of undifferentiated goods struggle when retailers agree to pay them a certain price up front, but later ask for rebates and fees for promotions such as temporary in-store displays.
Consistent pricing requires fewer fees and therefore usually results in a cheaper price up front because suppliers can be more certain about what revenues to expect.
"That would be the carrot to persuade them to give Tesco the absolute best price," said Duncan Swift, head of the food advisory group at analysts Moore Stephens.
Tesco and its main rivals, Sainsbury's, Asda and Morrison's, are in an escalating price battle that makes it hard to push higher-margin products.
"Part of their motivation for wanting to get to something simpler is that it clears out some of the clutter and makes it more feasible for the shopper to be guided toward things they ultimately might want more, and be prepared to pay for," said Will Hayllar, co-leader of OC&C Strategy Consultants' consumer goods team.
Tesco said the lower prices would be in all of its store formats from hypermarkets to convenience stores, and would remain for at least three months to gauge customers' reaction.
The cuts range from 6 percent on Marmite yeast extract to 43 percent on Dolmio Bolognese pasta sauce.
Tesco did not say what it expected the impact on sales or profits to be.
(Additional reporting by James Davey in London and Emma Thomasson in Berlin; Editing by Kevin Liffey/Ruth Pitchford)
