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Two interesting stories out of the UK about retailers and price…

In one piece, the Evening Standard reports that “As dairy, bread, pasta and meat prices surge on the global markets, Tesco, Sainsbury's and other supermarkets have been forced to put up prices in their stores.

“Asda, however, is planning a high-risk strategy to take a massive hit to its profit margins by absorbing most of the increase known in the trade as ' agriflation'. Sources at the chain, owned by US giant Wal-Mart, admit the company is seriously concerned that its cash-strapped shoppers may feel forced to defect to cheaper rivals Lidl, Aldi and Netto if it passes on too much of the extra cost burden … Analysts said Asda was in a more precarious position than Tesco and Sainsbury's because the public see it as the cheapest of the three, and are more likely to trade down.”

According to the paper, “An Asda spokesman confirmed the policy but declined to say how much of a hit it would take on profits. He added that the store would still be pushing through some price rises where it could. On goods that are less hit by agriflation, such as cosmetics, it would attempt to cut prices.”

Meanwhile, the Guardian Unlimited has a story saying that Tesco CEO Sir Terry Leahy believes that the company should raise its prices in order to deliver “a revolution in green consumption.”

The Guardian writes that Leahy believes business, consumers and government will be forced to make big changes “to move to a low-carbon economy and that could mean prices would have to rise. ‘We have to do this,’ he said.

“Carbon costs have ‘not yet been priced into consumption today’ and business would have to take account of the damage it was doing to the environment,” according to Leahy.

The Guardian continues: “Sir Terry said consumers expected the company to take a lead in helping them follow greener lifestyles and would accept price increases if they could see the value of them. He said Tesco would not be out of line with its rivals because they would have to make similar changes.

“Sir Terry, who has become one of the UK's most outspoken advocates of corporate environmental responsibility, said ‘the global threat from climate change is now clearer than ever’ and warned ‘the whole economy has to change’ for developed countries to cut their carbon emissions by 80% by 2050.”
KC's View:
Interesting juxtaposition, especially because both companies seem to be talking about much the same thing and coming to different conclusions. And yet, both may be right.

It seems to me that at least part of the reason that food costs are going up is that energy and raw materials are increasing…which is what is fomenting the whole green movement to begin with.

The two companies seem to addressing the problem from different directions. Asda is saying that it needs to keep its prices down in order to maintain its low price image, and will cut margins if it has to. Tesco is saying that it isn’t just about price, but quality of life – and that its consumers should and will be able to pay more in order to keep the planet in better shape.

I have no doubt that both companies are sincere in their approaches, and that they will be both steadfast and flexible.

I think that Leahy is right, and that the competition will be forced to charge more in order to create a more environmentally friendly economy. They’ll all be in this together.

And I think Asda will do its best to keep prices down, and that more UK supermarket price wars will result.

At some point, I suspect, the strategies will converge – lower prices where possible, and higher prices where necessary, with plenty of hot competition to go around - and the companies, the customers and the planet will be better off.

I would remind you of something that Michael Sansolo wrote in his column just a couple of days ago:

I saw a powerful example of this during my recent trip to Australia. Sydney’s major morning newspaper reported that about eight percent of Australians were willingly spending more money to sign up for environmentally friendlier energy. The cost for an Australian family opting into this new program ranges from $50 to $400 per year.

Now clearly, eight percent could easily be explained as reaching a small, but committed audience with the financial power to absorb the cost. However, the lesson is just as profound. People are spending more for a cause they believe in.

Smarter sometimes means spending more. But experience tells me that smarter almost always makes sense.