Tesco's new strategy included reducing prices on a number of well known brands, driven by continued downward pressure on prices from deep discount stores. It's not all good news.
[Market Approach] vs [Market Position]
When we analyse business models we look at the consistency between the approach to business and the market position sought. These two aspects are aligned right through the business models of the best businesses.
Deep discounters like Aldi and Lidl seek a Market Position of best value, Tesco's one of supporting and meeting customers' needs, ("Every Little Helps") and Waitrose of high quality.
The discounter's approach has two specific elements, generally absent from the major supermarket's modus operandi, that help them acheive their goal. Those are a) they sell brands you may not have heard of, and b) when they are gone they are gone.
The 'traditional' supermarket model needs continuity of supply. When they choose to compete on a single dimension (price) that their overall approach isn't designed for its inevitable that pressures appear in other parts of their operation. To cope they have sought, perhaps aggressively, to share price pressure along the value chain. The impact of that deeply affects the business models of suppliers . For some, beyond the point of no return.
External influences on pricing like the falling oil price helps, but it helps everyone. (If there is a differential benefit it falls more to those where distribution costs are a higher proportion of turnover)
In the long run the overall food supply model is strained in several places and could break. That may take an external shock, like a sudden rise in oil price or a crop damaging weather event. When a market is strained, as this one appears to be, something quite small can trigger a shift in the whole market environment. It's our view that the risks of that happening are now very high. The danger is that if it does fail, the number and variety of suppliers will shrink significantly and quickly. Any market that moves (catastrophically) to less competition and fewer alternatives tends to see prices rising very steeply.
It's probably in all our interests to care more about the supply chain than we do, and, just a little bit, less about the headline cost.
 - http://bui.st/s/1v
 - http://www.bbc.co.uk/news/business-30841416