Tesco Steps Up Price Battle With Instant Brand Match Program

Tesco Plc stepped up a battle with its main U.K. supermarket rivals by introducing a price-matching program that offers immediate discounts, rather than money-off vouchers.

Britain’s biggest grocer will compare the overall cost of branded goods purchased by each customer with what it would have cost at nearest competitors J Sainsbury Plc, Wal-Mart Stores Inc’s Asda and Wm Morrison Supermarkets Plc. If the overall amount would have been cheaper elsewhere, shoppers will get an immediate deduction from their bill.

The program is a break from the common practice of U.K. grocers issuing customers a voucher to spend on their next visit. It may test a sense of investor optimism around the grocery industry spurred by Sainsbury’s announcement last month that it expected to exceed full-year profit estimates and had seen a pause in price cutting by its rivals. Discounting over the last 18 months has contributed to shrinking profit margins at the U.K.’s largest grocers.

The immediacy and ease with which customers will get their money back is “a real game changer," Bryan Roberts, an analyst at Kantar Retail, said by phone.

Tesco’s Brand Guarantee program is available only in larger stores and online. It will compare prices against those of Sainsbury, Wal-Mart Stores Inc’s Asda and Wm Morrison Supermarkets Plc, although not against German discounters Aldi and Lidl, whose growing popularity with shoppers has fueled the price war. The program will include products that are placed on promotion by Tesco’s biggest rivals.

Brand Guarantee isn’t likely to have a “significant impact” on Tesco’s profitability, said Charles Allen, an analyst with Bloomberg Intelligence. “It’s likely that Tesco has only launched this initiative because it’s confident that its pricing is broadly in line with competitors," he said by e-mail.

Tesco shares fell 0.8 percent to 203.25 pence at 9:57 a.m. in London. Sainsbury shares dropped 1.8 percent and Morrison shares were down 1.3 percent.

Before it's here, it's on the Bloomberg Terminal.